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Bankruptcy Court Discharges Student Loan Borrower’s Debt in the Aftermath of New DOJ Guidance

April 25, 2023 

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Bankruptcy Court Discharges Student Loan Borrower’s Debt in the Aftermath of New DOJ Guidance

Borrower attended now-closed for-profit Griffin College over thirty years ago; amassed $78k in student loan debt after borrowing $20k in 1989

A federal bankruptcy court has 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. Latife Neu of Neu Law, PLLC, and Aaron Ament of Student Defense represented Ms. Dodson in the case.  

Dodson is a public school employee in Washington State. She attended Griffin College, a now-shuttered for-profit college in Seattle that closed before she could finish her degree. Ms. Dodson made a good faith effort to pay back her loans after entering repayment in the early 1990s, but financial hardship caused her to miss payments, resulting in late fees and additional interest.  Dodson was granted a bankruptcy discharge in 2014, but federal bankruptcy law prevented her student loans from being discharged in those proceedings.

Late last year, the Justice Department — which represents the Department of Education in bankruptcy proceedings — issued new internal guidance on the handling of these cases. The new regulations are aimed to “ensure consistent treatment of the discharge of federal student loans, reduce the burden on borrowers of pursuing such proceedings and make it easier to identify cases where discharge is appropriate,” according to the agency. 

“This relief is going to be absolutely life-changing for Ms. Dodson,” said Ms. Neu. “We proved that she could never have paid these loans off without serious hardship.  I’m proud to have represented Ms. Dodson in her case and I look forward to helping other borrowers put their student loans behind them.”

Student and consumer rights advocates, including Student Defense, had long called on the Justice and Education Departments to revise their internal guidance on bankruptcy proceedings. In October 2021, Office of Federal Student Aid Chief Operating Officer Richard Cordray testified before congress on the need for reforming the bankruptcy process. “We think that [the bankruptcy process] needs to be reformed and reevaluated and [the Department is] committed to doing that,” Cordray said.

Following months of inaction, in February 2022, advocates called for the Department to issue a moratorium on student loan discharge opposition and appeals. The request drew support from members of Congress, including Senate Judiciary Chairman Dick Durbin, Senate HELP Committee Chairwoman Patty Murray and Senate Majority Leader Chuck Schumer. 

“We’re proud to have fought for these long overdue reforms, and we’re happy to see them in practice,” said Student Defense President Aaron Ament. “For too long, the federal government was fighting borrowers in bankruptcy court based on overly-stringent guidance. We’re hopeful these new policies give more student loan borrowers like Ms. Dodson a chance at a financial fresh start.”

A copy of the final judgement and order can be found here.