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Discharging Student Loans in Bankruptcy

The U.S. Department of Education issued updated policy guidance in November 2022 surrounding the Department’s approach towards student borrowers seeking to have their student loans discharged in bankruptcy court. The changes follow years of advocacy by Student Defense and other experts, advocates, and members of Congress.

Prior to issuing new policy guidance, the Department was actively opposing borrowers in bankruptcy and seeking appeals of discharge decisions that favored borrowers. Many of these borrowers had already received relief for other types of debt through the bankruptcy process, but those claims are not allowed to include student loan discharges according to federal law. This left borrowers facing additional litigation to attempt to have their student loans discharged, including single mothers and cancer patients

Student Defense has aggressively advocated for student borrowers who find themselves facing Department opposition to their student debt bankruptcy proceedings. In June 2021, Student Defense published The Missing Billion, which examined the disparate treatment individual borrowers faced from the Department in bankruptcy court compared to the agency’s lax enforcement against for-profit colleges and executives with outstanding liabilities owed to the government. 

In July 2021, Cardozo School of Law Professor Pamela Foohey co-published a legal essay with Ament and Student Defense Vice President & Chief Counsel Dan Zibel in the Minnesota Law Review that examined administrative reforms related to student debt bankruptcy discharges. And in 2022, Student Defense joined a group of student and consumer advocacy organizations calling for a moratorium on new Department-led opposition of student loan bankruptcy opposition until new guidance was issued. 




Timeline: The Fight for a Fairer Student Loan Bankruptcy Policy

March 14, 2020: President Biden — then a candidate — first pledged to supportstudent loans being eligible for discharge in bankruptcy. Prior to receiving the endorsement of Senator Warren in March 2020, Biden said “I’ve endorsed Elizabeth Warren’s bankruptcy proposal, which ... allows for student debt to be relieved in bankruptcy and provides for a whole range of other issues.”  

June 24, 2021: Student Defense published The Missing Billion, a report highlighting how the Department had failed to collect on debts owed by predatory for-profit colleges, while continuing to take hardline stances against distressed borrowers seeking student loan discharge who had already been declared bankrupt for other types of debt. 

July 17, 2021: The Washington Post published an article detailing the stories of several student borrowers seeking to discharge their student loans in bankruptcy that the Biden Department of Education was still opposing. 

July 17, 2021: Cardozo School of Law Professor Pamela Foohey, Aaron Ament and Daniel Zibel published a legal essay in the Minnesota Law Review entitled Changing the Student Loan Dischargeability Framework: How the Department of Education Can Ease the Path for Borrowers in Bankruptcy. Among the administrative reforms, the essay proposed that the Department take a presumptive position of “no contest” in individual bankruptcy cases and standardize and streamline the Department’s undue hardship discharge criteria. 

August 3, 2021: Senator Dick Durbin (D-IL) held a Senate Judiciary Committee hearing to examine ways to lower the barrier to discharging student loans in bankruptcy. At the hearing, he introduced bi-partisan legislation with Senator John Cornyn (R-TX).

October 27, 2021: Federal Student Aid Chief Operating Officer Rich Cordray testified before Congress that the agency would work with the Department of Justice to revise how it approaches undue hardship cases. “The process doesn’t work well. It needs to be reformed … and we’re committed to doing that," said Cordray. “There have been discussions already with the Justice Department. They, too, are willing to have us revise our approach."

January 14, 2022: A bankruptcy judge in Delaware granted a discharge of approximately $100,000 to Ryan Wolfson — a student borrower with epilepsy who was unable to work full-time — over the objections from the Department of Education. On January 24, 2022, the Department filed an appeal of the Wolfson decision, throwing cold water on the borrower's fresh start. After advocates decried the move, the agency announced via Twitter that it was withdrawing the appeal.

January 25, 2022: A bankruptcy judge in Alabama granted a discharge of approximately $111,000 to a borrower who had been otherwise granted relief through the bankruptcy court. The borrower is a single mother of three, and the Department had previously asserted that her 13-year old son (i.e. middle school aged) would soon be old enough to get a job to help pay expenses. The borrower had previously won relief, but in 2019, the Department asked for reconsideration. That process took until January 2022, when the judge again ruled in favor of the borrower. On February 8, 2022, the Department appealed. After advocates and the press again raised the issue, the Department withdrew the appeal.

March 7, 2022: A bankruptcy judge issued a stay in the case of Heather Smart, a cancer patient who filed for bankruptcy and was seeking discharge of her student loans. The Department of Education opposed an undue hardship discharge of her student loans. In June 2022, the judge denied her request for a further stay and she was forced to dismiss her case, citing trouble obtaining documentation, as the Department continued to oppose the discharge. 

September 1, 2022: Senator Warren sent another letter to Attorney General Merrick Garland asking about updates on the revised guidance that the administration has been saying would be released and asking several additional questions. 

October 18, 2022: Student Defense and Neu Law filed a lawsuit against the Department of Education on behalf of Zena Dodson, a financially distressed former student of for-profit Griffin Business Business College, who is trying to make ends meet as a Seattle-area public school employee while supporting her granddaughter.  

April 21, 2023: A federal bankruptcy court discharged more than $78,000 of federal student loan debt under newly implemented guidance from the Department of Education and the Department of Justice. Zena Dodson was granted relief for loans that totaled just $18,955 when she borrowed the funds in the late 1980’s, but which had quadrupled in the three decades since then.