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New Law Review Essay Charts Path for ED Dept. to Discharge Student Loans for Distressed Borrowers in Bankruptcy

Cardozo School of Law Professor Pamela Foohey, along with Student Defense President Aaron Ament and Vice President & Chief Counsel Daniel Zibel have published a new legal essay in the Minnesota Law Review entitled Changing the Student Loan Dischargeability Framework: How the Department of Education Can Ease the Path for Borrowers in Bankruptcy. The essay scrutinizes the difficult process of having student loans discharged in bankruptcy court and offers specific policy recommendations that could be enacted by the Department of Education to alleviate the burdens on borrowers — having a presumptive position of “no contest” in bankruptcy cases and standardizing and streamlining the Department’s debt discharge criteria. 

“[At] present, the Department’s apparent policies for determining whether and how to contest a borrower’s request for discharge of student loans relies on an overly rigid application of case law regarding education loan dischargeability,” the authors write. “These policies result in the Department wasting resources to contest the discharge of student loans that likely will yield the Department little recovery.” 

The essay comes on the heels of Student Defense’s latest report, The Missing Billion. The report found huge disparities between the Department’s extensive efforts to collect debts from distressed borrowers and its slipshod efforts to collect from institutions and former for-profit executives. The Department aggressively pursues individual student loan debts, including by frequently contesting discharge requests in bankruptcy court. Yet it has made little or no effort to collect more than $1 billion in unpaid liabilities from institutions and their officials. 

Borrowers seeking to have their student debt discharged are frequently opposed by the government, even when they are in particularly dire situations. In recent months, during the COVID-19 economic crisis, the Biden Department of Education opposed the discharge of a single mother of three, arguing that she should have tried harder to get child support from a deadbeat father and that her 15 year old son should find a job. Another case saw the Department arguing against the discharge, in part because the student borrower was tithing $120-$200 to her church. These circumstances disproportionately affect women and underrepresented communities, exacerbating longstanding opportunity gaps in access to higher education attainment and economic mobility.

No student borrower should face the government backing them into a corner when they’re trying to dig themselves out of debt,” said Student Defense President Aaron Ament. “The Department has clear authority to redirect its resources to help these student borrowers improve their financial mobility and economic security.”

A full copy of the essay can be found on the Minnesota Law Review website