Bankruptcy Law

Federal officials consider changing hurdle for student borrowers hoping to erase debt in bankruptcy

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The U.S. Department of Education will review whether there is a need to change the way “undue hardship” is evaluated in bankruptcy for student borrowers seeking to erase their loans.

The announcement is an indication that the Trump administration is considering making it easier for students to discharge their loans, the Wall Street Journal reports. Inside Higher Ed and the Chronicle of Higher Education also have stories.

A federal law established the “undue hardship” standard without defining it. Bankruptcy courts have made it difficult for student borrowers to prove they qualify.

The Education Department said in a notice on Tuesday that it wants to ensure that student borrowers facing hardship aren’t “inadvertently discouraged” from seeking discharge of their loans. The department also wants information on whether there are inequities because courts are using two differing tests to evaluate their claims.

Though the Education Department can’t change the law on its own, its interpretation will guide how it fights discharge requests in court, the Journal points out.

Hat tip to Above the Law.

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