Biden’s Student Loan Bankruptcy Policy: A Game Changer

According to CNBC, consumer attorneys are praising the Biden administration’s 2022 student loan bankruptcy policy as “life changing” for making it easier for individuals to discharge their student debt.

Federal departments reported that more than 630 bankruptcy cases have been filed under the new policy in the first 10 months, representing a significant increase from previous years, as per The Daily Mail.

“We have successfully obtained forgiveness for several clients under the new bankruptcy regulations,” said Virginia consumer bankruptcy lawyer Malissa Giles in an interview with CNBC. “The discharge is a life-changing event for them and their families.”

In a joint effort, the Department of Justice and the Department of Education announced the new policy in November 2022 to provide a more accessible bankruptcy process for student loan borrowers. Associate Attorney General Vanita Gupta emphasized the aim of creating a fairer and transparent system.

Previously, borrowers had to prove “undue hardship” to qualify for debt discharge, which was challenging for many. The new policy streamlines the process with a 15-page form that allows borrowers to detail their financial difficulties in a manner similar to other types of debt.

While bankruptcy may seem like a viable option, CNBC highlighted an expert’s advice to explore alternative routes due to the long-term impact on credit reports. Borrowers may face challenges in buying a house or renting an apartment with a bankruptcy record. Various loan relief programs offer payment plans tailored to individual needs.

The Biden administration also introduced a Plan B loan forgiveness plan after facing setbacks with a more extensive program. However, Plan B has stricter eligibility criteria, as outlined in the report.