For decades, bankruptcy judges refused to consider reducing student loans, but that is changing as some judges are now throwing lifelines to people struggling to repay their debt, the Wall Street Journal reported. In interviews with the Wall Street Journal, more than 50 current and former bankruptcy judges, frustrated at seeing borrowers leave federal courtrooms with six-figure debts, say they or their colleagues are more open to chipping away at the decades-old guidelines that determine how such debt is treated. “If the law’s not going to be improved by Congress, we have to help these young people who are drowning in student loan debt,” said U.S. Bankruptcy Court Judge John Waites in South Carolina. Outright cancellations remain rare, but judges said they have other tools at their disposal, including encouraging lawyers to represent borrowers for nothing. The lawsuits can cost $3,000 to $10,000 and take years. Other judges are embracing debt-relief techniques that don’t fully erase student loans but make repayment more affordable by, for instance, canceling future related tax bills. The popularity of these relief strategies could get a boost from a panel of professors, judges and advocates who are studying failures in consumer bankruptcy law and plan to release a report next year. Read more. (Subscription required.)
In related news, Sens. Marco Rubio (R-Fla.) and Elizabeth Warren (D-Mass.) plan to introduce a bill today that would prevent states from suspending residents’ driver’s and professional licenses over unpaid federal student loans. Critics have called the practice a self-defeating approach that denies borrowers the means to pay their debts, the New York Times reported. The bipartisan proposal comes after a November report by the Times revealed that 20 states had laws allowing government agencies to seize licenses from residents who had defaulted on their education debts. Records requests turned up 8,700 cases in which borrowers had lost their credentials in recent years, although that figure most likely understated the true tally. Read more.
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