- Two weeks ago, a judge approved $100,000 in student-loan forgiveness for a man via bankruptcy.
- A week later, Biden’s Education Department appealed that decision.
- On Friday, the department announced it would withdraw that appeal and review bankruptcy policies.
President Joe Biden’s Education Department announced on Friday that it would be withdrawing its appeal of a $100,000 student-loan-forgiveness court decision, backing down from its move a week earlier to block the debt discharge.
Two weeks ago, a Delaware judge granted Ryan Wolfson — a 35-year-old man with unmanageable student debt — discharge of his loans through bankruptcy, arguing that Wolfson proved he wouldn’t be able to pay off his loans partly because of epileptic seizures that made it difficult for him to hold a job. Last week, the Education Department took the first step in blocking that court decision by filing an appeal.
But on Friday, an Education Department spokesperson told Insider the department was reversing course.
“While we continue to deliver immediate relief for borrowers struggling with debt, we are also making permanent changes that reduce indebtedness and make college more affordable,” the spokesperson said. “This January 28 notice of appeal will soon be withdrawn.”
“The Department of Education has indicated publicly that it is reviewing current bankruptcy policies, a process, which remains ongoing. While the student-loan-payment pause remains in effect, any borrower in an adversary bankruptcy proceeding can request and receive a stay on their proceedings,” the spokesperson added.
James Kvaal, the undersecretary of education, also alerted the public to the department’s decision in a Friday tweet.
—James Kvaal (@UnderSecKvaal) February 4, 2022
This decision is part of Biden’s pandemic relief efforts for student-loan borrowers. He recently extended the pause on student-loan payments for the third time, and he has canceled student debt for targeted groups of borrowers, such as those defrauded by for-profit schools.
It’s also, as the spokesperson mentioned, another step toward reviewing bankruptcy policies. To successfully discharge debt through bankruptcy, a borrower has to prove “undue hardship,” which means the borrower can’t maintain a minimal standard of living, their circumstances likely won’t improve, and they’ve made a good-faith effort in repaying their debt.
In Wolfson’s case, the judge wrote in her opinion that courts have been too strict in their interpretations of undue hardship — and Biden’s administration seems to be aware of that. In October, Federal Student Aid head Richard Cordray said during a House subcommittee hearing that the bankruptcy process “doesn’t work well.”
“It needs to be reformed,” Cordray said. He added, “And we’re committed to doing that.”
While advocates expressed initial disappointment with the Education Department’s decision to appeal Wolfson’s case, they lauded the reversal on Friday. Dan Zibel, the vice president and chief counsel at Student Defense — an organization that advocates for borrower protections — tweeted that the withdrawal was “very welcome news.”
“@studentlegalnet looks forward to working with @usedgov @TheJusticeDept to immediately review their legal positions & internal policies with respect to bankruptcy in student loan cases,” Zibel wrote.