November 17, 2022
GUIDANCE FOR DEPARTMENT ATTORNEYS REGARDING STUDENT LOAN
This memorandum provides guidance (Guidance) to Department of Justice (Department) attorneys regarding requests to discharge student loans in bankruptcy cases. Developed in coordination with the Department of Education (Education), this Guidance will enhance consistency and equity in the handling of these cases. In accordance with existing case law and Education policy, the Guidance advises Department attorneys to stipulate to the facts demonstrating that a debt would impose an undue hardship and recommend to the court that a debtor’s student loan be discharged if three conditions are satisfied: (1) the debtor presently lacks an ability to repay the loan; (2) the debtor’s inability to pay the loan is likely to persist in the future; and (3) the debtor has acted in good faith in the past in attempting to repay the loan.
To assist the Department attorney in evaluating each of these factors, a debtor will typically be asked to provide relevant information to the government by completing an attestation form (Attestation). The Attestation requests information about the debtor’s income and expenses to enable the Department attorney to evaluate the debtor’s present ability to pay. The Attestation also seeks information that will help the Department attorney evaluate the other two factors. In the following sections, this Guidance provides more detail about the Attestation that a debtor will be asked to complete, and how the information provided in the Attestation will be considered by the Department attorney. In Appendix A, this Guidance provides a sample attestation form. In addition, in Appendix B, this Guidance provides a concrete example of how a debtor’s request for discharge of a student loan will be evaluated.
- Objectives of the Guidance and Education’s Role in Supporting Discharge Cases
In cases where a debtor seeks the discharge of a student loan in bankruptcy, the Department shares with Education the responsibility to represent the interests of the United States in accord with existing law and in the interests of justice. This responsibility includes recommending that a bankruptcy court grant full or partial discharge of student loan debts in appropriate cases. To fulfill that responsibility, Department attorneys should stipulate to facts necessary to demonstrate undue hardship and recommend discharge where the debtor provides information in the Attestation (or otherwise during the adversary proceeding) that satisfies the elements of the analysis below. Some debtors have been deterred from seeking discharge of student loans in bankruptcy due to the historically low probability of success and due to the mistaken belief that student loans are ineligible for discharge. Other student loan borrowers have been dissuaded from seeking relief due to the cost and intrusiveness entailed in pursuing an
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adversary proceeding. This Guidance is intended to redress these concerns so that discharges are sought and received when warranted by the facts and law. In addition, Department attorneys are expected to consult proactively with Education to evaluate the specific circumstances of each case.
In collaborating in the preparation of this Guidance, the Department and Education have sought to promote three goals in particular:
- To set clear, transparent, and consistent expectations for discharge that debtors understand regardless of representation;
- To reduce debtors’ burdens in pursuing an adversary proceeding by simplifying the fact-gathering process. This includes use of an Attestation, and where feasible, information provided through prior submissions to the bankruptcy court and available student loan servicing records;
- Where the facts support it, to increase the number of cases where the government stipulates to the facts demonstrating a debt would impose an undue hardship and recommends to the court that a debtor’s student loans be discharged.
Education is committed to supporting Department attorneys handling these cases. Department attorneys should expect that, for each adversary proceeding, Education will provide to the Department attorney a record of the debtor’s account history, loan details, and—where available—educational history, which the Department attorney will share with the debtor. This information will be provided with the Education litigation report.
The Department attorney is expected to consult with Education in each case; consultation includes sharing the completed Attestation and conferring on an appropriate course of action. In its initial litigation report, Education will advise on matters including whether it has data relating to the presumptions in this Guidance regarding assessment of future circumstances and whether it considers the debtor made good faith efforts to repay their student loans. This process will ensure the final decision is informed by Education’s experience administering student loans and its role as creditor. Once the Department attorney reaches a recommendation in accordance with this Guidance, the Department attorney shall submit their recommendation or approval, as appropriate, along with Education’s recommendation, under the standard procedures applicable in that attorney’s component.
