The Washington Post reviewed dozens of bankruptcy cases from New York to Arizona involving federal student loans and found a similar pattern of demands.
“Why is the government continuing to take such harsh stances against these struggling borrowers at this moment?” questioned Dan Zibel, chief counsel at the National Student Legal Defense Network, a nonprofit organization. “The department should take a hard look at what it’s doing, what message it’s sending to borrowers.”
The barriers to discharging education debt through bankruptcy are high but not insurmountable. People must bring a separate lawsuit within their bankruptcy case — known as an adversary proceeding — to have their student loans discharged. They have to convince the court the debt would impose an “undue hardship” and fend off the lender from thwarting their effort.
As the creditor for $1.6 trillion in federal student loans, the Education Department has the right to contest a bankruptcy discharge to maintain the fiscal integrity of the lending program. But consumer groups argue the department also has an obligation to help struggling borrowers.
Zibel, who worked in the Education Department during President Barack Obama’s administration, co-wrote a paper exploring revisions to the department’s bankruptcy policy. He argues that the federal agency relies on a rigid interpretation of case law to determine undue hardship.