Wyden, Merkley, Colleagues Call on Department of Education, DOJ to Follow Through on Pledge to Improve Handling of Student Debt Bankruptcy Claims
In their letter, senators asked the agencies what steps have been taken to change federal policies regarding challenging student borrowers who seek bankruptcy relief
Washington, D.C. – U.S. Senators Ron Wyden and Jeff Merkley have joined colleagues in asking the federal Departments of Education and Justice for an update on efforts to improve how the agencies handle undue hardship claims by student borrowers in bankruptcy proceedings.
“The undue hardship exception (11 U.S.C. 523(a)(8)) currently serves as the only option in the bankruptcy code for discharge of student loans, and that exception has been narrowly construed by most courts. The federal government’s aggressive litigation challenges against students who pursue undue hardship claims further exacerbates this situation,” the senators wrote in their letter this week to Secretary of Education Miguel Cardona and Attorney General Merrick Garland. “All too often, [Department of Education] ED and [Department of Justice] DOJ oppose undue hardship discharges in adversarial bankruptcy proceedings, requiring debtors to effectively demonstrate a certainty of hopelessness before they can obtain relief. Clearing this statutorily unnecessary high bar is challenging enough for individuals who are represented by experienced attorneys. It is virtually impossible for those without representation.”
More than 45 million Americans hold more than $1.7 trillion in student loan debt, and cumulative student loan debt is the second largest category of consumer debt after mortgages. While most forms of debt can be discharged through the bankruptcy process, student loan debt is currently treated as non-dischargeable except in extremely rare cases of “undue hardship.” The term “undue hardship” has been interpreted by courts to establish high hurdles for borrowers to meet—a challenge made even more difficult by federal agency policies that encourage aggressive challenges in bankruptcy court when student borrowers bring undue hardship claims.
In the letter, Wyden and Merkley called on Secretary Cardona to follow through on his public statement that the Department of Education (ED) would change the Department’s approach to “undue hardship” claims to make it a more attainable option for discharging student debt in bankruptcy. The Senators also called on the Department of Education to promptly release a long-awaited update to guidance it issued in 2015 on handling undue hardship claims, and asked if the Justice Department (DOJ) has issued guidance to its attorneys to carry out the Department of Education’s directive to pause active bankruptcy litigation while the policy changes are implemented.
Wyden and Merkley also questioned DOJ on what steps had been taken to inform student borrowers currently in the midst of bankruptcy proceedings that they could pause their litigation so as to benefit from policy changes the Department of Education implements around “undue hardship.”
“Secretary Cardona also revealed that ED has asked DOJ to pause any active bankruptcy litigation if the student borrower wishes, in order to ‘ensure that every borrower can benefit from these changes.’ Has DOJ issued guidance to its attorneys handling active bankruptcy cases consistent with ED’s request that stays be available to borrowers? What public outreach has ED or DOJ done to ensure that borrowers and their legal representatives are aware of the option for a stay?” Wyden and Merkley asked.
The letter concluded with Wyden and Merkley stating they look forward to working with ED and DOJ to promptly implement the goals articulated by Secretary Cardona and to help bring clarity, fairness, and cost-effectiveness to the federal government’s approach on undue hardship claims.
The letter was led by U.S. Senators Dick Durbin, D-Ill., Chuck Schumer, D-N.Y., and Patty Murray, D-Wash. Alongside Wyden and Merkley, the letter was also signed by U.S. Senators Sheldon Whitehouse, D-R.I, Chris Van Hollen, D-Md., Sherrod Brown, D-Ohio, Jack Reed, D-R.I., Maggie Hassan, D-N.H., Mazie Hirono, D-Hawaii, Alex Padilla, D-Calif., Bob Casey, D-Pa., Ed Markey, D-Mass., Richard Blumenthal, D-Conn., Tina Smith, D-Minn., Raphael Warnock, D-Ga., Elizabeth Warren, D-Mass., Tim Kaine, D-Va., Tammy Duckworth, D-Ill., Cory Booker, D-N.J., Brian Schatz, D-Hawaii, Patrick Leahy, D-Vt., Amy Klobuchar, D-Minn., Bob Menendez, D-N.J., Ben Ray Luján, D-N.M., and Angus King, I-Maine.
The text of letter is here.
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