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Justice Department Rolls Out New Process to Discharge Student Loan Debt in Bankruptcy

court scale with bookThe Biden administration wants to make it easier for federal borrowers to discharge their student loan debt by clarifying the criteria needed.

11/18/2022 1:30 P.M.

1.5 minute read

New guidance from the U.S. Department of Justice related to discharging federal student loan debt in bankruptcy aims to make the process “better, fairer [and] more transparent,” according to Associate Attorney General Vanita Gupta.

Until now, student loan borrowers hoping to discharge their loans through bankruptcy had to demonstrate that they would suffer “undue hardship” unless the debt is discharged—a murky requirement that is often difficult to prove. As part of the undue hardship analysis, courts reviewed the borrower’s past, present and future financial circumstances.

“Congress may have set a higher bar for granting student loan discharges during bankruptcy, but in practice, that bar has become very difficult for deserving borrowers to clear,” Under Secretary of Education James Kvaal said in a statement.

The new process will leverage U.S. Department of Education (DOE) data and a new borrower-completed attestation form to assist the government in assessing a borrower’s discharge request, according to a press release. The Justice Department, in consultation with the DOE, will review the information, apply the factors that courts consider relevant to the undue-hardship inquiry and determine whether to recommend that the bankruptcy judge discharge the borrower’s student loan debt.

“The new process will also help borrowers who did not think they could get relief through bankruptcy more easily identify whether they meet the criteria to seek a discharge,” according to the guidance.

The associate attorney general distributed guidance outlining the new process to all U.S. attorneys. Both the Justice Department and DOE will assess the effectiveness of this guidance after the first year.

Last week, the U.S. Court of Appeals for the 8th Circuit extended a block on the Biden administration’s student loan forgiveness plan in response to a lawsuit from six state attorneys general challenging the plan. The Justice Department is appealing the judge’s decision.

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