Elizabeth Warren wants more student loan borrowers to know bankruptcy is easier now

U.S. Senator Elizabeth Warren (D-MA) faces reporters during a break in a bipartisan Artificial Intelligence (AI) Insight Forum for all U.S. senators at the U.S. Capitol in Washington, September 13, 2023.
Julia Nikhinson | Reuters

Elizabeth Warren wants more student loan borrowers to know that it is now easier to part with their debt in bankruptcy court.

In a May letter reviewed by CNBC, the Democratic senator from Massachusetts, along with Sen. Sheldon Whitehouse, D-R.I., wrote to Tara Twomey, director of the U.S. Trustee Program at the Department of Justice, urging her "to continue to educate borrowers, attorneys, and courts" about the Biden administration's updated approach for student loan holders.

Warren, a former Harvard Law School professor who taught courses on bankruptcy, is referring to guidance released by the U.S. Department of Education and Justice Department in the fall of 2022. That joint memo was intended to have federal student loans be treated more like other types of debts in bankruptcy, experts say.

More from Personal Finance:
Average consumer carries $6,218 in credit card debt
Here's the inflation breakdown for April 2024 — in one chart
Some vacationers expect to carry summer travel debt

Over the years, policymakers added extra stipulations for the discharge of education loans, expressing concerns that young people would try to ditch their obligations after graduating. As a result, borrowers were often asked to prove a "certainty of hopelessness," and government lawyers battled most requests. Between 2011 and 2019, more than 99.8% of borrowers who filed for bankruptcy did not get their student loans discharged, the senators wrote in the May 23 letter.

Discharging student debt in bankruptcy is now easier

The new guidance has already led to changes.

In the first 10 months of the Biden administration's more lenient process, student borrowers filed more than 630 bankruptcy cases, a "significant increase" from recent years, it reported last year. The administration said that the majority of those borrowers received full or partial discharges of their education debt.

CNBC spoke to bankruptcy attorneys earlier this year who said they noticed the difference.

"While the government used to fight discharge aggressively in almost every case, there is now a policy to agree when the borrower can show financial need and a history of good faith efforts to pay the loans," Latife Neu, a bankruptcy lawyer in Seattle, said in March.

"I've helped several people take advantage of the expanded ability," Neu said at the time.

Many borrowers are 'not aware' of changes

Yet Warren says more work still needs to be done.

"More than 43 million borrowers in the United States carry a total of $1.6 trillion in student loan debt, and more than 2 million borrowers have been repaying those loans for at least 20 years," Warren and Whitehouse wrote.

"DOJ and ED must work harder to encourage borrowers to seek relief — and deliver on that relief when requested," they added.

The Department of Justice and Education Department did not immediately respond to a request for comment.

[video_shortcode_iframe src="https://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=7000315464" itemprop="image" content="https://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=7000315464" data-src="https://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=7000315464"]

'Do [it] now before November'

Malissa Giles, a consumer bankruptcy lawyer in Virginia, agreed that the government needed to better inform borrowers and lawyers about the new process.

"Most folks I see are not aware of the new bankruptcy discharge options," Giles said. Several of her clients have benefitted from it.

Many law firms continue to refuse to take on these cases, she added, because of the low success rate of the past. She said one attorney told her that he did not want to spend the time updating his strategy for the new procedure before the election. (If former President Donald Trump wins the election, experts say, there's no guarantee the more lenient approach wouldn't come to an end.)

"But for me, that makes it even more important to take advantage of the litigation approach now, rather than waiting," Giles said. "I tell current clients that if they want to pursue discharge and are eligible, they should do [it] now before November."

OTHER NEWS

4 hrs ago

Cowboys head coach Mike McCarthy 'getting fed up' with owner Jerry Jones: report

4 hrs ago

Who Should Steelers Hope Wins Training Camp QB Battle?

4 hrs ago

Goaltender's dad talks up the Oilers' chances of lifting the Stanley Cup

4 hrs ago

Phillies turn rare 1-3-5 triple play against Tigers, 1st since 1929

4 hrs ago

Discount Burger Check? Chiefs' Reid Shares Hilarious Commercial Story

4 hrs ago

'Devastating loss': Digital lending library, Internet Archive, removes 500,000 books after being sued by publishers

4 hrs ago

Iga Swiatek vs Coco Gauff vs Aryna Sabalenka vs Elena Rybakina: WTA ‘Big 4’ state of play ahead of Wimbledon

4 hrs ago

Would a Toronto byelection loss spell doom for Trudeau?

4 hrs ago

BlackSuit ransomware gang blamed for ongoing car dealership outages

4 hrs ago

'Unreal' injury-time equaliser saves football powerhouse

4 hrs ago

Nigel Farage accused of cosying up to the Kremlin by former NATO boss

4 hrs ago

Dagestan, in southern Russia, has a history of violence. Why does it keeps happening?

4 hrs ago

Marines revive a World War II airfield on Peleliu in Pacific pivot

4 hrs ago

Fortnite Brings Tilted Towers and Other Fan Favorite Locations, But With a Twist

4 hrs ago

Shadow of the Erdtree Puts the Cherry on Top of Elden Rings Main Strength

4 hrs ago

Anger erupts as Albo's governor-general is awarded payrise

4 hrs ago

Charo Makes Rare Public Appearance at Project Angel Food Event: 'Life Is Beautiful' (Exclusive)

4 hrs ago

Boozed-up England fans sing '10 German bombers' chant in Cologne

4 hrs ago

Show Respect: ‘Boys are surprised we talk about this, it’s become normalised’

4 hrs ago

After clash with prosecutor, judge reserves ruling on restricting Trump’s rhetoric about agents’ classified documents search

4 hrs ago

Peter Dutton’s nuclear plan ‘doesn’t deliver’ any ‘energy price decrease’ until 2040

4 hrs ago

Where to watch Netherlands vs. Austria live stream, TV channel, lineups, prediction for Euro 2024 match

4 hrs ago

China lunar probe to return to Earth with samples

4 hrs ago

Report: Knicks’ OG Anunoby declines player option, enters unrestricted free agency

4 hrs ago

Saints offensive line ranked 19th in the NFL

4 hrs ago

Senators acquire goaltender Linus Ullmark from Bruins

4 hrs ago

Why Qld feels like home for the Blues

4 hrs ago

Seahawks waive 3 undrafted free agents, make UFL champ signing official

4 hrs ago

Andrew Scott Frantically Runs to Hear Taylor Swift's ‘Style' at 'Eras Tour'

4 hrs ago

England’s Test series v New Zealand: Date, kick-off time and TV channel

4 hrs ago

Bills' McDermott Says Von Miller Has ‘Something to Prove’

4 hrs ago

US prosecutors want Boeing to face criminal charges

4 hrs ago

Finance Minister Michael McGrath set to become Ireland's new EU Commissioner

4 hrs ago

Red-hot Cardinals get huge boost in return of star catcher

4 hrs ago

How police use the mail to spy on you: 60,000 cases in last decade with little pushback

4 hrs ago

These 3 Republicans are Trump’s most likely VP picks

4 hrs ago

Roy Jones Jr. announces his son, DeAndre, died by suicide

4 hrs ago

Luxury Gyms, Like Equinox and Life Time, Are Taking Over Big Retail Spaces

4 hrs ago

Automobili Pininfarina PURA Vision wins prestigious Red Dot Award: Design Concept 2024

4 hrs ago

Pop legend Robbie Williams wears his AFL jersey to see if he still gets recognised in London - with some very surprising results