- More people with federal student loans have been able to eliminate their debt in bankruptcy court due to a Biden administration policy change announced last November.
- In the first 10 months of the new policy, student loan borrowers filed more than 630 bankruptcies, a “significant increase” compared to recent years, the government said.
President Joe Biden delivers remarks on the student loan forgiveness program in October. 17, 2022.
Leah Millis Reuters
More people with federal student loans have been able to eliminate their debt in bankruptcy court due to a Biden administration policy change announced last November.
In the fall of 2022, the US Department of Education and the US Department of Justice issued Updated bankruptcy guidelines To make it easier for distressed borrowers to have their student loans canceled in court. Previously, it was difficult, if not impossible, for people to discharge their educational debt in regular bankruptcy proceedings.
“I am pleased that our one-year review indicates that our efforts have made a real difference in the lives of borrowers,” he said. Assistant Public Prosecutor Vanita Guptain a statement on Thursday.
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In the first 10 months of the new policy, student loan borrowers filed more than 630 bankruptcies, a “significant increase” from recent years, the departments said.
“The vast majority of borrowers seeking relief from their debts received full or partial relief,” they said.
Outstanding student debt in the United States exceeds $1.7 trillion, and about 7% of student loan borrowers have a balance of more than $100,000. Even before the COVID-19 pandemic, about 10 million borrowers were in delinquency or default.
Student loans have long been treated differently than other types of debt in bankruptcy courts, drawing criticism from legal experts and consumer advocates.
In 2018, Federal Reserve Chairman Jerome Powell said he was “at a loss to explain” why student loans could not be repaid in bankruptcy. Powell also warned that higher debt could slow economic growth over time.
The difficulty of repaying student loans in bankruptcy dates back to the 1970s, when lawmakers Added condition Student loan borrowers must wait at least five years after repayment begins to file for bankruptcy. The move was in response to concerns raised by policymakers and critics that students would rack up a bunch of loans and then try to get rid of them after graduation.
Mark Kantrowitz, a higher education expert, said these concerns are greatly exaggerated.
“Only borrowers in severe financial difficulties would seek to have their debts written off,” Kantrowitz said. “A bankruptcy discharge destroys your credit score for seven years, preventing you from obtaining credit cards, car loans and mortgages.”
However, in 1990, Waiting period He was up to seven years old. The rules changed again about a decade later, requiring people with federal or private student loans to prove that their debt is a burden.Undue hardship“To do so. But Congress never clarified what the term meant, and attorneys and attorneys complained that the uncertainty led to unfairness in the courts.
“The new policy represents a softening of the harsh stance on federal student loan repayment,” Kantrowitz said. He added that courts are now moving in the direction of “treating student loans like other debt.”
