Student-loan borrowers have to clear an 'unnecessary high bar' to get rid of their debt in bankruptcy court, 27 senators say

• 27 senators asked the Education and Justice Departments to reform student-loan bankruptcy discharges.
• Borrowers have to prove a difficult standard in court, which lawmakers argued is too stringent.

President Joe Biden's administration promised to reform the bankruptcy process for student-loan borrowers, and lawmakers want an update on when those plans will be put into action.

On Thursday, 27 Democratic senators, led by Dick Durbin, Chuck Schumer, and Patty Murray, sent a letter to Education Secretary Miguel Cardona and Attorney General Merrick Garland regarding bankruptcy reforms for student-loan borrowers.

Although Cardona had promised to review the "undue hardship" standard borrowers have to prove in court, in which they have to show 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, the Education Department has continued to oppose borrowers attempts to discharge their debt. The lawmakers wrote changes to the standard are "necessary and long overdue," and they want to know where the department stands on any reforms.

"All too often, ED and DOJ oppose undue hardship discharges in adversarial bankruptcy proceedings, requiring debtors to effectively demonstrate a certainty of hopelessness before they can obtain relief," the letter said. "Clearing this statutorily unnecessary high bar is challenging enough for individuals who are represented by experienced attorneys. It is virtually impossible for those without representation."

In October, Federal Student Aid head Richard Cordray told Congress that the bankruptcy process "doesn't work well," and he added he had already been in conversations with the Justice Department to help the Education Department revise how they evaluate borrowers' cases in court. Cardona last month followed up on Cordray's comments, noting that he is "working to change our policies so that bankruptcy is an option for those struggling with student debt."

But, as the lawmakers noted, while the department has withdrawn some of its appeals to borrowers' bankruptcy cases, that is a rarity, which is why they want to know if the Justice Department has issued guidance to attorneys on handling bankruptcy cases in light of upcoming reforms. They also requested updated guidance on making bankruptcy discharge "simpler and fairer" by changing how courts interpret the undue hardship standard.

Aaron Ament, president of Student Defense — a group that advocates for borrowers' rights — said in a statement that borrowers "who have been declared bankrupt by a federal court shouldn't be automatically met with government opposition to discharging their student loans."

"Opposing bankrupt student borrowers is costly for the Department and only fuels their financial turmoil. It's the opposite of the role the Department should be playing," Ament added. "We appreciate the Senate support towards this critical issue and we again call on the Department of Education to quickly reform its bankruptcy policies to better support student borrowers."