Biden Silent After His Campaign Pledge

At issue is Biden’s 2020 presidential campaign promise to make it easier for the most beleaguered debtors to eliminate their student debt through bankruptcy courts. At the time, the announcement was seen as a major development, given the role that Biden had played as a senator in exempting private student debt from the typical processes for bankruptcy.

The administration’s abrupt withdrawal of two appeals seemed to honor that campaign pledge, but they only came in response to rare public scrutiny and they marked a departure from what debtors have come to expect from the Education Department. And it is not yet clear whether the dropped appeals indicate a new policy. Indeed, the Biden administration won’t say whether it does.

On Monday, the White House faced a direct question about the case spotlighted last week by the Daily Poster. Psaki was asked whether the administration’s decision to drop its appeal indicated a shifting approach to student debt bankruptcy cases.

“I would really point you to the Department of Education and the Department of Justice, potentially,” Psaki said. “But I will check and see if there’s anything more we can offer on that from here.”

The administration’s recent pro forma appeals — and its opposition to a few dozen other attempts to have student debt discharged through bankruptcy — represent only a small fraction of the tens of millions of people with federal student loan debt.

But fighting debtors in this handful of cases could have a widespread chilling effect, said National Consumer Law Center attorney John Rao. Without any new public guidance as to how the government will handle such cases moving forward, fighting debtors will further discourage people from trying to discharge their student debts through bankruptcy.

“Almost nobody brings these cases, and the reason they don’t is because of the difficult burden of proving ‘undue hardship,’ and the litigation cost,” Rao told the Daily Poster. “Unless there’s some certainty about what the outcome of the case will be, the cases would never be brought to begin with.”

Biden Administration Moved to Overturn Another Victory

Having student debt discharged through bankruptcy is nearly impossible, and in the few cases where debtors win cases against the federal government, the government has typically appealed the victories.

The new Alabama case the Biden administration initially moved to appeal revolves around Monique Wheat, who in 2018 filed a complaint in Alabama bankruptcy court to have more than $100,000 of her student debt eliminated. Wheat has three children, and at the time was making $10.50 an hour working at a local hospital, according to her filing.

Wheat received assistance from a local church to cover her utility bills, and lived “frugally,” she wrote in her complaint, “having only internet and [spending] $40 in entertainment outside of her normal expenses,” both of which were “to accommodate her children with school activities, [research], and projects.”

Wheat entered the proceedings “pro se,” meaning that she was acting as her own lawyer, and was attempting to win a rare discharge of her student debt through bankruptcy. Her payment plan for student debt “has caused a great deal of psychological stress on the debtor [who] still [has] the student loan debt and accruing interests at a rate that she will never be able to repay,” the complaint said.

In response to her complaint, the federal government, which held her student debt, asked the court to dismiss her claim, saying the debts did not pose an undue hardship and therefore should not be eliminated.

Trump administration lawyers argued in a brief that, among other reasons Wheat should be able to repay her debt, “Ms. Wheat’s oldest child is approximately 13 years old . . . Ms. Wheat’s son may be able to seek employment at 14 and soon contribute to the household income.”

A few weeks ago, on January 25, a judge rejected this argument and ruled in Wheat’s favor, writing that Wheat’s income of $21,290.52 “is clearly below the poverty line.”

“Even without considering any repayment amount on the student loan debt, Wheat cannot afford her and her children’s basic needs,” the judge wrote. “As such, the Court finds Wheat does not maintain a minimal standard of living.”

Just two days ago, on February 8, the Biden administration filed a notice that it would be appealing the court’s decision — though the Education Department is now saying it “does not support an appeal in this case.”

Dozens of Cases Now Running Into Biden’s Broken Promise

Wheat is one of more than 43 million Americans who collectively hold more than $1.6 trillion in federal student debt. Across the country, dozens of these borrowers are currently attempting to have their debt discharged in bankruptcy court, according to court files reviewed by the Daily Poster.

Those debtors are, for the most part, running into a brick wall — one that Biden helped create as a legislator, and which he has thus far failed to change as president, despite promising to do so in 2020.

