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President Joe Biden is agonizing over ordering a sweeping cancellation of student loan debt, despite pressure from Democrats — including Vice President Kamala Harris — eager for a political win before midterm elections, Bloomberg News reported. While he said last month that he’s considering “some debt reduction,” Biden has not made up his mind about many details of the plan, including how much debt to forgive per borrower, the people said. And though White House officials have debated the contours of a forgiveness program internally for more than a year, there is no real consensus on the best path forward. White House Chief of Staff Ron Klain and a deputy director of the National Economic Council, Bharat Ramamurti, are among the aides urging Biden to announce some form of student loan forgiveness. The White House’s hesitance on the issue represents the latest fracture within the Democratic party, which Biden has failed to unite around his ambitious economic agenda. But this time it’s the Democratic rank-and-file who haven’t yet persuaded the president to use his power for broad loan relief.

The Biden administration is reportedly considering expanding its efforts at targeted student debt forgiveness into a broader policy whereby “at least” $10,000 (some have advocated for up to $50,000) in student loans per borrower, possibly subject to an annual income cap, would be eligible for cancellation. There is a rough consensus that rising levels of student-loan debt are a problem, and proponents of debt relief note the aggregate amount outstanding has increased by roughly two-thirds over the past 10 years to a total of some $1.7 trillion. Largely overlooked in the debate are changes made to the U.S. Bankruptcy Code in 2005, which materially increased the difficulty of discharging student loans in bankruptcy, according to a commentary by Richard J. Shinder of Theatine Partners in today’s Wall Street Journal. The “undue hardship” standards that apply to the cancelation of student loan indebtedness create a high hurdle for discharge, as borrowers must meet various tests adopted by the courts. The difficulty in satisfying these requirements, along with the costs associated with filing for bankruptcy, results in little student debt being relieved in this manner. Unfortunately, the 2005 changes to the Bankruptcy Code, combined with the 2010 federalization of the student-loan market, have placed what is fundamentally a commercial matter — the repayment of financial obligations — squarely within the ambit of public policy. Initially as guarantor and now as lender to student borrowers, the federal government has a direct seat at the table. Having largely prohibited the resolution of student loans in bankruptcy subjects its ultimate disposition to political caprice. Read more. (Subscription required.) 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

The Supreme Court will hear a dispute stemming from a San Francisco house-flipping project gone wrong that is expected to determine whether an innocent bankruptcy debtor can wipe out judgments for a fraud carried out by someone else, WSJ Pro Bankruptcy reported. The justices elected Monday to hear the case of a married couple who sold a house in 2008 for $2 million without disclosing water leaks and other problems to the buyer. The couple later filed for personal bankruptcy, which the wife has sought to use to discharge the buyer’s judgment against her, saying her husband was primarily responsible for the renovation and that she wasn’t aware of the problems at the time of the sale. The case concerns who is eligible for a fresh financial start through bankruptcy and who isn’t. Although consumers can use bankruptcy to leave overwhelming credit card or medical bills behind, Congress doesn’t let debtors use the process to get out of paying creditors whom they have defrauded. The question the Supreme Court chose to review focuses on whether a debtor can discharge a debt arising from a partner’s fraudulent act that they are jointly liable for. Lawyers for the woman, Kate Bartenwerfer, said in a December court filing the issue is broader than her case and potentially affects joint transactions or partnerships “involving married persons and couples, even the sale of a family home.” The Ninth U.S. Circuit Court of Appeals ruled against Ms. Bartenwerfer following earlier trials in California state court and bankruptcy court. The appeals court ruled last August that Ms. Bartenwerfer’s debt isn’t eligible for a bankruptcy discharge “regardless of her knowledge of the fraud.”

Democrats are pressing the Department of Education for more information about plans to address the status of borrowers in default once federal student loan payments resume in the coming weeks, The Hill reported. The agency earlier this month said it would allow borrowers with paused loans to receive a “fresh start” when resuming payments “by eliminating the impact of delinquency and default and allowing them to re-enter repayment in good standing.” The agency said that the move would be carried out as part of its efforts to help borrowers transition more “smoothly” into repayment, after federal student loan payments and interest accrual were paused for more than two years under a pandemic freeze. In a letter to the agency led by Sens. Elizabeth Warren (D-Mass.), Raphael Warnock (D-Ga.), Cory Booker (D-N.J.) and Bernie Sanders (I-Vt.), among others, the lawmakers said the move could “provide significant relief to millions of borrowers, particularly those who have most struggled with repaying their loans.” But the lawmakers pressed for more information about the steps the agency plans to take in rolling out the plan as well as protecting borrowers “who have been in default for an extended period of time.” The Federal Student Aid office characterizes a loan account as delinquent the first day after a borrower misses a payment. When an account remains delinquent, the borrower risks going into default, which can deal a significant blow to their credit rating and lead to a host of other consequences.