Law Schools

Bankruptcy Options For Student Debt Could Possibly Change Under The Trump Administration

Will desperate law school graduates in need will finally be able to get a fresh start on their lives?

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Will the Trump administration make it easier for law school graduates to discharge their student loans in bankruptcy?

As it stands, borrowers hoping to erase their student debts in bankruptcy must prove that they face an “undue hardship,” a threshold that is nearly impossible to meet unless you can show that you’ve got a “certainty of hopelessness.” In fact, bankruptcy discharges of student loans are so rare that they’ve been referred to as “the unicorn of the bankruptcy world.”

The government usually aggressively fights borrowers’ efforts to discharge federal loans in bankruptcy since taxpayers will ultimately be left on the hook, but this is a new administration with new ideas on how best to lead the nation — perhaps even deeper into debt. That said, in an announcement consumer advocates have called a “complete surprise,” the Department of Education is currently seeking public input on whether the government ought to clarify when student loans can wiped out in bankruptcy. The Wall Street Journal has more information on the news:

“The department will review the data collected to determine whether there is any need to modify how undue-hardship claims by student loan borrowers in bankruptcy are evaluated,” the agency said.

The move on Tuesday is significant because it comes after years of lobbying by student advocates to expand options for bankrupt student borrowers. The administration is taking a stance until now championed mostly by liberal Democrats, and the move could revive efforts in Congress to change bankruptcy law to be more friendly toward borrowers.

Let’s be optimistic here. Our own president has declared Chapter 11 bankruptcy for his businesses six times, and he promised numerous times on the campaign trail that he’d help “all of our students who are drowning in debt.” Attempting to abolish the Public Service Loan Forgiveness program certainly won’t help anyone, but perhaps the “undue hardship” standard for student loan discharges in bankruptcy will become less burdensome so that desperate law graduates will finally be able to get a fresh start.

Yes, law school graduates agreed to become enslaved to their debts when they signed on the dotted before they even sat down for their first class, but at what price? Some law school graduates are barely able to get by, even with income-based loan repayment plans. Something has got to give, and if the bankruptcy process were to become less stringent for student debtors, that would be a tremendous help.

Trump Administration Looking at Bankruptcy Options for Student Debt [Wall Street Journal]

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Staci ZaretskyStaci Zaretsky has been an editor at Above the Law since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

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