Changing the Student Loan Dischargeability Framework : How the Department of Education Can Ease the Path for Borrowers in Bankruptcy

Our nation’s consumer bankruptcy system supposedly gives “honest but unfortunate” individuals “a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Access to bankruptcy’s discharge of debt is especially important in the wake of the COVID-19 pandemic, which has resulted in a once-in-a-century economic crisis that is projected to increase consumer bankruptcy filings. The people who file bankruptcy will find a system that is already difficult to navigate and has long-recognized racial and gender disparities in access and outcomes. Student loan borrowers will find a system with even more barriers to relief from their education debt. These barriers are two-fold: those put up by bankruptcy laws and those put up by loan holders, including the United States Department of Education (“Department”). This Essay focuses on how the Department should update its policies for how it responds to borrowers who seek to discharge their student loans in bankruptcy. It details two options for how the Department can update its approach to handling bankruptcies to ensure that it calibrates its actions to make the promise of a fresh start more real for student borrowers. Importantly, the Department can implement the framework set forth in this Essay without substantially negatively impacting the net amount of money that it is likely to recover from borrowers who file bankruptcy and seek to discharge their student loans