June 5, 2024

Whitehouse, Warren Urge Bankruptcy Watchdog to Alert Borrowers to New Guidance Simplifying Discharge of Student Loans in Bankruptcy

DOJ and Education Department have worked together to help borrowers obtain student loan relief after filing for bankruptcy - but few borrowers are taking advantage

Washington, DC – U.S. Senators Sheldon Whitehouse (D-RI), Chair of the Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action, and Federal Rights, and Elizabeth Warren (D-MA), Chair of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, have sent a letter to Tara Twomey, Director of the Executive Office for U.S. Trustees, urging the U.S. Trustee Program (USTP) to close the information gap and educate borrowers, attorneys, and courts about new bankruptcy guidance simplifying the process to discharge student loan debt in bankruptcy.

For decades, student debt relief has been largely out of reach for borrowers going through the bankruptcy process.  However, since the November 2022 rollout of a new process for handling these requests, the Department of Justice (DOJ) and the Department of Education (ED) have worked together to help student loan borrowers obtain relief from crushing debt after filing for bankruptcy.

“After years of presuming that no relief was available for crushing student loan debt, borrowers now have options,” wrote the senators.  “The Biden administration has worked hard to enact policy change to help borrowers, but, as the low number of bankruptcy filers seeking student loan discharges shows, DOJ and ED must work harder to encourage borrowers to seek relief—and deliver on that relief when requested.”

Early data on the new guidance has been promising, but there is still significant room for improvement.  In the first ten months of the process, borrowers filed 632 cases seeking to discharge their student loans.  But the number of applications pales in comparison to the number of student loan borrowers struggling with decades-long debt.  Given this data, it is clear that there’s more work to be done to educate borrowers on this new process and encourage borrowers struggling with bankruptcy to seek relief.

The senators noted that the U.S. Trustee Program, the U.S. government’s bankruptcy watchdog, has broad responsibility for overseeing bankruptcy across the United States and can play a powerful role in dispelling the existing perception that student loans are non-dischargeable in bankruptcy, particularly after the implementation of the new process by DOJ and ED, consistent with the Biden administration’s efforts to help borrowers obtain relief from student loan debt.

“USTP should redouble its efforts to educate bankruptcy attorneys, advocacy organizations, bankruptcy trustees, and individuals on how the updated process can benefit borrowers who are crushed by student debt and are contemplating filing for bankruptcy,” concluded the senators.

The senators are requesting information on USTP’s efforts to educate borrowers and others about the process.

Full text of the letter is available here.

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