Student loan debt is statutorily more difficult to eliminate through bankruptcy than other types of consumer debt. Borrowers must undergo a separate proceeding to handle student loans, known as an “adversary proceeding,” where they must prove that their debt is causing “undue hardship,” a standard that is very difficult to meet because courts have adopted a strict interpretation of this phrase.

There are currently dozens of open cases of this type where the Department of Education or Education Secretary Miguel Cardona are listed as defendants. Rao, the National Consumer Law Center attorney, explained that only a very small number of people attempt to have their student debt discharged through bankruptcy, due to the expense and unlikely chance of victory.

Last November, Rebekah Liming gave it a try, filing a claim in the US Bankruptcy Court in Minnesota. According to her complaint, Liming had attended the Minnesota School of Business and graduated in 2008, and currently owes about $45,000 in student loans to the federal government.

In 2017, the Minnesota School of Business was shut down due to “fraudulent and misleading practices.” Since the school she attended was shut down, Liming claimed she has “been unsuccessful in marketing herself with the degree in music she obtained,” because her alma mater “is now widely known as having been closed for fraudulent and misleading practices.”

On February 1, Biden’s Education Department — which itself had brought an enforcement action against the university she attended — filed a response, asking the court to dismiss Liming’s request for relief.

A Year In, Biden Still “Reviewing Current Bankruptcy Policies”

Just before Senator Elizabeth Warren (D-MA) dropped out of the presidential primaries and endorsed Biden, Biden committed to adopting her bankruptcy reform policy plan, which would have repealed parts of the 2005 bankruptcy law. Biden was a major proponent of the legislation as a senator, which exempted private student loan debt from bankruptcy protections. (Federal student loans have been exempt from bankruptcy protections since 1976.) Warren’s proposal would have allowed student debt to be treated like other forms of consumer debt and eliminated through normal bankruptcy proceedings.

Legislation to reform how student debt is treated in bankruptcy proceedings currently has bipartisan support in the Senate. But absent congressional action, advocates are calling on the Biden administration to publish guidelines for how it will intervene in bankruptcy cases which involve federal student debt.

In 2018, the Trump administration issued a request for information asking for the public’s input on reforming how the Education Department handles these cases.

“The U.S. Department of Education (Department) seeks to ensure that the congressional mandate to except student loans from bankruptcy discharge except in cases of undue hardship is appropriately implemented while also ensuring that borrowers for whom repayment of their student loans would be an undue hardship are not inadvertently discouraged from filing an adversary proceeding in their bankruptcy case,” noted the request.

It appeared to signal a shifting consensus on how these cases should be handled, even under a right-wing administration. “We were actually hopeful,” Rao told the Daily Poster, “Especially because of the way the request for information was worded.” But Trump officials never issued updated guidance in response to the request.

Now, advocates hope the Biden administration will issue new guidance — something administration officials told Congress they were looking into last October.

“Easing the discharge process for student loan borrowers in bankruptcy has broad support across the political spectrum,” said Zibel, the National Student Legal Defense Network attorney.

“Despite the Administration’s promises for reform, student borrowers continue to suffer while the Department pushes the same flawed policies in court,” Zibel continued. “The system is broken. Once again, we call on [The Education Department] to immediately change their approach in pending and future bankruptcy cases.”

The Biden administration says it’s still reviewing this approach, as it has claimed since at least last July.

“The Department of Education has indicated publicly that it is reviewing current bankruptcy policies, a process which remains ongoing,” the agency spokesperson told the Daily Poster. “We are continuing to work with the Department of Justice to explore legal pathways to delivering targeted relief to borrowers.”

Incidentally, that’s the same tack the Department has taken with regards to its legal authority to cancel student debt via executive order.

In the meantime, it’s unclear whether the administration will stop fighting borrowers in bankruptcy court.

“​​The Department continues to fight distressed student loan borrowers in bankruptcy while allowing profiteering executives and institutions to walk away from over $1 billion in debts owed to the government,” said Zibel, referring to loan forgiveness the Department has granted to for-profit universities.