Student loan borrowers need a better bankruptcy process: Durbin

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  • Biden administration officials have appeared willing to reform the student loan bankruptcy process.
  • But the Ministry of Education continued to oppose debt cancellation claims in court.
  • Senator Dick Durbin said it’s time to rethink bankruptcy law that prevents borrowers from getting relief.

Daniel and Monica Woolley have a student debt of $111,000 which they say they cannot repay.

Despite being employed by the U.S. Postal Service as a mail carrier, Daniel has exhausted his paid time off to undergo knee surgery, and he is still unable to return to work due to complications from the operation, according to a document filed by the Woolleys in March. Monica, his wife, is a salesperson who earns about $2,400 a month and has donated plasma to help pay the bills.

The Woolleys say the cost of daily necessities and health insurance for Daniel’s surgeries has placed significant financial pressure on them. They have filed for debt discharge through bankruptcy because they don’t see their income increasing anytime soon.

“Because of his age and ill health, plaintiffs believe it is reasonably likely that his income will not recover because he will be physically unable to meet the demands of his job as a mail carrier for the U.S. Postal Service,” says the folder. . “Mr. Woolley would show that he has no reasonable prospect of advancement in his profession or increase in income. Plaintiffs would show that their economic prospects will remain the same or deteriorate.”

Just over a month after the Woolleys filed their lawsuit, President Joe Biden’s Education Department filed a response opposing the request for discharge. While this is a common response in this type of legal case, it sets in motion a process that makes it harder for student loan borrowers than people with other types of debt to get relief. by bankruptcy.

Senate Majority Whip Dick Durbin thinks it’s time to reassess this process.

“I also think we need to rethink the provisions of our federal bankruptcy laws that make student loan debt one of the few debts that cannot be canceled in bankruptcy proceedings,” said Durbin in the Senate this week, adding that “bankruptcy should be allowed to be used as a last resort for borrowers who have no other place to turn.”

Biden administration officials have indicated a desire to reform the bankruptcy process for student loan borrowers. But it’s unclear what those reforms would be, or when they would be implemented, meaning borrowers continue to fight the government in court.

“Borrowers facing extreme hardship pay the price”

Much of the reason it’s so difficult to get rid of student debt in court comes down to the “undue hardship” standard, where borrowers must show they can’t maintain a minimum standard of living. , that their situation is unlikely to improve, and that they have made a good faith effort to repay their debt.

But to prove that the difficulties are not easy; very few borrowers seeking relief through bankruptcy were able to provide sufficient evidence to qualify. And as a senator in 2005, Biden expanded that standard to apply to borrowers with private loans.

Biden’s education department acknowledged problems with the process. On Monday, James Kvaal, undersecretary for education, said: “We want to review this policy, and that’s something that’s ongoing. There’s an interagency process for that, it’s not just to departmental discretion, and we’re working pretty hard on that, actually.”

In the past year, however, the department has appealed discharge approvals, including of a borrower who said his expensive cancer treatment prevented him from earning enough money to pay off his debt.

Dan Zibel, vice president and chief counsel of Student Defence, an organization that defends the rights of borrowers, said in a recent statement that “although the Department of Education has publicly acknowledged the problems, to date we We have seen little concrete policy changes and borrowers facing extreme hardship are paying the price.”

Durbin and some of his colleagues have offered legislative solutions. Last year, Durbin and GOP Sen. John Cornyn introduced a bill that would allow borrowers to seek release from their federal student loans after 10 years and remove the undue hardship requirement.

And in late March, 27 Democratic senators said student loan borrowers had to jump an “unnecessarily high bar” to get rid of debt in court, making it “virtually impossible for those unrepresented.”

Do you have a story to share about your student loan bankruptcy? Contact Ayelet Sheffey at [email protected]

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