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A federal judge on Wednesday cleared the way for the Education Department to stop using private debt collectors and revamp the way it handles overdue student loans, the Washington Post reported. Instead of having private collection agencies solely dedicated to recouping past-due education loans, the department wants to fold those duties into student loan servicing as part of a broader overhaul called the Next Generation Financial Services Environment, or NextGen. Bundling those functions would require companies competing for the business to provide a wide array of services or team up with other firms. Neither option is appealing to private debt collectors, who argue that the Education Department arbitrarily restricted competition and illegally canceled a contract solicitation they were vying to win. Last year, the courts barred the department from canceling the collection contract. But when the agency issued three new solicitations for loan servicers that included default collection duties, a group of debt collectors filed another lawsuit to block the NextGen request for proposals. On Wednesday, U.S. Court of Federal Claims Judge Thomas C. Wheeler said that the Education Department provided sufficient justification for consolidating loan servicing and default collection work. He said that the department was within its right to cancel the collection contract solicitation in light of its rollout of NextGen. Judge Wheeler pushed back against the argument that NextGen would create irreparable harm for the debt collectors, noting that they can team up with other companies for a slice of the business. Still, he criticized the Education Department’s messy bid for new contractors to manage its $1.5 trillion portfolio of student loans.

Congress passed a bill that would extend a lifeline to financially struggling injured veterans, enabling them to spend disability payments instead of using them to pay down debt in bankruptcy protection, WSJ Pro Bankruptcy reported. The Senate yesterday passed four bankruptcy bills that included the Honoring American Veterans in Extreme Need Act (HAVEN Act) that consumer advocates say fixes a mistake written into a 2005 overhaul of the country’s bankruptcy rules. The House passed the bill last week. It now goes to the White House for President Trump’s signature where he is expected to sign the bill. The newly passed bill excludes disability payments from the Department of Veterans Affairs and Department of Defense to veterans or their dependent survivors from the classification of disposable income. The bill would provide relief for military veterans, who face higher rates of homelessness, mental-health problems and unaffordable debt, including from medical expenses for combat-related injuries. A 2017 study from Stanford University found that veterans make up a larger portion of people who have filed for bankruptcy protection. Read more. 

The Senate yesterday also passed H.R. 3311, the Small Business Reorganization Act; H.R. 2336, the Family Farmer Relief Act; and H.R. 3304, the National Guard and Reservist Debt Relief Extension Act. ABI testified in support of the HAVEN Act (H.R. 2938), H.R. 3311 and H.R. 2336. All the bills passed the U.S. House of Representatives last week and are non-controversial. The bills received unanimous consent to proceed to passage. The legislation will now be sent to President Trump to be signed into law. Click here to read ABI’s press release. 

A Texas woman can’t unload thousands of dollars in unpaid student loans through bankruptcy, a federal appeals court said, a setback for consumer lawyers hoping her case could weaken the high bar for student borrowers to discharge educational debt, WSJ Pro Bankruptcy reported. The U.S. Court of Appeals for the Fifth Circuit on Tuesday ruled against Vera Frances Thomas, who has struggled to maintain employment because of a degenerative nerve disease and sought relief from more than $7,800 in student debt. The ruling comes as some judges, experts and politicians re-evaluate the legal hurdles preventing individuals in difficult financial straits from using bankruptcy to leave behind student loans. The appellate court defended a legal test dating back to the late 1980s that requires borrowers seeking education-related bankruptcy relief to show they are totally incapable of repaying their student debt. Consumer advocates who filed papers supporting Thomas said that the test is outdated and came about before significant changes to modern student loan programs. “The consequence of the…test is that sympathetic debtors like Ms. Thomas are held to the same standard as debtors who are less sympathetic. But that is an outcome for Congress to address, should it desire,” wrote Circuit Judge Edith H. Jones. Read more.

For further analysis on this case, be sure to read today’s Rochelle’s Daily Wire column. 

Illinois residents who have had judgments entered against them for consumer debts soon will start paying less interest on those debts, and collectors will have a shorter time frame in which to demand payments, the Chicago Daily Herald reported. That's the result of a new law Gov. J.B. Pritzker (D) signed on Monday. House Bill 88, known as the Consumer Fairness Act, reduces the interest rate charged on post-judgment debt of $25,000 or less to 5 percent, instead of 9 percent. It also reduces the time for collecting on a judgment to 17 years, instead of 26 years. The bill passed both chambers by unanimous votes without opposition from debt collectors or other financial institutions. The new law will take effect Jan. 1, 2020.