- The Biden administration has pledged to reform the student-loan bankruptcy process.
- However, the Education Department is opposing borrowers' requests in court.
- Advocates are urging the department to halt oppositions until it can implement the reforms.
Rosa Perez filed for bankruptcy on her $78,000 student-debt load in January.
As a public-school counselor, Perez has a monthly income of about $3,400, which she said in a court filing was roughly equal to her monthly expenses. Along with paying for her daughter's expenses — she said she received no child support from her daughter's father — Perez has heart complications that have led to big medical bills, she said.
Perez's expenses "are as conservative as they can possibly be, and she still is unable to meet her monthly expenses, without any ability to make a payment on the Student Loans under their terms," the filing said.
Perez requested a discharge of her loans through bankruptcy, but on Monday the Education Department opposed her request. It was one of the latest examples highlighting how, despite promising reforms, President Joe Biden's administration is continuing to fight borrowers in court.
Student-loan borrowers turn to bankruptcy when they feel they have no other way to pay off their debts. Their biggest challenge is the "undue hardship" standard that Biden helped enact in 2005; it requires borrowers to prove that they cannot maintain a minimal standard of living, that their circumstances aren't likely to improve, and that they have made a good-faith effort to repay their debt.
Richard Cordray, the head of the federal student-aid office, told Congress in October that he would work to reform the bankruptcy process and ensure that borrowers who need relief can access it. Since then, the Education Department has prevented several borrowers from getting the debt forgiveness they sought.
"The process doesn't work well. It needs to be reformed … and we're committed to doing that," Cordray told a House education subcommittee last fall. "There have been discussions already with the Justice Department. They, too, are willing to have us revise our approach."
Now some lawmakers and advocates are getting antsy — especially as the Education Department continues to oppose borrowers' cases in court.
The Education Department has taken steps to block borrowers' student-loan forgiveness
In January, Ryan Wolfson, 35, was granted discharge of his nearly $100,000 student-debt load after a judge ruled that he'd proved undue hardship. Two weeks later, the Education Department appealed the case. Just one day later, though, the department withdrew its appeal.
"The Department of Education has indicated publicly that it is reviewing current bankruptcy policies, a process which remains ongoing," a department spokesperson told Insider at the time. "While the student-loan-payment pause remains in effect, any borrower in an adversary bankruptcy proceeding can request and receive a stay on their proceedings," the spokesperson added.
Along with appeals, the department has continued to file answers opposing borrowers' requests to discharge their debt. On Thursday, the department opposed a discharge request from a 77-year-old former nurse who couldn't get loan forgiveness through the Public Service Loan Forgiveness program, designed to wipe out debt for public servants after 10 years of qualifying payments.
Given that the department oversees federal student loans, its opposition isn't unexpected. But while it has said it would review bankruptcy discharges on a case-by-case basis, some advocates and lawmakers want no oppositions until the administration implements reforms.
Student Defense, an organization that advocates borrower protections, recently joined 16 other advocacy groups in calling on the department to "immediately withdraw oppositions to individuals seeking undue hardship discharges in bankruptcy proceedings while these reforms are being implemented."
And Senate Majority Leader Chuck Schumer said in response to a question from The Daily Poster at a press conference in February that he "absolutely" supported a moratorium on oppositions.
"It's outrageous that other people get to declare bankruptcy but students can't," Schumer said.
An Education Department spokesperson did not say whether the department would consider halting opposition altogether, but told Insider that "borrowers in financial distress should have the ability to discharge their student loans through bankruptcy, but too often the process leads to unfair results. The Department of Education is committed to revising its approach to bankruptcy to streamline the process and ensure that borrowers get a fair shot."
"In the meantime, ED and the Justice Department are working to ensure that the government does not appeal bankruptcy cases where the borrower has proven an undue hardship," the spokesperson added.
Still, advocates are hoping borrowers will not continue to face pushback on their requests for relief.
"While we strongly welcome the Department's commitment to change how it treats student loan borrowers in bankruptcy, in the meantime, it continues to oppose discharges for cancer patients, struggling grandparents and public school employees with serious medical issues," Aaron Ament, the president of Student Defense, told Insider. "We join Senator Schumer in calling for a moratorium on opposing student borrowers in bankruptcy until the Department implements new policies that put the interests of student borrowers first."