Department of Justice Guidance on Discharging Federal Student Loans in Bankruptcy Expanded to Include FFEL and Perkins Loans

Last November, the Department of Justice, in coordination with the Department of Education, released a new Guidance for assistant United States Attorneys defending bankruptcy adversary proceedings where borrowers seek to discharge federal student loan debt due to an undue hardship. The Guidance attempts to create objective criteria to streamline and reduce the costs of discharging student loans in bankruptcy by allowing debtors to complete a standardized form so the Department of Justice may review and hopefully agree to discharge some or all of the debt in lieu formal discovery and the need for a trial.

On October 19, 2023, the Department of Education formally expanded the scope of the Guidance to include not only loans held by the Department of Education, but also will now include guarantors and educational institutions participating in the Federal Family Education Loan Program “FFEL” and Federal Perkins Loan Programs.

FFEL and Perkins loans are different than other federally backed student loans as these are owned by private lenders, but guaranteed by the government. Even through the FFEL program ended in 2010, it still services about four million borrowers and holds about 7% of the total federal student debt portfolio, or roughly $23 Billion Dollars according to Federal Student Aid data.

This new expansion will allow debtors to avoid costly and time-consuming formal discovery while providing consistent treatment of borrowers whether they have Direct, FFEL or Perkins loans.

Scott Waterman
Chapter 13 Bankruptcy Trustee for the Eastern District of Pennsylvania

Scott F.Waterman, Esq. graduated from Tufts University in 1991 with a dual major in history and political science. He received his J.D. from Temple University School of Law in 1994. He is a Chapter 13 Bankruptcy Trustee for the Eastern District of Pennsylvania, and his office is located in Reading, Pennsylvania.  Previously,  he had his own private law practice focusing on consumer bankruptcy and commercial collection matters. Mr. Waterman is a former Chairof the Eastern District of Pennsylvania Bankruptcy Conference and is a Fellow of the American College of Bankruptcy.  He is a member of the National Association of Chapter 13 Trustees and the Berks County Bar Association.  Mr. Waterman volunteers his time as a current board member of the Consumer Bankruptcy Assistance Project which provides free legal assistance to indigent bankruptcy clients.  In 2014 Mr. Waterman was appointed to be a member of the Local Rules Advisory Committee of the United States Bankruptcy Court for the Eastern District of Pennsylvania in helping to draft new and updated local bankruptcy rules. That same year he served on the Bankruptcy Judge Merit Selection Committee for the Eastern District of Pennsylvania to which he was appointed by the United States Court of Appeals for the Third Circuit. Mr. Waterman has two sons and enjoys sailing, playing softball and watching baseball.  He spends his free time driving his kids back and forth to their various sporting activities.

Cohen
The Student Loans Lawyer

Joshua R.I. Cohen, The Student Loan Lawyer, started his legal career in October 2008, when he passed the bar and founded his own firm. Through his law school experience, he had worked for both legal aid and a private firm doing consumer protection work. Once on his own, he continued with consumer protection but quickly began a niche in student loan work. Within nine months of opening his firm, he filed his first-class action against the student loan industry.  His practice helps students maneuver the rocky terrain of student loans, including understanding how to get loans out of default, how to obtain affordable payment plans, defending student loan collection lawsuits, bringing affirmative claims for violation of student loan law, and discharging loans through bankruptcy adversary proceedings. In addition to helping borrowers, Josh also helps attorneys. His Student Loan Law Workshop, a 2-day intensive workshop teaching attorneys how to incorporate student loan law into their existing practice, is now in its 11th year. Josh is also the creator of software that helps attorneys better prepare and counsel clients regarding their student loans, found at www.studentloantoolbox.net.  He’s been a speaker at the National Consumer Law Center’s Consumer Rights Litigation Conference and the National Association of Consumer Bankruptcy Attorney’s national conference. He also frequently appears for CLE’s for Bar Associations.  Josh was born and raised on Long Island and has lived up and down the East Coast before finally settling down in Vermont, where he’s been since 2012. He holds a BA in Psychology from Brandeis University, an MBA, and a JD from Quinnipiac University School of Law. He has three children and is an avid skier, glamper, and model builder.

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