BREAKING NEWS: U.S. Department of Justice announces new rules to discharging federal student loans.
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New guidance from the U.S. Department of Justice related to discharging student loan debt in bankruptcy aims to make the process “better, fairer [and] more transparent,”.
Until now, student loan borrowers hoping to discharge their loans through bankruptcy had to demonstrate that they would suffer “undue hardship” unless the debt is discharged—a murky requirement that is often difficult to prove. As part of the undue hardship analysis, courts reviewed the borrower’s past, present, and future financial circumstances.
The new process will leverage U.S. Department of Education (DOE) data and a new borrower-completed attestation form to assist the government in assessing a borrower’s discharge request. The Justice Department, in consultation with the Department of Education, will review the information, 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.
Under the new guidelines, debtors will complete an “attestation form,” which the government will use to help determine whether to recommend a discharge. If debtors meet certain requirements — including having expenses that exceed their income — government lawyers will recommend a full or partial discharge.