The Biden administration on Thursday released new guidelines that will make it easier for economically distressed student loan borrowers to discharge their student debt in bankruptcy proceedings, the Wall Street Journal reported. The long-awaited guidelines from the Justice Department and Education Department set specific requirements for borrowers to prove that they are experiencing economic distress. The government will calculate whether a debtor’s expenses equal or exceed a debtor’s income, and if they do, the Justice Department will declare that the borrower is unable to pay their debts. The Justice Department will also assess whether a borrower’s present inability to pay will likely persist in the future, taking into account factors like retirement age, disability, long-term unemployment or if the borrower didn’t finish their degree. Under the current system, which the administration described as unnecessarily burdensome, the federal government often delves into borrowers’ financial history to show they haven’t demonstrated their economic hardship. “Today’s guidance outlines a better, fairer, more transparent process for student loan borrowers in bankruptcy,” said Associate Attorney General Vanita Gupta. The changes come as the Biden administration’s mass student debt cancellation plan has been blocked by two federal courts. That program, which would cancel up to $20,000 for borrowers who make under $125,000 or $250,000 for a married couple, relies on a different definition of economic hardship — namely, that the negative economic effects of the pandemic allow the administration to forgive debt on a broad scale. A federal judge in Texas has rejected that authority, and the Justice Department has appealed the ruling. Read more.(Subscription required.)
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