Far too many people in the United States are drowning in debt, and a lot of that is due to student loans with outrageous interest rates. In some cases, people have paid back as much or more than they initially borrowed, without putting a dent in the principal.
Prior to 2023, it was almost impossible to discharge student loans in bankruptcy proceedings, but the U.S. Departments of Education and Justice announced new rules that should have made things easier – but change has been very slow in coming.
What do the new guidelines say?
Under the new guidelines issued by those departments, borrowers who want to seek student loan relief for bankruptcy still have to prove that forcing them to repay would be an “undue hardship.” However, the entire process would be shifted so that it’s much more debtor-friendly.
People seeking relief from their student loan burden would be able to complete a self-attestation form that would then go to the Departments of Education and Justice for evaluation. This would replace the lengthy in-depth investigations that had to be carried out in the past.
In addition, the guidelines aim to remove inconsistencies in the way different debtors are treated when making their request for student-loan relief, which is something that was problematic in the past. It’s hard to argue that anybody filing for bankruptcy isn’t experiencing undue hardship, yet less than 1% of borrowers who filed for bankruptcy between 2015 and 2020 had their student loans discharged.
Now that the three-year hiatus on student loan payments is about to end, however, there’s a lot of concern that borrowers don’t even know discharging their student loans in bankruptcy is even a possibility. One senator has recently asked Attorney General Merrick Garland for a status update to see if the reforms have actually been implemented and are having any positive results.
The bankruptcy process is complex, and there are a lot of nuances to each individual situation. If you’re drowning in debt of any kind, it’s wise to get an experienced legal take on your situation before you decide what to do next.