Student Debt Relief Would Boost GOP States

Just days after President Joe Biden announced student debt cancellation, his administration is under fire for continuing to try to deny bankruptcy protections to the most beleaguered debtors.

Earlier this year, The Lever broke the news that contrary to Biden’s campaign pledge, his administration officials have been fighting student debtors in bankruptcy court and appealing rulings that erase or reduce borrowers’ student debts. After a public outcry, Biden’s Justice Department said it would review its policy on such cases, but hasn’t yet announced any changes.

Now, Sen. Elizabeth Warren (D-Mass.) is demanding answers about the Justice Department’s legal posture.

“I am writing today to follow up on my previous inquiry regarding DOJ’s work to update guidance on how it handles undue hardship claims by student borrowers in bankruptcy proceedings,” she wrote in a letter sent today to Attorney General Merrick Garland and obtained by The Lever. “To support the administration’s efforts to overhaul the student loan system and ensure that bankruptcy relief is a viable option for borrowers in severe financial straits, it is critical that you issue and implement this updated guidance without delay.”

The administration’s behavior is potentially significant for millions of borrowers: A quarter of debtors hold at least $40,000 in student debt, and seven percent of debtors hold more than $100,000. These most indebted borrowers could find relief through bankruptcy, except the legal threshold for doing so is exceptionally high, thanks to previous changes to bankruptcy law spearheaded in Congress by Biden and the lending industry.

Biden’s student debt cancellation plan is now under attack by Republicans, who are preparing legal challenges to stop the move, The Washington Post reported Thursday. If one of these lawsuits is successful, bankruptcy reform could become even more crucial for relieving debtors of their burdens.

A Battle Over ‘Undue Hardship’

Thanks in part to laws that Biden supported as a senator and Warren fought as a law professor, it is much more difficult to secure bankruptcy protections for student debt than for any other kind of debt. Unlike other debtors, student borrowers must prove they face “undue hardship” in order to have their debts reduced or erased.

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The courts have largely interpreted “undue hardship” to mean exceptional circumstances in which the debtor “cannot maintain a minimal standard of living” if they have to repay their loans, that their dire situation is “likely to persist for a significant portion of the repayment period,” and that the debtor has “​​made good faith efforts” to pay off the loans.

As Warren noted in her letter, few even attempt to meet such a high standard.

“Those who do pursue undue hardship claims face aggressive litigation challenges by the federal government that fail to acknowledge borrowers’ challenges in navigating the student loan system,” she wrote.

During the 2020 campaign, Biden endorsed Warren’s plan to end this prohibitively high threshold and allow student debtors to more easily obtain bankruptcy protections, promising to “allow for student debt to be relieved in bankruptcy.” His administration has continued to claim it will update its policy on fighting student debtors pursuing bankruptcy.

However, this spring The Lever reported on cases where student debtors had won rare victories in bankruptcy court and the Biden administration had appealed those victories. The administration subsequently dropped the appeals, and Senate Democrats called on the administration to update its guidance on how it approached these cases. But that hasn’t happened, and Warren now says the administration has been unresponsive.

“In July 2022, I requested a staff-level briefing on the delay in issuing the updated undue hardship guidance, only to receive a brief email which included no additional details about the guidance’s status.”

In her letter, Warren asks the Justice Department to provide “a detailed update on the status of DOJ’s discussions and any updated rulemaking or guidance to address undue hardship bankruptcy discharge claims for student borrowers,” by September 15, in addition to providing information about cases where people are currently trying to have student loan debt eliminated through bankruptcy.Meanwhile, bipartisan legislation that would allow student loan debt to be discharged through bankruptcy is languishing in committee.


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