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U.S. Attorney General's summary of new policies concerning the Dischargeability of Federal Student Loan Debt in Bankruptcy.

Many borrowers are struggling under the weight of these loans, but for the vast majority of cases, bankruptcy offers little or no relief. The bankruptcy code sets a high standard on how an individual can qualify for relief from their obligations when it comes to student loans. The standard is that the loan must place the borrower in a position of “undue hardship,” which has traditionally been left to each bankruptcy court to define. 

The current administration accordingly sought to clarify the issue of what constitutes undue hardship so that courts around the country can have a consistent standard of evaluation. Those new guidelines were issued by the Department of Education and the Department of Justice (DOJ) in November 2022. 

If you’re struggling with your student debt and wish to pursue your options for relief—including a possible bankruptcy filing—contact The Law Offices of Marc G. Alster in Hackensack, New Jersey. Attorney Alster has more than three decades of experience helping people resolve and overcome overwhelming debt. He will meet with you, discuss your situation, and help you find your best path forward. 

Discharging Federal Student Loans

As noted earlier, historically, it has been extremely difficult (and rare) to be able to discharge student loans through bankruptcy because of the “undue hardship” standard. The courts and judges were left to determine if a petitioner exemplified it.  

Some other options were available for dealing with student loans, however. Teaching for a low-income school for five years could make you eligible for forgiveness of up to $17,500. If you had a Perkins Loan, you could seek forgiveness for teaching or other volunteer service. There’s also a provision for forgiveness for those who suffer total and permanent disability. 

But not everyone with overwhelming student loans qualifies for these opportunities. Because financial challenges have become unmistakeably common for student loan debtors, the DOE and DOJ in 2022 sought to clarify the process requirements. By doing so, it allows the nation’s bankruptcy courts and judges to operate on the same page. 

The New U.S. Department of Justice and Education Policies

In making the announcement regarding the standards reached by Education and Justice, a DOJ press release proclaimed that the “new process will help ensure consistent treatment of the discharge of federal student loans, reduce the burden on borrowers of pursuing such proceedings and make it easier to identify cases where discharge is appropriate.” 

The new process actually involves the vetting of the bankruptcy process. The courts will review the petitioner’s past, present and future financial obligations. The Department of Education has created a new attestation to undue hardship form to assist in assessing the borrower’s discharge request, which will be evaluated by the two federal departments.  

Working with Education, the Justice Department will review the information provided by the petitioner, apply the factors that courts consider relevant to the undue-hardship inquiry, and determine whether to recommend that the bankruptcy judge discharge the borrower’s student loan debt. 

Good Faith Efforts Required to Support Filing

The basic guidelines represent a threefold test. To prove that they’re facing undue hardship due to their student loans, the borrower must meet these criteria: 

  • the debtor presently lacks the ability to repay the loan;  

  • the debtor's inability to pay the loan is likely to persist in the future; and  

  • the debtor has acted in good faith in the past in attempting to repay the loan. 

The guidelines were developed based on the legal precedents of what is called the “Brunner test” and the “totality of circumstances” test. The 2022 guidelines therefore apply in jurisdictions that traditionally use either of these two tests.  

In the process, DOJ will rely on ED to provide the borrower’s education and debt history, including whether good repayment efforts have been made, to determine if a recommendation for discharge is to be made.  

As a result, getting a bankruptcy discharge based on undue hardship will continue to be a challenge, especially for those who were delinquent or remiss in honoring their loans at the outset. The system, however, should be more consistent and provide a fairer balance in the decision-making process. 

Obtain Trustworthy Guidance From the Law Offices of Marc G. Alster 

If your student loan obligations are overwhelming you to the point that it’s difficult to afford the necessities of daily life, you certainly have the right to explore your options for seeking relief through bankruptcy. The ED and DOJ will then try to determine the appropriate response – whether to discharge or not. 

If you’re in New Jersey or New York, feel free to reach out to The Law Offices of Marc G. Alster with all your questions and concerns. He represents clients throughout northern and central New Jersey counties including Bergen, Passaic, Hudson, Essex, and Union, as well as Rockland, Westchester, Orange, and Putnam counties in New York.  

As your attorney, Mr. Alster will review your financial situation to advise you of the proper steps to take and help you navigate the judicial system so that you can obtain the best result possible. 

From his office in Hackensack, New Jersey, Attorney Alster's services extend throughout the state of New Jersey, as well as New York. Some areas he serves in New Jersey are Passaic County, Bergen County, Hudson County, Essex County, and more; in New York, he serves Rockland County, Queens, and the Bronx.