Department of Education should provide clear guidance on “undue hardship” cases where students can receive student loan relief in bankruptcy
(DETROIT) – Today, Congressman John Conyers, Jr. (D-Mich.) joined with six other Members of Congress urged the Secretary of Education, Arne Duncan, to bring more fairness to struggling students by establishing clear standards of eligibility for “undue hardship” discharge of federal student loans in bankruptcy. The members said this type of guidance would benefit the most vulnerable student loan debtors by bringing consistency to the manner in which the Department of Education’s contractors handle undue hardship claims. Such guidance would further enable the Department of Education to focus student loan collection efforts on cases where there is a more realistic opportunity for loan recovery. Rep. Conyers signed on to today’s letter with U.S. Senators Dick Durbin (D-Ill.), Jack Reed (D-R.I.) and Elizabeth Warren (D-Mass.) alongside U.S. Representatives Elijah Cummings (D-Md.), Steve Cohen (D-Tenn.), and Hank Johnson (D-Ga.). In the letter, the Members wrote:
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| U.S. Representative John Conyers, Jr. |
“Americans have accumulated $1.2 trillion in student loan debt, exceeding even the level of credit card debt in our nation. Seven in ten college seniors who graduated in 2012 had student loan debt, with an average of $29,400 per borrower. Because federal law treats student debt as nondischargeable in bankruptcy proceedings, borrowers can be burdened with this debt for a lifetime even if circumstances make it unlikely that the borrower will ever be able to repay.
“Federal law does provide that bankruptcy discharge is available for student loans in cases of “undue hardship,” and while the courts have established a high legal standard for a debtor to show “undue hardship” there are some debtors who should be able to avail themselves of this option. However, the path to an undue hardship discharge is often blocked by Department contractors, such as the Educational Credit Management Corporation (ECMC), which have a practice of aggressively challenging debtors’ efforts to show undue hardship.
“While we recognize the Department’s prerogative to fairly collect on student loan debts owed to it, we do not find it sensible or cost-effective for the Department or its contractors to engage in lengthy legal challenges and appeals against bankrupt student loan borrowers who have demonstrated a clear and legitimate inability to repay their loans.”
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