Justice Department and Department of Education Announce Successful First Year of New Student-Loan Bankruptcy Discharge Process
Agencies Will Continue to Assess Whether Process is Providing Relief to Eligible Borrowers
WASHINGTON / November 16, 2023 – The Justice Department, in close coordination with the Department of Education, announced today a successful first year of the new process for handling cases in which individuals seek to discharge their federal student loans in bankruptcy. One year after Associate Attorney General Vanita Gupta announced the process in November 2022, data and information show that the process is achieving its goals of ensuring consistency and equity in the evaluation of student loan discharge requests, and that the process has translated into increasing numbers of eligible federal student loan borrowers seeking and obtaining debt relief under the Bankruptcy Code.
The departments finalized new guidance in November 2022 that outlined a fairer, more accessible process to ensure consistent treatment of the discharge of federal student loans, reduce the burden on borrowers of pursuing such proceedings, and facilitate identifying cases where discharge is appropriate. At the time, both the departments committed to assessing the guidance after the first year of implementation. To do so, the Justice Department surveyed all 94 U.S. Attorneys’ Offices and consulted closely with the Department of Education to gather data and comments on the process. A dedicated group of experts within the Civil Division also collected input on the new process from consumer law groups, including the National Association of Consumer Bankruptcy Attorneys. Finally, the Civil Division has conducted large-scale trainings for Department attorneys, as well as public training events supported by regional bar associations and the courts, including most recently a training session hosted by the American Bankruptcy Institute that was attended by over 300 consumer bankruptcy attorneys. The Department of Education also participated in training events hosted by regional bar associations, as well as at the annual meeting of the National Association of Chapter 13 Trustees (NACTT), which included private attorneys as well as Chapter 13 trustees.
The information that the departments have collected indicates that the new process is making it easier for eligible debtors to achieve bankruptcy discharge of their federal student loan debts. Since the process was announced one year ago:
- 632 cases were filed in the first 10 months of the new process (November 2022 through September 2023), a significant increase from recent years. The departments anticipate that this trend will continue.
- 97% of all borrowers in the cases filed are voluntarily using the new streamlined process.
- The vast majority of borrowers seeking discharge have received full or partial discharges. In 99% of cases where courts have entered orders or judgments to date, the government recommended, and the court agreed to, a full discharge or partial discharge.
- Two bankruptcy courts — the Northern and Central Districts of California — have adopted procedures recognizing the utility of the new process, aimed at further streamlining the procedures debtors must follow to obtain discharges.
“One year ago, we set out to simplify and improve the process for student loan borrowers in bankruptcy,” said Associate Attorney General Gupta. “I am thrilled that our one-year review indicates that our efforts have made a real difference in borrowers’ lives by ensuring student-loan discharges are more accessible to eligible borrowers. We will continue working with our partners at the Department of Education to ensure the process continues to be a success.”
“It is clear that this improved process is helping struggling borrowers,” said Chief Operating Officer Rich Cordray of the Department of Education's Office of Federal Student Aid. “This guidance is an important piece of our overall efforts to create a student loan system that is more humane, with affordable payments and programs that work as intended. In partnership with the Justice Department, we will continue working to streamline this process and to provide student loan borrowers a pathway to obtaining much-needed relief in bankruptcy.”
Because the new process is working well, the Justice Department is not making any changes to the guidance at this time. The departments will continue to meet regularly to ensure that the guidance is appropriately implemented and to consider adjustments as warranted. Subject-matter experts in the Civil Division plan to continue to promote awareness of and provide training on the guidance both within and outside the government. The departments will also continue to conduct outreach to the broader community potentially affected by the process.
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