According to several Democratic senators, an increasing number of student-loan borrowers are making use of an enhanced mechanism that enables them to erase their debts in bankruptcy court. Last year, the US administration released new directives that seem to work to this end. And it appears achievable because, as prohibiting students from borrowing from the US like it was an injustice, lawmakers have obtained recent figures that show a trend of increasing numbers of persons who have borrowed while these amendments have been in effect.
A letter about new bankruptcy regulations was addressed by Senators Elizabeth Warren and Dick Durbin and their colleagues Raphael Warnock and Sheldon Whitehouse to the Departments of Justice and Education. In the past, it has been difficult, if not impossible, to discharge student loans in bankruptcy, and in such cases, borrowers had to demonstrate ‘undue hardship.’ This meant that in a hardship situation the person would have to prove to the court that they have children, cannot afford a minimal standard of living, unlikely to get better situations, and have tried to pay their debt but it has been in vain.
To tackle these issues, the administration came up with the guiding principles in November 2022, which worked, among others, to elaborate on undue hardship provisions and incorporate a self-attestation form. This new policy allows for the processing of these types of requests more quickly and with no respective in-house investigations.
The newly released data shows that about 900 borrowers this updated process have used in less than eight months of the fiscal year 2024, thus making the overall figure 1,520 since that guidance took effect. This is in relation to the report which the Justice Department made in July that indicated that there was an increase of 36% in the number of new cases commenced between October 2023 and March 2024.
The correspondence cited that 85% of the borrowers, who sought the new instruction, received either a full or partial cancellation of their loans. The policymakers recalled that borrowers had long been prisoners of their student loans, convinced that no bankruptcy would free them from such shackles. They underscored the importance of raising awareness and providing education to eligible borrowers, their counsel, and other assisting organisations.
There is still some progress, however, the process is very slow. More information has been sought by the lawmakers on what and how the agencies are advising the borrowers regarding how to proceed with the bankruptcy principles and current status of cases, once filed. Furthermore, a bill has also been presented which seeks to make ruin easier for those who have student loans. On September 30, Rep. Jerry Nadler reproposed the Student Borrower Bankruptcy Relief Act of 2024 which seeks to eliminate the unsupported hardship one has to prove in court so as to relieve students of this legal burden. Nadler argued that the legislation was critically important in combating the widespread inequality caused by student debt endured by millions of Americans.
