Is Discharging Student Loan Debt Easier?

student loan debt

In the past, student loan debt could not be discharged in bankruptcy. In August, the U.S. Department of Education announced that automatic discharges will begin for 804,000 borrowers who qualify for $39 billion in student loan relief as a result of fixes to income-driven repayment (IDR) plans. The Biden-Harris Administration has approved more than $116 billion in student loan forgiveness for more than 3.4 million borrowers.

This is President Biden’s attempt to fix the broken student loan system. The discharges are a result of fixes implemented by the administration to ensure borrowers have an accurate count of the number of monthly payments that qualify for forgiveness under IDR plans.

Who is eligible?

Borrowers are eligible for student loan forgiveness if they have accumulated the equivalent of either 20 or 25 years of qualifying months. Borrowers will be notified directly by their servicers via email when their loans have been discharged, and all qualifying loans are to be discharged over the coming weeks.

On top of the loan forgiveness, Biden also issued final regulations creating the Saving on a Valuable Education (SAVE) plan, which is touted to be the most affordable payment plan ever. The SAVE plan will cut payments on undergraduate loans in half and promises that borrowers never see their balance grow as long as they keep up with their required payments. A single borrower who makes less than $15 an hour will not have to make any payments.

More people in bankruptcy are beginning to use a legal process introduced in November 2022 by the Biden Administration. The process is supposed to make the ordeal easier, fairer, and more transparent. Debtors are able to present their cases in a simplified form. Well, it is a 15-page form. Experiences with the application have been mixed. Some lawyers feel that the guidelines are being implemented unevenly. Plus, all parties are still figuring out how the process works.

In each of the five years before the pandemic, roughly a quarter-million people who had student debt filed for bankruptcy. However, less than 1% filed an adversary proceeding to seek a discharge. That’s just 480 people a year, on average.

Since the new process was introduced, 460 adversary proceedings were filed by the end of July 2023. That is up from 338 the month before, a 36% jump. Two-thirds of those borrowers were using the simplified process. It is believed that tens of thousands of people who were eligible to get their student loans discharged but had not yet.

However, the cases are moving slowly. From November 2022 to August 2023, fewer than 45 debtors have received a full or partial discharge.

Get Expert Advice on Student Loan Debt

College tuition is expensive. Many people take on tens of thousands of dollars in student loan debt and then struggle to pay it back.

Is bankruptcy the answer? The Law Offices of Adam M. Freiman can help you understand your financial options. Call (410) 486-3500 or fill out the online form to schedule a consultation.


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