Elizabeth Warren recently said that she wants more student loan borrowers to know it is now easier to discharge their debt through bankruptcy.
Elizabeth Warren to Student Loan Borrowers
In a May letter reviewed by CNBC, Senators Elizabeth Warren and Sheldon Whitehouse wrote to Tara Twomey, director of the US Trustee Program at the Department of Justice, to educate borrowers, attorneys, and courts about the Biden administration’s updated approach to student loan discharge through bankruptcy.
A former Harvard Law School professor, Elizabeth Warren, referred to guidance released by the US Department of Education and Justice in fall 2022. Experts say this memo aims to make federal student loans more similar to other debts in bankruptcy.
Over the years, extra rules were added to prevent young graduates from easily discharging their student loans. Borrowers had to prove a “certainty of hopelessness,” and government lawyers contested most requests. The senators noted in their May 23 letter that over 99.8% of borrowers who filed for bankruptcy from 2011 to 2019 did not get their student loans discharged.
Discharging student debt in bankruptcy is now easier. Under new guidance, student borrowers filed over 630 bankruptcy cases in the first 10 months of the Biden administration’s more lenient process. Most of these borrowers received full or partial discharges of their education debt, a significant increase from recent years.
Bankruptcy attorneys told CNBC earlier this year that they noticed the difference under the new guidance.
What Others Think of the New Update
Latife Neu, a Seattle bankruptcy lawyer, said in March that the government now agrees to discharge student loans when borrowers show financial need and a history of trying to pay. Neu added that she has helped many people take advantage of this particular update.
Many borrowers are still unaware of the changes, says Warren. She and Whitehouse noted that over 43 million U.S. borrowers owe $1.6 trillion in student loans, with over 2 million repaying for at least 20 years.
Warren and Whitehouse urged the DOJ and Education Department to better inform borrowers about their relief options and ensure they receive it when requested. The departments have not yet commented.
Malissa Giles, a consumer bankruptcy lawyer in Virginia, also discussed the importance of the government improving awareness among borrowers and lawyers about the new process. Giles added that many of her clients are unaware of the new bankruptcy discharge options despite the benefits they have provided for several of them.
She added that many law firms continue to refuse to take on these cases because of the low success rate in the past. She said one attorney told her that he did not want to spend time updating his strategy for the new procedure before the election. If former President Donald Trump wins the election, experts say, there is no guarantee that the more lenient approach will not end.
Giles discussed the urgency of grabbing the opportunity now rather than waiting. She advised current clients who are eligible for discharge to pursue it before November.
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