The Biden administration has reformed its policy for defending student loan bankruptcy discharge cases, clearing a path for the most vulnerable borrowers to truly get a fresh start. But true change won’t come until Congress amends the Bankruptcy Code.
President Biden’s plan to cancel student debt for millions of borrowers may be on ice until the Supreme Court weighs in, but that hasn’t stopped his administration from continuing to use its time in office to help Americans struggling with their loans. Last week, the Justice Department, in partnership with the Education Department, unveiled a policy change designed to make it easier for federal student loan borrowers to clear their school loans in bankruptcy.
Related: Student Loan Bankruptcy Guidelines
Under the new guidelines, debtors who file a separate lawsuit, known as an adversary proceeding, to discharge their student loans will complete an attestation form documenting their expenses, income, age, and so on. The Justice Department’s attorney will use that information to determine whether those things amount to the debtor having an undue hardship. If so, the attorney will recommend a full or partial discharge, depending on where the bankruptcy case was filed.
This policy change is temporary. The president can’t overhaul the Bankruptcy Code. That job is left to Congress. But his administration can revise its approach, which is what’s been done here. But unless lawmakers reform the bankruptcy system, these favorable guidelines can disappear when Joe Biden leaves the White House.
The change is also limited. It only affects Ed-held student loans, i.e., loans that the Department of Education owns. Borrowers with commercially-held FFEL, Perkins Loans, or private student loans will still have to battle the Brunner Test.