Student Loan Borrowers Get Debt Relief Through New Bankruptcy Proceeding

• The Department of Education and Justice has released new data on the bankruptcy process for student loan borrowers.
• The survey found that 588 new applications were filed between October 2023 and March, a 36% increase over the previous 6-month period.
• The new guidelines, announced in 2022, have simplified the process to help borrowers receive relief.

The Biden administration’s new process to help student loan borrowers get their debt out of court is working.

On Wednesday, the Justice Department released an update on borrower bankruptcy following the new guidance it issued in 2022. According to the department, 588 new cases were filed from October 2023 to March 2024, a 36% increase from the previous six-month period. Most of these borrowers also won their cases in court: 98% of them received full or partial debt relief from November 2022 to March 2024, according to the department.

Before the guidelines were put in place, borrowers had to prove that they faced “undue hardship”—meaning that they could not maintain a minimum standard of living, that their circumstances were not likely to improve, and that they had made a good-faith effort to repay their debt.

However, this standard was very difficult for borrowers to meet, so the Departments of Education and Justice simplified the process by establishing clearer guidelines for borrowers to prove undue hardship. These guidelines included examining borrowers’ good faith in repaying their debt and determining their future ability to make payments.

These guidelines also allowed borrowers to complete a self-attestation form, which allowed servicers to process their discharge requests more quickly and avoid investigations.

“Our clear, fair and practical standards help struggling borrowers find relief that was previously out of reach,” Education Under Secretary James Kvaal said in a statement.

“These data should put to rest the myth that struggling borrowers can’t pay off their student loan debt through bankruptcy,” he continued. “We will continue to work with our partners at the Department of Justice to make it simpler and easier for borrowers to get the help they need, as intended.”

Along with the increase in the number of borrowers filing discharge applications, the servicers also found that 96% of borrowers were voluntarily completing self-certification forms, and some bankruptcy courts have implemented procedures to use the new process.

The Justice Department did not immediately respond to Business Insider’s request for comment on the total number of borrowers who have received discharge through this process.

While the process is showing signs of improvement, it is slow. Student advocacy group Student Defense found that fewer than 45 borrowers had received full or partial discharges just under a year after the new guidelines were put in place.

Some Democratic lawmakers have also scrutinized the process. Last summer, Sen. Elizabeth Warren demanded information on how the guidelines were being implemented, writing that the bankruptcy standard “has been narrowly interpreted by the courts and has proven so difficult to comply with that most borrowers do not even attempt to discharge their student loans through the bankruptcy process.”

Still, the Biden administration is using the new data to show that the process is working and expects more borrowers to participate.

“The results are clear: This guidance has helped make the promise of a fresh start in bankruptcy a meaningful option for people burdened by student loan debt,” Acting Assistant Attorney General Benjamin Mizer said in a statement.

Have you had your student loans forgiven through bankruptcy? Are you having trouble with the process? Share your story with this reporter at [email protected].