It just got easier to discharge student loan debt in bankruptcy
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The fate of President Biden’s plan to forgive up to $20,000 of student debt for millions of Americans is still tied up in court. Meanwhile, the pandemic pause on student loan payments is set to expire at the end of the year.
But there could be some relief on the way for financially distressed borrowers: On Thursday, the Justice Department announced new guidelines to make it easier for people in bankruptcy to get out of their student loans, which — up until now — has been very difficult to do.
After college and graduate school, Elizabeth Greenwood had racked up more than $100,000 in student debt without any prospects of a high-paying job to pay it off.
“And it was just joking around and a friend suggested you could fake your own death,” she said. “And I just became completely obsessed with that idea.”
She ended up obtaining a forged death certificate in the Philippines. OK, she didn’t actually use it … except as research for a book called “Playing Dead: A Journey Through the World of Death Fraud.” What she did has become a popular trope among student loan borrowers.
“I think it’s an idea that we all have fantasized about,” she said.
Because unlike other forms of debt, student loans don’t automatically get wiped clean in bankruptcy.
“It is almost impossible,” said Mark Kantrowitz, a financial aid researcher and author.
Student loan borrowers must prove through a costly process — separate from bankruptcy — that making payments would cause “undue hardship” for the life of the loan, Kantrowitz said. Not even one in 100 ends up getting student loans discharged. “It’s just too harsh a standard,” he said.
The burden of college debt falls particularly hard on Black borrowers, because of racial wealth gaps and pay disparities, according to economist Darrick Hamilton at the New School.
“It costs more, and it reaps less for Black people,” he said.
It’s also an increasing problem for Americans over 60 who have been struggling to pay off loans for decades. Under the new guidance, debtors who are retired, didn’t finish their degrees, have a disability or have been unemployed long-term should have an easier time qualifying for loan discharge.
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