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Advocacy Groups Call for Moratorium on Department of Education Opposing, Appealing Student Debt Bankruptcy Discharges

February 10, 2022

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Advocacy Groups Call for Moratorium on Department of Education Opposing, Appealing Student Debt Bankruptcy Discharges

A broad coalition of student and consumer advocacy organizations sent a letter to the Department of Education today calling on the agency to pause all efforts to oppose or appeal student debt discharges in federal bankruptcy court.

The advocates point to a recent bankruptcy case, Wolfson v. Department of Education, where the Department appealed a Delaware bankruptcy court ruling discharging more than $100,000 in student debt for the 35-year-old plaintiff. After the ruling, the Department filed a motion to appeal, attempting to throw cold water on the borrower's fresh start. The agency only withdrew the appeal after student rights advocates decried the move, citing their ongoing work surrounding these issues. The Department subsequently walked back a similar appeal in another bankruptcy case earlier this week.

“Recent filings in the Wolfson v. Department of Education case suggest that the Department is both moving slowly to implement its commitment and does not have a complete grasp on the cases currently pending,” the advocates wrote. During an October 2021 legislative hearing, Richard Cordray, Chief Operating Officer of the Office of Federal Student Aid, said the Department was working to reform their practices around student debt bankruptcy discharges. The Department, however, continues to fight financially distressed students in court.

“Withdrawing opposition to individual student debt discharges based on media pressure isn’t a solution,” said Student Defense Vice President and Chief Counsel Dan Zibel. “The agency is essentially playing whack-a-mole with struggling families’ finances. Instead of caving in on isolated cases, the Department should place a moratorium on student debt discharge opposition and appeals until they can implement a new policy that flips the burden of proof off of the borrower.”

In mid-July 2021, Cardozo School of Law Professor Pamela Foohey, Aaron Ament and Daniel Zibel published a new 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. 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.

“The stubborn commitment to this flawed policy is contrary to the Department’s mission of protecting students from fraud and ensuring higher education is a launching point, not a stumbling block, for students’ financial mobility,” the advocates argue in the letter. “We ask the Department to immediately cease its practice of opposing and appealing student debt discharges in bankruptcy court and instead shift its focus and resources towards issues that go further to protect students.”

A full copy of the letter can be found on the Student Defense website.