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III. Applicable Law
Under Section 523(a)(8) of the Bankruptcy Code, certain student loans may not be discharged in bankruptcy unless the bankruptcy court determines that payment of the loan “would impose an undue hardship on the debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8); United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 278 (2010) (“the bankruptcy court must make an independent determination of undue hardship . . . even if the creditor fails to object or appear in the adversary proceeding.”).1 This inquiry is undertaken through a formal adversary proceeding in the bankruptcy court. United Student Aid Funds, 559 U.S. at 263-64; Fed. R. Bankr. P. 7001(6). The parties in that proceeding may stipulate to the existence of certain facts and recommend that the bankruptcy court find, based on such facts, that repayment of the student loan would cause the debtor an undue hardship.
The most common framework for assessing undue hardship is the so-called Brunner test, emanating from Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). To discharge a student loan under the Brunner test, a bankruptcy court must find that the debtor has established that (1) the debtor cannot presently maintain a minimal standard of living if required to repay the student loan, (2) circumstances exist that indicate the debtor’s financial situation is likely to persist into the future for a significant portion of the loan repayment period, and (3) the debtor has made good faith efforts in the past to repay the student loan. Id. at 396.
Other courts have employed a “totality of circumstances” test (Totality Test) to determine whether repayment of student loan debt would cause an undue hardship. See, e.g., In re Long, 322 F.3d 549, 553 (8th Cir. 2003). The Totality Test looks to: (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s and their dependents’ reasonably necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case. Id.
This Guidance applies in both Brunner and Totality Test jurisdictions. Courts have recognized the Brunner and Totality Tests “consider similar information—the debtor’s current and prospective financial situation in relation to the educational debt and the debtor’s efforts at repayment.” In re Polleys, 356 F.3d 1302, 1309 (10th Cir. 2004); see also In re Jesperson, 571
1 Section 523(a)(8) requires the debtor to demonstrate an undue hardship to discharge nearly all federal student loans, excluding Health Education Assistance Loans, as well as private education loans that meet the definition of qualified education loans under the Internal Revenue Code. See 26 U.S.C. § 221(d)(1).
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F.3d 775, 779 (8th Cir. 2009).2 Both tests require assessment of the debtor’s income and reasonable expenses to determine whether the debtor has the present and future ability to maintain a “minimal standard of living” while making student loan payments. See, e.g., In re Hurst, 553 B.R. 133, 137 (B.A.P. 8th Cir. 2017) (“[I]f the debtor’s reasonable financial resources will sufficiently cover payment of the student loan debt—while still allowing for a minimal standard of living—then the debt should not be discharged.”) (citing In re Jesperson, 571 F.3d at 779). Finally, both tests direct the court to review the debtor’s past efforts at repayment. In re Polleys, 356 F.3d at 1309; see also In re Bronsdon, 435 B.R. 791, 797 (B.A.P. 1st Cir. 2010).
- Discussion of the Applicable Factors
As explained above, consideration of student loan debt discharge requires an evaluation of a debtor’s present, future, and past financial circumstances. This Guidance offers a framework for Department attorneys to apply each of these factors.
With respect to the first factor, the Guidance relies upon the Internal Revenue Service Collection Financial Standards (the IRS Standards) to assess whether a debtor can presently maintain a “minimal standard of living” if required to repay student loan debt. In particular, the Department attorney is advised to use the IRS Standards to evaluate a debtor’s expenses, and then to compare those expenses to the debtor’s income, to determine whether the debtor has a present ability to pay the loan.
With respect to the second factor, the Guidance uses presumptions for determining whether inability to repay is likely to persist in the future. The Guidance recognizes, however, that even in the absence of such presumptions a debtor may be able to establish that their inability to pay will continue in the future.
With respect to the third factor, the Guidance identifies certain objective criteria that evidence a borrower’s good faith. In addition, the Guidance discusses how to evaluate a debtor’s
2 The Eighth Circuit has described the Totality Test as “less restrictive” than the Brunner framework, In re Long, 322 F.3d at 554, but it has also recognized that the distinction between the standards “may not be that significant.” Jesperson, 571 F.3d at 779 n.1, 782. See, e.g., In re Long, 322 F.3d at 554-55 (“Simply put, if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt—while still allowing for a minimal standard of living—then the debt should not be discharged. Certainly, this determination will require a special consideration of the debtor’s present employment and financial situation—including assets, expenses, and earnings—along with the prospect of future changes—positive or adverse—in the debtor’s financial position”); see also Jesperson, 571 F.3d at 782 (the totality approach also requires consideration of “evidence of a less than good faith effort to repay . . . student loan debts”). The Guidance does not supersede applicable case law in the circuits. Department attorneys should advance the principles and goals described in this Guidance consistent with that case law.
