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The Biden administration makes it simpler to discharge student loan debts in bankruptcy

The Department of Justice issued new guidance Thursday. It aims to make it simpler to discharge federal student loan debt in bankruptcy. This was a difficult legal process under the old policy.

Student loan borrowers cannot have credit cards, medical, or other consumer debts. They must prove that they would be unable to repay the debt.

To remove this legal requirement, Congress would need to act. The new federal guidance was developed in close collaboration with the Department of Education. It is intended to make it easier to show undue hardship, and for government lawyers to recommend that the court discharge the debt.

Biden administration officials previously admitted that student loan bankruptcy rules are flawed. Earlier this year, however, the Department of Education stated it was committed to revising its approach to bankruptcy cases. Until now, however, federal bankruptcy court judges have continued to fight for borrower relief.

Associate Attorney General Vanita Gupta stated in a statement that “Today’s guidance outlines an improved, fairer, and more transparent process for student loan borrowers in bankruptcy.”

Gupta said, “It will enable Justice Department attorneys to better identify cases in which it can recommend discharge of student loans borrowers,”

Thursday’s announcement follows the Texas federal district court’s rejection of President Joe Biden’s student loan forgiveness program. Although the Department of Justice appeals to the decision of the judge, the administration cannot cancel any debt under the program. The program was intended to provide student loan relief to millions of borrowers up to $20,000 each.

Federal student loan payments will resume in January after a yearlong pause. This is unless the Biden administration extends that pandemic-related benefit.

Some lawmakers and student loan advocates have been pressing the Department of Education for a change in its approach to students who want to discharge their student loans through bankruptcy court.

Aaron Ament, the president of the National Student Legal Defense Network in a statement, said that the new guidance would go a long way towards ensuring that the department works with borrowers, and not against them as they navigate already-difficult situations.

The courts will review the borrower’s financial history, present, and future as part of the undue burden analysis. The new guidance may require the borrower to provide income information to the government. In consultation with the Department of Education and the Department of Justice, the Department of Justice will review the information and decide whether the bankruptcy judge should discharge the student loan debt.

John Rao, a staff attorney at National Consumer Law Center, stated that the new guidance could provide relief, but it will be effective if the Departments of Education and Justice implement it.

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