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Bipartisan panel at House hearing presses overhaul of student loan discharge rules
Summary
Witnesses, judges and members told the subcommittee that the current undue-hardship standard effectively bars student loan discharges for almost all filers and urged Congress to revise the statute to permit meaningful bankruptcy relief for student borrowers; some proposed removing 'undue' from the test to reset judicial standards.
Ranking Member Jerrold Nadler and other Democrats used the House Judiciary subcommittee hearing to press for changes to the bankruptcy code’s treatment of student loans, arguing the existing ‘‘undue hardship’’ standard makes discharge near-impossible for most borrowers.
Witnesses, including Professor Melissa Jacoby of the University of North Carolina School of Law, said the statutory and judicial developments since the 1970s have left student loans treated very differently from other unsecured debts and that the Brunner undue-hardship test in many circuits places an almost insurmountable burden on debtors. Jacoby told the committee that the relevant portion of the code “should be at least reformed if not repealed.”
Judges on the panel described the practical hurdles. Judge Michelle Harner said the process requires a separate adversary proceeding and that, in her experience, it is rarely successful; she described a single case in which she granted a partial discharge for a 67-year-old woman but could not find facts sufficient for a full discharge under the Brunner standard. Judge Paul Black and Professor Douglas Baird also told members the current standard is costly and difficult to litigate and recommended statutory revision.
Several members and witnesses supported a narrower, surgical statutory change: removing the word “undue” from the phrase “undue hardship” in the Bankruptcy Code so courts would revisit the standard and restore more flexible judicial review. Representative J. Luis Correa, who said he will introduce the Student Loan Bankruptcy Improvement Act, described that change as a realistic step that would “press the reset button” for courts while leaving the court process and means-testing safeguards in place.
Witnesses and members emphasized that the demographic of affected borrowers has broadened well beyond recent graduates, noting a growing population of older borrowers and seniors who face garnishment of wages and Social Security checks. Professor Jacoby and Judge Harner said reform would help vulnerable groups, including older Americans and disabled veterans, who often cannot meet the current test.
Not all panelists answered whether full repeal of the special treatment was appropriate; several urged a menu of options that could win bipartisan support. No substantive statutory amendment was enacted at the hearing; members sought unanimous consent to enter letters and reports into the record advocating reform.
