Bankruptcy Is Giving More Student Loan Borrowers Relief Thanks To Biden’s Policy Change

A report showed a 36% increase in the number of people who filed cases looking for student debt to be discharged.

Data from the Department of Justice revealed student loan borrowers are successfully receiving debt relief through bankruptcy after a policy change from the Biden administration.

A report released on July 17 showed a 36% increase and a total of 588 people who filed cases looking for student debt to be discharged between October 2023 and March 2024. In March, 1,220 new cases had been filed since the new federal policy was mandated, CNN reported.

Before the change, which was implemented in November 2022, student debt discharge was out of reach for borrowers going through the bankruptcy process solely because borrowers were required to show that paying off the student debt would place them in “undue hardship.” Now, of the cases that went through the court system, 98% have been granted full or partial student debt discharge.

The updated guidance toned down some of the processes borrowers go through to show hardship while paying down student loans and made it easier for federal lawyers to recommend to courts that the debt be discharged. Acting associate attorney general Benjamin C. Mizer released a statement praising the data revealed in the report. As Congress would need to act to remove the policy, Mizer said the numbers show it should be here to stay. “The results are clear: This guidance has helped make the promise of a fresh start in bankruptcy a meaningful option for individuals weighed down by student loan debt,” he said.

According to CNBC, Sen. Elizabeth Warren (D-MA) wrote a letter in May 2024 to the director of the U.S. Trustee Program at the Department of Justice, Tara Twomey, pressuring her “to continue to educate borrowers, attorneys, and courts” about the Biden administration’s intentions to treat federal student loans more like bankruptcy.

Warren, who is a strong advocate of student loan debt relief and taught bankruptcy courses at Harvard Law School, outlined facts showing that between 2011 and 2019, more than 99.8% of borrowers who filed for bankruptcy failed to get their loans discharged. This was a result of lawmakers adding extra stipulations for the reason of discharge, fearing young people would try to eliminate their obligations after graduating.

When it was time for repayment, borrowers were often asked to prove a “certainty of hopelessness,” leaving government lawyers with intense court battles.

President of the National Student Legal Defense Network, Aaron Ament, said he is “happy to see progress” in what he calls a “broken system” as a quarter of a million borrowers file for bankruptcy every year. “We are happy to see some progress in addressing a broken system, but successfully supporting a tiny fraction of those borrowers is not a cause to declare ‘mission accomplished’ — it’s a sign of how much work remains,” he said.

The Biden Administration has made strides in debt relief and ahead of Election Day 2024, promises to keep things moving. As of May 2024, the total student debt cancellation for close to five million Americans has reached $167 billion.