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- Biden announced reforms to the bankruptcy process for student-loan borrowers in November.
- New data obtained by Student Defense found fewerr than 45 borrowers have seen relief since those reforms.
- Experts and lawmakers want to ensure bankruptcy is a viable option before payments resume this fall.
It's been nearly a year since President Joe Biden announced reforms to make it easier for student-loan borrowers to get rid of their debt in bankruptcy court. It's hard to say if those changes are working as intended.
In November, the Education and Justice Departments announced they were changing the way student-loan borrowers can attempt to discharge their loans through bankruptcy. Specifically, the changes targeted a standard known as "undue hardship," in which a borrower would have to prove to a judge that they cannot maintain a minimal standard of living, that their circumstances aren't likely to improve, and that they have made a good-faith effort to repay their debt.
It's a standard that had been interpreted very strictly in court, leaving many borrowers without the relief they sought — and the departments' changes would establish clear guidelines for how courts should interpret the standard to ensure consistent treatment of all cases, along with allowing borrowers to complete a self-attestation form to help the departments process their request and avoid time-consuming investigations.
But since those reforms were announced, it appears just a small number of borrowers have actually seen relief. Student Defense — an advocacy group that advocates for borrower protections — obtained data from the Education Department via the Freedom of Information Act that found fewer than 45 student-loan borrowers have gotten a full or partial debt discharge since the November announcement.
"The new bankruptcy guidance has helped provide life-changing financial fresh-starts for some student borrowers, but we aren't yet seeing the systemic change we hope for," Student Defense President Aaron Ament said in a statement. "We appreciate the Department of Education and the Justice Department's ongoing efforts to work with distressed borrowers. They've taken important steps, but it's clear more needs to be done."
Additionally, it's not certain that every borrower on the list the Education Department sent to Student Defense even had their debt discharged in connection to bankruptcy — some of them saw eventual relief through other programs like Public Service Loan Forgiveness, according to their court cases.
An Education Department spokesperson told Insider that "after decades of inaction in Washington, the Department of Education worked closely with the Department of Justice on the updated bankruptcy guidance it released less than a year ago to support struggling borrowers."
"The guidance is still relatively new and it represents an important step forward and provides clearer, fairer, and more practical standards to guide recommendations for student debt discharges during bankruptcy proceedings," the spokesperson said. "What is clear is that qualifying borrowers are using it and getting relief faster and with much less cost and burden than before, but the process still takes time and is largely driven by the legal system. We expect the number of cases where borrowers will receive relief will grow as courts continue to issue final decisions."
Despite the small number of borrowers who have seen relief, the number of borrowers partaking in the process has grown — as of June 29, 2023, 338 new cases were filed since the November guidance, and in July, that number grew to over 460.
The bankruptcy process for student-loan borrowers has also been under increased scrutiny recently from lawmakers on both sides of the aisle. Massachusetts Sen. Elizabeth Warren recently sent a letter to the Justice Department requesting updated information on the status of the November reforms, saying that the "looming threat" of the federal student-loan payment restart in October makes it all the more necessary that bankruptcy remains a viable option for borrowers.
Florida Gov. Ron DeSantis also recently said during remarks unveiling his economic plan should he be president that he supports bankruptcy as a path for student-loan borrowers.
As is typical with government programs, implementing changes to the bankruptcy process could take some time. But with student-loan payments about to resume after an over three-year pause, experts and lawmakers are concerned borrowers might find themselves unable to foot another monthly bill — and they want to ensure the bankruptcy process is working as intended.