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payment history and decision to participate in an income-driven repayment plan, and clarifies that neither of these factors are dispositive evidence where other evidence of good faith exists.
Finally, the Guidance also provides direction to Department attorneys regarding the treatment of a debtor’s assets and the availability of partial discharge.
The Attestation provided with this Guidance will assist in the assembly of the information needed to assess these factors.3 Department attorneys are expected to review completed Attestations in consultation with Education.
- Assessment of Present Circumstances
The first factor relevant to whether a student loan debtor can meet the statutory undue hardship standard requires the debtor to prove an inability to presently maintain “a minimal standard of living” while making student loan payments. To address this factor, the Department attorney should complete two steps. First, the Department attorney should use the IRS Standards to determine the debtor’s “allowable” expenses. Second, the attorney should compare those allowable expenses to the debtor’s income to determine whether the debtor has income after expenses with which to make student loan payments. If the debtor’s allowable expenses exceed their gross income, this element of the analysis is satisfied. If the debtor’s financial circumstances changed since filing the initial bankruptcy petition, the Department attorney can look to the debtor’s actual financial circumstances when making an undue hardship determination. Cf. In re Walker 650 F.3d 1227, 1232 (8th Cir. 2011).
- Assessment of the Debtor’s Expenses
The Attestation solicits expense information from debtors in categories corresponding to the IRS Standards, particularly the portions of the IRS Standards described as “National and Local Standards” and “Other Necessary Expenses.”4 The IRS Standards are a useful guide to assess a debtor’s expenses for purposes of the “minimal standard of living” inquiry. Use of these standards will ensure more consistent and equitable treatment of debtors seeking discharge. The IRS has established and updated the IRS Standards to determine appropriate collection actions where taxpayers have outstanding unpaid tax obligations. The IRS Standards evaluate what
3 As discussed in more detail below, the Attestation requires a debtor to present information relevant to the Department attorney’s analysis in an efficient, organized manner. If the debtor’s satisfaction of the requirements for discharge are clearly demonstrated by the complaint or other facts available outside the Attestation, then upon verification of those facts, a Department attorney may recommend discharge without requiring that the debtor complete the Attestation.
4 Links to the IRS Standards are found at https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards.
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expenses are “necessary to provide for a taxpayer’s health and welfare[,]”5 or, as described in the IRS Collection Manual, “the minimum a taxpayer and family needs to live.”6 Courts have recognized the IRS Standards as useful objective criteria in assessing “undue hardship” under Section 523(a)(8). See, e.g., In re O’Hearn, 339 F.3d 559, 565 (7th Cir. 2003); In re Cota, 298 B.R. 408, 415 (Bankr. D. Ariz. 2003). The IRS Standards list certain expenses (the National and Local Standards) for which they provide a recommended maximum allowance, but also recognize other potential expenses (Other Necessary Expenses) that are potentially necessary for an individual’s health and welfare.
Allowance of Expenses in National Standard Categories: The IRS National Standards consist of tables of allowable expense amounts in the following categories: food; housekeeping supplies; apparel and services; personal care products and services; and miscellaneous. Where the debtor’s expenses are below the amount allowed under the IRS National Standards, no further inquiry into the debtor’s actual expense amount is needed and the debtor is allowed the full National Standards amount. If a debtor’s reported expenses exceed the IRS National Standard amount, a debtor’s reasonable explanation for why particular actual expenses exceed the standard should be considered carefully by the Department attorney, in consultation with Education, and may be accepted if allowing the additional expenses is warranted by the debtor’s circumstances and would comport with a “minimal standard of living.”7
Allowance of Expenses in Local Standards Categories: The Local Standards provide expense standards for the categories of housing, utilities, and transportation. Unlike the expenses in the National Standards category, for the Local Standards categories, the Department attorney should limit the debtor to their actual expenses. To the extent such expenses do not exceed the amount prescribed in the Local Standards for the debtor’s location and household size, Department attorneys should consider the debtor’s actual expenses in these categories to be consistent with a minimal standard of living and treat such amount as allowed. If the debtor’s actual expense exceeds the Local Standards amount, Department attorneys should generally limit the debtor’s allowable expense to the standard amount. However, as with those expenses categorized as National Standards expenses, the Department attorney should, in consultation
5 IRS, Collection Financial Standards, https://www.irs.gov/businesses/small-businesses-self-employed/collection-financial-standards.
