More student loan borrowers are getting relief through bankruptcy after Biden policy change

By CNN Newsource

Published July 17, 2024 10:50 AM

By Katie Lobosco, CNN

Washington (CNN) — More student loan borrowers have successfully received debt relief through bankruptcy after the Biden administration implemented a new policy to make the process easier nearly two years ago, according to data released by the Department of Justice Wednesday.

A total of 588 people filed cases seeking student debt discharges through bankruptcy between October 2023 and March — a 36% increase from the prior six-month period.

As of March, a total of 1,220 new cases had been filed since the new federal guidance was put in place.

Of cases decided by the courts during that time, 98% have provided a full or partial student debt discharge.

Previously, a student debt discharge was largely out of reach for people going through the bankruptcy process because — unlike credit card, medical and other consumer debts — borrowers must show that paying off the student debt would cause them “undue hardship.”

Removing that legal requirement would require an act of Congress. But the federal guidance put in place in November 2022 simplified the burdensome process of showing undue hardship and made it easier for government lawyers to recommend to courts that the debt be discharged.

“The results are clear: this guidance has helped make the promise of a fresh start in bankruptcy a meaningful option for individuals weighed down by student loan debt,” acting associate attorney general Benjamin C. Mizer said in a statement.

Some consumer advocates say that even though there’s been an increase in student loan borrowers seeking debt relief through bankruptcy, the number of people doing so pales in comparison to how many may be eligible for a discharge.

In May, Democratic senators Elizabeth Warren and Sheldon Whitehouse urged a government watchdog group to ramp up its education efforts so that borrowers, attorneys, and courts understand the new guidance.

A quarter of a million people with student loans file for bankruptcy each year, said Aaron Ament, president of the National Student Legal Defense Network.

“We are happy to see some progress in addressing a broken system, but successfully supporting a tiny fraction of those borrowers is not a cause to declare ‘mission accomplished’ — it’s a sign of how much work remains,” Ament said.

As the November election approaches, the Biden administration has been eager to show voters how it has relieved student debt burdens for millions of borrowers. Even though the Supreme Court struck down President Joe Biden’s signature, one-time student debt forgiveness program last year, the administration has used other means to successfully cancel student loans for about 4.75 million people.