Supreme Court Denies Appeal to Erase Student Loan Debt in Bankruptcy

On January 11th, the U.S. Supreme Court denied an appeal seeking to make it easier to erase student loans in bankruptcy, according to a recent Wall Street Journal article. This case highlights a focal point for consumer advocates and lawmakers as more and more student loan borrowers fall behind on their payments. Student loan debt has more than doubled since 2007 to $1.3 trillion, and as many as one in four borrowers—excluding those still in school—are 90 days behind on payments, according to data from the Federal Reserve Bank of New York.

Student loan debt is prohibited from being canceled in bankruptcy unless it can be proven that an “undue hardship” is being faced. This vague phrase has led to uneven interpretations in the courts. 

The Justice Department, in a separate litigation last year, argued that the fiscal integrity of the federal student-loan program depended on ensuring that loans are repaid when feasible. More than 80% of all outstanding student debt in the U.S. is guaranteed by or directly owed to the Education Department, leaving taxpayers on the hook when borrowers fail to repay, according to the article.

Obama Administration officials have pointed to protections in the federal loan program—including the option to tie monthly payments to a borrower’s income, and to have balances forgiven after 20 years of payments—that reduce the need for bankruptcy.

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