No Student Debt Cancellation — What Does It Mean for Student Loans and Bankruptcy?
Debtors throughout Florida with federal student loan debt were eagerly awaiting news from the U.S. Supreme Court about whether the Biden Administration’s plan to cancel $10,000 or $20,000 of student debt would be permitted to move forward. Back in the fall, many debtors were already approved by the U.S. Department of Education (DOE) for student loan cancellation. However, those plans were put on hold when states sued the Administration, arguing that it had exceeded its authority in relying on the Higher Education Relief Opportunities for Students Act of 2003 (HEROES) to cancel significant amounts of student debt. With the Supreme Court’s decision on June 30, 2023, debtors in Florida cannot expect to have that student debt canceled. As such, many Florida debtors may begin thinking about bankruptcy in relation to student loans.
Can you have your student loans discharged in bankruptcy? While there used to be an understanding that student loans were especially difficult and complicated to have discharged in a bankruptcy case, new guidance issued by the U.S. Department of Justice (DOJ) in November 2022 has made that process significantly easier. Our experienced St. Petersburg bankruptcy attorneys can tell you more about the recent Supreme Court decision and explain how bankruptcy might be an option.
Biden Administration Cannot Cancel Student Debt According to Biden v. Nebraska
In the recent case of Biden v. Nebraska (2023), the Supreme Court primarily had to determine whether the states had standing to sue, and, more critically for debtors, whether the Secretary of Education in the Biden Administration had the authority to cancel student debt under the HEROES Act.
The Court was clear in ruling that the Administration did not have the authority to forgive student loans as it had promised and planned to do. According to the language of the case, the “text of the HEROIC Act does not authorize the Secretary’s loan forgiveness program. The Secretary’s power under the Act to ‘modify’ does not permit ‘basic and fundamental changes in the scheme’ designed by Congress . . . . While Congress specified in the Education Act a few narrowly delineated situations that could qualify a borrower for loan discharge, the Secretary has extended such discharge to nearly every borrower in the country. It is ‘highly unlikely that Congress’ authorized such a sweeping loan cancellation program through such a subtle device as permission to modify.”
Filing for Bankruptcy Instead
Since student loans will not be canceled or forgiven, debtors will be facing $10,000 or more of student loan debt when payments resume soon. It may be possible to have that debt discharged through bankruptcy. Under the new guidance, the DOJ has made clear that debtors now have a significantly easier path to proving that they meet the “undue hardship” requirement necessary to have student loans discharged in bankruptcy.
If you are currently struggling, or expect to be struggling soon, with student loan debt, you should talk to a lawyer about filling out the new attestation form and proving that your loans are eligible for discharge.
Contact a Bankruptcy Lawyer in St. Petersburg
Do you have questions about student loan discharges in bankruptcy? One of the experienced St. Petersburg bankruptcy lawyers at the Law Offices of Stephen Barszcz can assist you.
Sources:
justice.gov/civil/page/file/1552681/download
supremecourt.gov/opinions/22pdf/22-506_nmip.pdf
