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Student Defense Statement After Sen. Durbin Floor Speech on Education Department Opposing Bankrupt Borrowers

FOR IMMEDIATE RELEASE:
June 13, 2022 

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Student Defense Statement After Sen. Durbin Floor Speech on Education Department Opposing Bankrupt Borrowers

In a speech on the Senate floor today, U.S. Senator Dick Durbin (D-IL) spoke on the Department of Education’s ongoing practice of opposing borrowers in bankruptcy court who are seeking to have their student loans discharged. In response, Student Defense President Aaron Ament issued the following statement.

“Today, Senator Durbin reiterated the grave concerns of student and consumer rights groups who for months have called on the Department of Education to stop automatically opposing student borrowers in bankruptcy court. The federal government should not be using its resources to go after struggling borrowers in bankruptcy court — especially while higher ed profiteers who lined their pockets with federal loans are allowed to walk away scot-free. We appreciate Senator Durbin’s continued advocacy on this critical issue, and we again urge the Justice and Education Departments to issue updated student debt bankruptcy guidance that works in the best interest of borrowers.”

In June 2021, Student Defense published The Missing Billion, a report on the Department of Education’s failure to collect more than $1 billion in outstanding liabilities owed by former for-profit colleges and their executives. The report juxtaposed this failure with the Department’s ongoing practice of automatically opposing borrowers seeking relief for their student loans in bankruptcy court.

Student Defense has called on the Biden Administration to issue new guidance to change the Department of Education’s default position of opposing student loan discharges in bankruptcy. In mid-July 2021, Cardozo School of Law Professor Pamela Foohey, Aaron Ament and Daniel Zibel published a 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 proposed that the Department take a presumptive position of “no contest” in individual bankruptcy cases or to streamline contesting undue hardship discharge requests by using easy-to-access, objective criteria.

Sen. Durbin’s speech is the latest among a litany of requests calling on the Department to amend its student loan bankruptcy policies. In February, the Department came under Congressional and public scrutiny after attempting to block a $100,000 loan discharge for a bankrupt borrower. In response, a broad coalition of advocacy groups — including Student Defense — sent a letter to Education Secretary Miguel Cardona calling for a moratorium on Department-led bankruptcy opposition and appeals. The appeal also drew the attention of other congressional leaders, including Senate Majority Leader Chuck Schumer (D-NY) and Senate HELP Committee Chairwoman Patty Murray (D-WA).

Last October, Office of Federal Student Aid Chief Operating Officer Richard Cordray told a congressional education subcommittee the agency was working with the Department of Justice to reform their bankruptcy discharge guidance, saying “we think there is more we can do to reform that process.” During a June 6 virtual discussion on student debt, Education Undersecretary James Kvaal said the Department is “working quite hard” on issuing new guidance. However, neither agency has released updated guidance on how the agencies will handle these cases.