Student Borrowers Tap a New Path to Loan Forgiveness: Bankruptcy

livemint.com:

WASHINGTON—More Americans are filing for bankruptcy to get rid of their student debt. The increase came after the Biden administration made it easier for student borrowers to apply for bankruptcy by overhauling its guidelines last November. The government now supports borrowers’ use of bankruptcy to eliminate student debt when they meet certain economic hardship conditions.

That is a sharp change from the old, far more adversarial procedure that borrowers found confusing and intimidating. The application numbers remain extremely small, with just 632 borrowers using the new process from last November through September, according to Justice Department data released Thursday. Still, that is an increase from recent levels.

The average annual rate of borrowers using bankruptcy to eliminate student loans was around 480 before the pandemic pause on federal student loan payments. The growth is notable because Americans weren’t required to make student-loan payments until last month. The department expects those numbers to continue to rise as more lawyers and borrowers become aware of the option.

It didn’t provide a number of successful student-loan discharges that have resulted from the new guidance. Government recommends debt cancellation “Borrowers are finding it easier to apply for discharge and courts are overwhelmingly agreeing with the Justice Department’s recommendations to discharge student loans in eligible cases," said Associate Attorney General Vanita Gupta. The bankruptcy policy shift is one part of the Biden administration’s efforts to forgive debts for eligible student borrowers.