Elizabeth Warren wants student loan borrowers to know that bankruptcy is now easier

Elizabeth Warren wants more student loan borrowers to know that it’s now easier to part ways with their debts in bankruptcy court.

In a May letter reviewed by CNBC, the Democratic senator from Massachusetts, along with Sen. Sheldon Whitehouse, D-I., wrote to Tara Twomey, director of the U.S. Trustee Program at the Department of Justice, urging her to “continue to educate “. borrowers, lawyers and courts” on the Biden administration’s updated approach for student loan holders.

Warren, a former Harvard Law School professor who has taught courses on bankruptcy, is referring to guidance released by the U.S. Department of Education and Department of Justice in fall 2022. This joint memo was intended to that federal student loans be treated more like other types of student loans. debts in bankruptcy, experts say.

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Over the years, policymakers have added additional conditions for student loan forgiveness, expressing concerns that young people would try to shed their obligations after graduating. As a result, borrowers were often asked to prove a “certainty of despair,” and government lawyers rejected most requests. Between 2011 and 2019, more than 99.8% of borrowers who filed for bankruptcy did not have their student loans discharged, the senators wrote in the May 23 letter.

The new directions have already led to changes.

During the first 10 months of the Biden administration’s more lenient process, student borrowers filed more than 630 bankruptcy cases, a “significant increase” from recent years, last year reported. The administration said the majority of these borrowers received full or partial discharge of their student loan debt.

CNBC spoke with bankruptcy lawyers earlier this year who said they noticed the difference.

“While the government aggressively opposed discharge in almost all cases, there is now a policy of settling when the borrower can demonstrate financial need and have made good faith efforts to repay their loans,” said Latife Neu, a bankruptcy lawyer in Seattle. said in March.

“I’ve helped several people take advantage of this expanded capability,” Neu said at the time.

Still, Warren says there’s still work to be done.

“More than 43 million borrowers in the United States have a total of $1.6 trillion in student debt, and more than 2 million borrowers have been repaying these loans for at least 20 years,” Warren and Whitehouse write.

“The DOJ and ED must work harder to encourage borrowers to seek relief – and offer that relief when they ask for it,” they added.

The Department of Justice and Department of Education did not immediately respond to a request for comment.

Malissa Giles, a consumer bankruptcy attorney in Virginia, agreed that the government needs to better inform borrowers and attorneys about the new process.

“Most people I see are not aware of the new bankruptcy discharge options,” Giles said. Several of his clients have benefited from it.

Many law firms continue to refuse to take these cases, she added, because of the low success rate in the past. She said a lawyer told her he didn’t want to spend time updating his strategy for the new procedure before the election. (If former President Donald Trump wins the election, experts say, there is no guarantee that the more lenient approach won’t end.)

“But for me, that makes it even more important to take advantage of the litigation approach now, rather than waiting,” Giles said. “I tell current clients that if they want to get released and are eligible, they should do it now, before November.”