In their letter, the Senators asked the agencies what steps have been taken to change federal policies regarding challenging student borrowers who seek bankruptcy relief
(Washington, D.C.) – U.S. Senator Patty Murray (D-WA), Chair of the Senate Committee on Health, Education, Labor, and Pensions (HELP); U.S. Senate Majority Whip Dick Durbin (D-IL), Chair of the Senate Judiciary Committee; and U.S. Senate Majority Leader Chuck Schumer (D-NY) today led 24 U.S. Senators in sending a letter to Secretary of Education Miguel Cardona and Attorney General Merrick Garland requesting an update on efforts to improve how the agencies handle undue hardship claims by student borrowers in bankruptcy proceedings.
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.
“The undue hardship exception (11 U.S.C. 523(a)(8)) currently serves as the only option in the bankruptcy code for discharge of student loans, and that exception has been narrowly construed by most courts. The federal government’s aggressive litigation challenges against students who pursue undue hardship claims further exacerbates this situation… All too often, [Department of Education] ED and [Department of Justice] DOJ oppose undue hardship discharges in adversarial bankruptcy proceedings, requiring debtors to effectively demonstrate a certainty of hopelessness before they can obtain relief. Clearing this statutorily unnecessary high bar is challenging enough for individuals who are represented by experienced attorneys. It is virtually impossible for those without representation,” the Senators wrote.
In today’s letter, the Senators called on Secretary Cardona to follow through on his public statement that the Department of Education would change the Department’s approach to “undue hardship” claims to make it a more attainable option for discharging student debt in bankruptcy. The Senators also called on the Department of Education to promptly release a long-awaited update to guidance it issued in 2015 on handling undue hardship claims, and asked if the Justice Department has issued guidance to its attorneys to carry out the Department of Education’s directive to pause active bankruptcy litigation while the policy changes are implemented.
“While a bipartisan effort is underway in Congress to reform the bankruptcy code’s treatment of student loans, changes to administrative policies related to undue hardship are also necessary and long overdue… Will ED promptly issue an update to its 2015 guidance on undue hardship adversary proceedings to make it simpler and fairer for borrowers who have demonstrated legitimate hardships to receive a discharge?” the Senators pressed.
The Senators also questioned DOJ on what steps had been taken to inform student borrowers currently in the midst of bankruptcy proceedings that they could pause their litigation so as to benefit from policy changes the Department of Education implements around “undue hardship.”
“Secretary Cardona also revealed that ED has asked DOJ to pause any active bankruptcy litigation if the student borrower wishes, in order to ‘ensure that every borrower can benefit from these changes.’ Has DOJ issued guidance to its attorneys handling active bankruptcy cases consistent with ED’s request that stays be available to borrowers? What public outreach has ED or DOJ done to ensure that borrowers and their legal representatives are aware of the option for a stay?” theSenators asked.
“We look forward to working with ED and DOJ to promptly implement the goals articulated by Secretary Cardona and to help bring clarity, fairness, and cost-effectiveness to the federal government’s approach on undue hardship claims,” the Senators concluded.
In addition to Durbin, Murray, and Schumer, U.S. Senators Sheldon Whitehouse (D-RI), Chris Van Hollen (D-MD), Sherrod Brown (D-OH), Jack Reed (D-RI), Maggie Hassan (D-NH), Mazie Hirono (D-HI), Alex Padilla (D-CA), Ron Wyden (D-OR), Bob Casey (D-PA), Ed Markey (D-MA), Richard Blumenthal (D-CT), Tina Smith (D-MN), Raphael Warnock (D-GA), Elizabeth Warren (D-MA), Tim Kaine (D-VA), Tammy Duckworth (D-IL), Cory Booker (D-NJ), Brian Schatz (D-HI), Patrick Leahy (D-VT), Amy Klobuchar (D-MN), Bob Menendez (D-NJ), Ben Ray Luján (D-NM), Angus King (I-ME), and Jeff Merkley (D-OR) signed the letter.
Find a copy of the letter here and below:
March 31, 2022
Dear Secretary Cardona and Attorney General Garland:
We write to request an update on efforts by the Department of Education (ED) and Department of Justice (DOJ) to change how the agencies handle undue hardship claims by student borrowers in bankruptcy proceedings.
