Comments of Academics to Department of Education's RFI Regarding Evaluating Undue Hardship Claims in Adversary Actions Seeking Student Loan Discharge in Bankruptcy Proceedings (Docket No. Ed–2017–Ope–0085)

Abstract

This is a response to the Department of Education's request for information regarding evaluating undue hardship claims in adversary actions seeking student loan discharge in bankruptcy proceedings. Although by law student loan borrowers may receive a discharge of their student loans when repayment would constitute an “undue hardship,” in practice many borrowers who would qualify for such a discharge in bankruptcy do not receive it. This proposal recommends changes to the Department of Education’s (the “Department”) policies and regulations that govern federal loan guarantors and loan servicers. The proposal would facilitate the appropriate discharge of student loans by establishing ten categories of borrower circumstances under which the Department would agree to the borrower’s discharge of federal student loans. The aim of the proposal is to establish clear, easy-to-verify, dire circumstances that merit the Department’s acquiescence to a student loan discharge and thereby promote the efficient use of taxpayer funds. Taxpayer funds should not be used to challenge a debtor’s discharge of her student loans where undue hardship is clearly present, or where the costs to fight a discharge are disproportionate to the likely recovery.