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.