Over the past several decades, Congress and the courts have together nearly eliminated bankruptcy as a viable path towards financial recovery for most Americans struggling with student loan debt. The undue hardship exception (11 U.S.C. 523(a)(8)) currently serves as the only option in the bankruptcy code for discharge of student loans, and that exception has been narrowly construed by most courts. The federal government’s aggressive litigation challenges against students who pursue undue hardship claims further exacerbates this situation.
Last month, in In re Wolfson, ED withdrew its appeal of a bankruptcy court decision to discharge nearly $100,000 of student loan debt held by an individual with a serious disability.[1] We are pleased that ED changed course in the Wolfson case and decided not to spend taxpayer dollars attempting to force this individual to continue shouldering crushing debt. Unfortunately, this case has been an exception to the standard practice. All too often, ED and DOJ oppose undue hardship discharges in adversarial bankruptcy proceedings, requiring debtors to effectively demonstrate a certainty of hopelessness before they can obtain relief.[2] Clearing this statutorily unnecessary high bar is challenging enough for individuals who are represented by experienced attorneys. It is virtually impossible for those without representation.
While a bipartisan effort is underway in Congress to reform the bankruptcy code’s treatment of student loans, changes to administrative policies related to undue hardship are also necessary and long overdue. We appreciate the public acknowledgement of this problem by members of this Administration, and we were encouraged specifically to see Secretary Cardona’s March 9 announcement that ED is “working to change [its] policies so that bankruptcy is an option for those struggling with student debt.”[3]
As ED works to make those policy changes, we ask you to answer the following questions:
- Will ED promptly issue an update to its 2015 guidance on undue hardship adversary proceedings to make it simpler and fairer for borrowers who have demonstrated legitimate hardships to receive a discharge?[4] We urge you to do so, and request that such updated guidance do the following, at minimum:
- Identify situations of disability or financial adversity where ED will stipulate that, when presented with satisfactory documentation of the situation, the borrower should qualify for a determination of undue hardship;
- Avoid forcing student debtors to incur additional costs by providing that ED will accept from the debtor satisfactory documentation of undue hardship without engaging in formal litigation discovery;
- Indicate ED’s preference for the “totality of the circumstances” interpretation of undue hardship, rather than the so-called Brunner test; and
- Acknowledge that a borrower’s participation in an income-driven repayment plan does not preclude a claim of undue hardship.
- Secretary Cardona also revealed that ED has asked DOJ to pause any active bankruptcy litigation if the student borrower wishes, in order to “ensure that every borrower can benefit from these changes.”[5] Has DOJ issued guidance to its attorneys handling active bankruptcy cases consistent with ED’s request that stays be available to borrowers?
- What public outreach has ED or DOJ done to ensure that borrowers and their legal representatives are aware of the option for a stay?
We look forward to working with ED and DOJ to promptly implement the goals articulated by Secretary Cardona and to help bring clarity, fairness, and cost-effectiveness to the federal government’s approach on undue hardship claims. Thank you for your attention to this matter, and we look forward to your prompt response. Thank you.
Sincerely,
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[1] Vince Sullivan, “Student Loan Discharge Appeal Dropped in Delaware Court,” Law360 (Feb. 11, 2022), https://www.law360.com/articles/1464581/student-loan-discharge-appeal-dropped-in-delaware-court.
[2] Danielle Douglas-Gabriel, “Education Dept. shows limits of pandemic relief by fighting borrowers in bankruptcy,” Washington Post (July 17, 2021), https://www.washingtonpost.com/education/2021/07/17/education-department-bankruptcy-policy/.
[3] Cardona, M. [@SecCardona]. (2022, March 9). Twitter. https://mobile.twitter.com/SecCardona/status/1501646447103643655
[4] Office of Federal Student Aid, “Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings.” The Department of Education, July 7, 2015.
[5] Cardona, M. [@SecCardona]. (2022, March 9). Twitter. https://mobile.twitter.com/SecCardona/status/1501646447103643655
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