This piece was originally published at MarketWatch.

The Trump administration has quietly announced that it plans to review the notoriously high standard borrowers must meet to get rid of federal student loans in bankruptcy. But it’s still too early to tell whether that’s good news for struggling borrowers.

In a memo circulated Tuesday, the Department of Education requested public comment on what loan holders should consider when evaluating a borrower’s request to have their debts discharged in bankruptcy. These borrowers have historically faced an intense fight from the federal government. The DOE’s request for input indicates an interest in revisiting the government’s approach to these cases.

It’s still too early to say whether borrowers will benefit, said Ben Miller, the senior director of postsecondary education at the Center for American Progress, a left-leaning think tank. There’s both an optimistic and a pessimistic way to look at the Department’s announcement, he said. A Department spokeswoman declined to comment beyond the memo.

“There’s been press in the past about how the Department of Education is unbelievably aggressive pursuing bankruptcy claims and maybe the agency wants to take a step back and ask whether that level of aggressiveness is worthwhile,” he said. “There is a risk that they could make it even more restrictive than it is today.

Paying student loans for the first time? Here’s what you need to know
Borrowers can’t erase their federal student loans in bankruptcy unless they can prove that repaying them would cause an “undue hardship” — a standard created, but never defined, by Congress. Instead, the courts have defined the standard. In order to have their debt discharged in most jurisdictions, those struggling borrowers must prove they can’t maintain a minimal standard of living if they pay down the debt, that the situation won’t change in the future, and that they’ve made some effort already to pay down the loan.

It’s relatively rare for borrowers to even attempt to have their loans discharged in bankruptcy. That’s in part because they may struggle to afford a lawyer. But the government may also take a tough approach…

Read the entire piece at MarketWatch…

Pin It on Pinterest

Share This