November 17, 2022

Durbin Statement on Release of DOJ Guidance on Discharging Student Loans in Bankruptcy

WASHINGTON – U.S. Senate Majority Whip Dick Durbin (D-IL), Chair of the Senate Judiciary Committee, today released the following statement after the Department of Justice (DOJ) issued new guidance to Assistant U.S. Attorneys on the handling of undue hardship claims by student borrowers in bankruptcy proceedings: 

“For too long, Americans struggling with student loan debt have been effectively unable to use the bankruptcy system to seek a path to financial recovery.  That needs to change. Today’s guidance from the Departments of Justice and Education will help.  This guidance will provide a clearer roadmap for student debtors to obtain federal student loan relief through the existing ‘undue hardship’ exception in bankruptcy law.    

“For years, I have urged that certain objective criteria be used to create a presumption of undue hardship. I appreciate that this guidance includes several of these important presumptions.  I hope that more struggling students will be able to achieve meaningful relief as a result of this guidance.  

“But Congress must do its part and pass the FRESH START Through Bankruptcy Act to restore the ability of student debtors to seek discharges of student loans like nearly every other type of unsecured debt.” 

DOJ’s guidance implements a new process that will help ensure transparent and consistent expectations of student loan debt in bankruptcy; reduce the burden of debtors pursuing such proceedings; and make it easier for DOJ attorneys to identify cases where discharge is appropriate. DOJ has newly advised Assistant U.S. Attorneys to assess undue hardship factors in terms of present ability pay, future ability to pay, and good faith efforts to pay off the loan by earning income and managing expenses. After weighing these factors, DOJ will determine whether to recommend a full or partial discharge of the applicant’s student debt.

More than 45 million Americans hold more than $1.7 trillion in student loan debt, and cumulative student loan debt is the second largest category of consumer debt after mortgages. While most forms of debt can be discharged through the bankruptcy process, student loan debt is currently treated as non-dischargeable except in extremely rare cases of undue hardship. The term “undue hardship” has been interpreted by courts to establish high hurdles for borrowers to meet – a challenge made even more difficult by federal agency policies that encourage aggressive challenges in bankruptcy court when student borrowers bring undue hardship claims.

In March, Durbin explicitly called on the Department of Education (the Department) and DOJ to update federal policies to aid in student borrowers in seeking relief in bankruptcy. In the letter, Durbin called on Secretary of Education Miguel Cardona and Attorney General Merrick Garland to change the Department’s approach to undue hardship claims to make it a more attainable option for discharging student loans in bankruptcy while urging the DOJ to issue guidance to its attorneys to carry out the Department’s directive to pause active bankruptcy litigation while policy changes are implemented.

Durbin has long been an advocate for widespread student debt relief. In August 2021, Durbin introduced the bipartisan FRESH START Through Bankruptcy Act, which would restore the ability for struggling borrowers to seek a bankruptcy discharge for federal student loans after a waiting period of ten years. Unlike most other types of debt, student loans are not dischargeable in bankruptcy except in rare circumstances.

In August 2021, Durbin chaired a Senate Judiciary Committee hearing, entitled “Student Loan Bankruptcy Reform,” on reforming bankruptcy laws to allow student loans to be discharged. During the hearing, a former student of for-profit college Ashford University testified about the financial toll of their more than $120,000 in student loans.   

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