A pair of recent appeals filed by the department have drawn public backlash.
In one case, the department attempted to to fight a court-approved release of $100,000 in federal student loans held by Ryan Wolfson, a 35-year-old Delaware man who had never made debt repayments. The judge found that Wolfson, who suffers from epilepsy, could not meet his basic needs without the support of his father and there was no evidence to suggest his situation would improve.
The other case involved Monique Wheat, a 32-year-old single mother of three in Alabama who was granted forgiveness by the court of $111,000 in federal student loans.
Wheat earns less than $22,000 a year and, as the primary caregiver for her sick daughter and mother, could only work weekends. The Trump administration fought his request to pay off the debt, arguing that her teenage son should find a job to help with the household. Courts ruled in Wheat’s favor in January, but the Biden administration appealed the decision.
the daily poster, an investigative journalism site, first reported the calls earlier this month, drawing the attention of debt cancellation and student rights activists who have blasted the Biden administration for the moves. . A few days later, Undersecretary of Education James Kvaal tweeted that the department would withdraw the appeal in the Wolfson case. The following week, the department announced that it would also withdraw from the Wheat case.
Education Department spokeswoman Kelly Leon told the Washington Post that the agency and the Justice Department are “working to ensure the government does not appeal bankruptcy cases where the borrower proved undue hardship”.
“Borrowers in financial difficulty should have the option of repaying their student loans through bankruptcy, but too often the process leads to unfair results,” Leon said in a statement. “The Department for Education is committed to reviewing its approach to bankruptcy to streamline the process and ensure borrowers get a fair chance.”
It is difficult to discharge education debt through bankruptcy. Borrowers must take separate legal action — known as adversarial proceedings — as part of their bankruptcy case to have their student loans cancelled. They must convince the court that the debt would impose “undue hardship” and prevent the lender from thwarting their efforts.
As the creditor of $1.6 trillion in federal student loans, the Department of Education has the right to challenge a bankruptcy discharge to maintain the tax integrity of the loan program.
When the courts approve a borrower’s cancellation request, the ministry usually has 14 days to respond. In some cases, the Department of Justice will file a notice of protection to appeal, as it has done in both cases, to give the government more time – a strategy used in contract disputes, protests against offers and other cases in which a notice period exists.
The notice is not a commitment to appeal, but consumer advocates say it raises the specter of the Biden administration’s backlash on federal student loan bankruptcy reforms.
Any monumental change in the treatment of student loans in bankruptcy would require congressional action, but the Department of Education could better define undue hardship and set a threshold for challenging forgiveness offers.
And while the agency updates its policy, it could institute a moratorium on opposition from bankrupt student borrowers, said Aaron Ament, president of the nonprofit National Student Legal Defense Network. His organization was one of 17 consumer groups that wrote Last week, Education Secretary Miguel Cardona urged him to adopt the moratorium.
“Stopping the calls is simply not enough. This still leaves the government wrestling with borrowers, often for years, trying to prevent a student loan discharge in the first place,” said Ament, former chief of the Office of the General Counsel Department under Obama. “If the department itself admits that the bankruptcy process is unfair and needs to be reviewed, why will it only back down once a judge rules against it?”
Senate Majority Leader Charles E. Schumer (DN.Y.) voiced support for the moratorium on Friday, telling a press conference that “it’s outrageous that other people can file for bankruptcy, but not the students.
The Department for Education said it would review the pending decisions and determine the best course of action on a case-by-case basis.
Ament and other consumer advocates point out that although the department withdrew two appeals, it is still contesting other bankruptcy discharge applications.
The Post reviewed several recent bankruptcy cases involving federal student loans and found that department attorneys remained firm in their opposition. The stance echoes that of cases The Post reviewed in July, in which Justice Department lawyers asked borrowers to take multiple jobs or seek child support to free up money to repay their loans. .
Following this report, Sen. Richard J. Durbin (D-Ill.), Chairman of the Senate Judiciary Committee, held a hearing to explore ways to reduce barriers to education debt repayment. Durbin and Sen. John Cornyn (R-Tex.) have sponsored a bill that would allow borrowers to discharge their federal student loans through bankruptcy after 10 years.
The bipartisan interest of lawmakers and the administration in bankruptcy reform is reviving the movement, after years of unsuccessful efforts to streamline the process. President Biden, who helped impose tougher consumer bankruptcy laws as a senator, said on the campaign trail that he now supports letting people who go bankrupt pay off their debt student – a position that reinforces the efforts of the department.