%1

The Education Department’s handling of requests for bankruptcy discharges from federal student loan borrowers is raising new questions about the Biden administration’s commitment to overhaul its restrictive policy, the Washington Post reported. It’s been nearly four months since Richard Cordray, chief operating officer of the Office of Federal Student Aid, told Congress the agency was working with the Justice Department to revise its approach — a pledge that consumer advocates believed would usher in a new era. Many assumed the Education Department would soften its stance in pending cases, but the agency has continued to contest claims. A pair of recent appeals filed by the department resulted in a public backlash. In one case, the department tried to fight a court-approved discharge of $100,000 in federal student loans held by Ryan Wolfson, a 35-year-old in Delaware who had never made payments on the debt. The judge concluded that Wolfson, who suffers from epilepsy, could not afford his basic needs without the support of his father and there was no evidence to suggest his plight would improve. The other case involved Monique Wheat, a 32-year-old single mother of three in Alabama whom the court granted cancellation of $111,000 in federal students loans. Wheat earns less than $22,000 a year and, as the primary caregiver for her ill daughter and mother, could only work weekends. The Trump administration fought her request to discharge the debt, arguing that her teenage son should get a job to contribute to the household. The courts ruled in Wheat’s favor in January, yet the Biden administration appealed the decision.

A new report released yesterday by the Student Borrower Protection Center, an advocacy group, indicates that as much as $50 billion in debt, colloquially referred to as private student loans and held by 2.6 million borrowers, could actually be wiped away in bankruptcy court, MarketWatch.com reported. Over the past several years, attorneys, legal scholars and even bankruptcy judges have started to think more creatively about whether debt borrowers took on in the course of their education is eligible for discharge in bankruptcy. One attorney in particular, Austin Smith, has made a career of challenging the notion that all student debt stays with a borrower following a personal bankruptcy filing. So far, three courts of appeals have sided with Smith, indicating his clients’ debts may be eligible for discharge in bankruptcy. The analysis comes out of this growing body of legal research and court rulings. Though federal bankruptcy court theoretically offers a clean slate from financial obligations, Congress exempted federal student loans from discharge through bankruptcy decades ago and private student loans in 2005. For years, borrowers and their attorneys who tried to get the debt wiped away typically argued it was imposing an undue hardship on the borrower — a carve out in the law that made the debt dischargeable, but was a notoriously hard standard for borrowers to meet.