When President Biden took office in 2021, Americans burdened with student loan debt hoped he would make good on his promise to reform the historically arduous process of discharging education loans through bankruptcy. Biden had pledged while campaigning to “end the absurd rules” that made loan forgiveness in the courts accessible to only a tiny fraction of borrowers drowning in college debt. But one year after the administration instituted new guidelines meant to ease the way for discharges, many borrowers, lawyers and advocates feel progress has been inconsistent at best.
The cases of two women – Elizabeth Hadzic and Kim Coles – illustrate the continuing challenges borrowers face in securing relief through bankruptcy. Hadzic, a 50-year-old Maryland psychotherapist and mother of three, represents one of the rare success stories. After years of unmanageable debt payments, she is on track to receive full loan forgiveness through the courts. But for others, like Coles, an Oregon accountant in her late 60s, the system remains rigid and resistant even for borrowers with compelling cases. Their experiences demonstrate the rocky road still ahead for Americans hoping Biden’s presidency would open more avenues for redemption from crushing student debt through the bankruptcy system. Despite marginal improvements, for many the process is still complex, opaque and demanding.
Hadzic’s Situation
Elizabeth Hadzic graduated with a master’s degree in psychology in 2012, expecting that the additional education would lead to substantially higher earnings that would justify taking on student debt. However, in reality her income did not increase significantly after obtaining her degree.
As a single mother of three children, Hadzic also took out loans to help pay for her kids’ education. Despite making consistent payments, the combined debts from her own and her children’s schooling eventually ballooned to over $120,000 across five different loans.
“I had this idea that I’m going to borrow this money, but it’ll be OK because I’m going to make so much more money as a therapist,” Hadzic explained. “I do make more money as a therapist, but it doesn’t matter.”
Unable to manage the crushing financial burden, Hadzic filed for bankruptcy in 2022, hoping to finally get relief. After months of legal proceedings, her attorney says she is now on track to receive full discharge of her student loans. For Hadzic, this represents a lifeline she desperately needed to alleviate the ongoing stress of debt that her career has not enabled her to escape. While her situation shows bankruptcy can deliver profound financial redemption, many others still find the system unresponsive. Hadzic’s relief remains the exception, not the norm.
Coles’ Ongoing Struggle
Kim Coles, an accountant in Oregon, took out a student loan for $38,000 back in 2009 when she was 58 years old. Despite making consistent payments for over a decade, she still owes a balance of more than $26,000 due to accruing interest.
After Coles lost her job in 2021 at age 67, her financial situation became dire. She could no longer afford the monthly payments on her student loan debt. Hoping to discharge the loan through bankruptcy, Coles filed for Chapter 13 bankruptcy in March 2022.
However, the government denied her request for full student loan forgiveness in July. Federal attorneys argued Coles did not sufficiently prove undue hardship to justify discharging the full remaining balance.
In December 2022, after months of legal wrangling, the attorneys offered Coles a partial discharge of her student debt. But the proposed terms would still require her to pay approximately $500 per month for another three years until she is 70 years old.
Coles says this partial discharge requiring high monthly payments for another three years is unsustainable for her. She fears she may need to sell her home and downsize to an apartment to free up the funds needed to fulfill the proposed repayment plan. Her attorney laments that the government is compelling Coles to continue working well into her retirement years to pay off debt from a loan she took out at age 58.
History of Challenges with Discharge
The barriers Coles has faced trying to discharge her student debt reflect the stringent historical opposition to forgiving education loans through bankruptcy. For decades, the system imposed extraordinarily high hurdles for any borrower seeking relief.
Prior to reforms in 2022, fewer than 0.1% of student loan discharge attempts succeeded – an exceptionally high denial rate. The Biden administration acknowledged that the system seemed rigged against borrowers and was in need of reform. But there are differing perspectives on whether the policy changes have significantly leveled the playing field.
The Justice Department points to increased discharge approvals, stating that a “vast majority” of the over 600 borrowers who have filed for forgiveness under the new guidelines have received at least partial relief. But consumer advocates counter that it remains premature to declare the updated process an unequivocal success given the historically abysmal approval numbers.
Critics note debt discharge outcomes still vary widely depending on factors like geographic jurisdiction and the attitude of the federal attorney assigned to the case. They argue there is persistent reflexive opposition from some government lawyers unwilling to recognize when borrowers have legally uncollectible student debt eligible for discharge. There are also ongoing frustrations around slow timelines, with court cases dragging on for months with no resolution.
While the Biden administration guidelines have shown some promise, attorneys stress that navigating the system is still opaque and difficult for many borrowers. The process can seem arbitrary, depending on where cases are filed and judged. After years of restrictive policies, advocates say more fundamental reform is still required to truly make loan discharge accessible.
Progress and Critiques of New System
The Biden administration has lauded its 2022 guidance as an important step forward in streamlining the student debt discharge process and promoting greater consistency. The Justice Department claims the updated procedures are working well, with the “vast majority” of recent applicants receiving at least partial loan forgiveness.
However, advocates argue it is premature to declare the new system a definitive success given the historically abysmal approval rates. While there has been moderate improvement, inconsistencies and barriers persist.
Discharge outcomes still vary widely depending on the assigned federal attorney and judge. In some jurisdictions, government lawyers continue refusing to recognize loans as legally uncollectible, fighting borrowers tooth and nail. Full loan discharges remain elusive even for applicants with compelling cases.
Attorneys also report frustrations with slow timelines, causing extra distress for cash-strapped clients. Cases often drag on for months with no resolution in sight.
While the Biden administration deserves credit for trying to reform a broken system, advocates say the changes so far have been incremental. More fundamental reform is still needed to end the era of “absurd rules” limiting bankruptcy discharges. For the new guidance to represent real change, the culture around debt forgiveness must shift far more.
For now, the updated process offers a glimmer of hope but navigating the system remains challenging for many borrowers seeking redemption. Meaningful change will require commitment, accountability and transparency at every level.
Uncertain Future
With sweeping student debt cancellation stalled, access to relief through bankruptcy has taken on heightened importance. But earlier talks between the Education Department and borrowers revealed little eagerness for aggressive reforms after the Supreme Court rejected blanket debt forgiveness.
Bankruptcy was one area discussed as an alternative, given the only incremental improvements from updated discharge guidelines so far. However, effecting meaningful change remains challenging despite President Biden’s campaign pledges.
While recent data shows some progress, experiences of many borrowers demonstrate the system still lacks accountability. Outcomes depend heavily on geographic jurisdiction and the disposition of assigned attorneys.
The unpredictable process illustrates the obstacles remaining for financially distressed students. Despite Biden’s promises, the path to redemption through loan discharge remains opaque and demanding for millions weighed down by student debt.
While the administration has taken steps in the right direction, inherent inconsistencies and barriers embedded in the bankruptcy system cannot be resolved through guidance alone. For Biden’s stated goal of facilitated loan discharges to become reality, more comprehensive reform is still required.
Conclusion
In sum, while the Biden administration has instituted guidelines meant to ease the student debt discharge process, substantive inconsistencies and obstacles remain for many borrowers seeking financial redemption through bankruptcy. More sweeping reforms are still required to truly fulfill President Biden’s pledge to facilitate loan forgiveness through the courts. For now, navigating this complex system continues to demand tremendous perseverance and legal stamina.