6 IRS, Internal Revenue Manual: Part 184.108.40.206 (July 24, 2019),
https://www.irs.gov/irm/part5/irm_05-015-001#idm139862108264304 (emphasis added).
7 The decision whether to allow expenses in excess of the National and Local Standards will necessarily be fact-intensive, but allowable excess expenses could, for example, include specific health-related costs, costs for special dietary needs, unique commuting requirements, or other needs of the debtor or dependents.
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with Education, carefully consider and accept a debtor’s reasonable explanation for the need for the additional expenses.
Allowance of Other Necessary Expenses: The IRS Standards recognize “Other Necessary Expenses” in addition to the National and Local Standards expenses. The Attestation requests that debtors list expenses in these “Other Necessary Expense” categories. For example, the IRS Standards allow expenses for alimony and child support payments if they are court-ordered and actually being paid, as well as for baby-sitting, day care, nursery and preschool costs where reasonable and necessary. These Other Necessary Expenses are consistent with a “minimal standard of living,” so long as they are necessary and reasonable in amount.8
Allowance for Reasonable Expenses Not Incurred: In addition to the comparison of expenses and income described above, Department attorneys should also recognize there may be circumstances in which a debtor’s actual expenditures fall below the expenses required to maintain a minimal standard of living and to meet basic needs. For example, a debtor may be living in housing that the debtor is not paying for (e.g., the debtor is staying with a family member) or living in substandard or overcrowded housing but should not be required to remain there indefinitely. Likewise, a debtor may be forgoing spending on childcare, dependent care, technology, or healthcare that would otherwise be expenses one would reasonably expect to maintain a minimal living standard. A simple comparison of present expenses and income could unduly assess the debtor’s financial situation against a standard that is below a minimal standard of living. In such circumstances, it would be inappropriate to conclude a debtor possesses income with which to make student loan payments and ignore the debtor’s actual living standard. To address these situations, the Attestation provides an opportunity for a debtor to identify and explain expenses the debtor would incur if able to address needs that are unmet or insufficiently provided for. The Department attorney should use those projected expenses in assessing the debtor’s present and future financial circumstances. Unless the amount of the projected expenses exceeds the Local Standards, it is not necessary to probe the debtor’s calculation.
Appendix B includes specific examples of the recommended analysis of expenses.9
8 The Department attorney may consult the IRS Standards themselves to assist in determining whether these expenses are necessary to a debtor’s minimal standard of living.
9 The Attestation process is intended to be distinct from the bankruptcy “means test,” which is used to determine a debtor’s eligibility for Chapter 7 relief. Although the means test also uses the IRS Standards as part of its calculation of a debtor’s household disposable income for the purpose of establishing bankruptcy eligibility, courts have recognized that the means test is not a test of a “minimal standard of living.” See In re Miller, 409 B.R. 299, 319–320 (Bankr. E.D. Pa. 2009) (means test not appropriate to determine whether the “undue hardship” standard is met) (citing In re Savage, 311 B.R. 835, 840 n.7 (1st Cir. B.A.P. 2004). Moreover, the means test calculation differs from the Attestation in specific ways, including that (1) the means test (unlike
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- Comparison of Expenses with the Debtor’s Gross Income
After determining the debtor’s allowable household expenses using the National and Local Standards and Other Necessary Expenses, the Department attorney should compare the debtor’s expenses to the debtor’s household gross income. Gross income includes income from employment of the debtor and other household members, as well as unemployment benefits, Social Security benefits and other income sources. Debtors normally provide this information in the Schedule I filing. Where debtors filed this form less than 18 months prior to the adversary proceeding, the debtor may use the information on Schedule I to complete the Attestation. Where Schedule I was filed more than 18 months prior to the adversary proceeding or the debtor’s circumstances have changed, the Attestation directs the debtor to provide the new income information.
Using the expense and income information provided in the Attestation, the Department attorney should determine whether the debtor possesses income with which to make student loan payments. If the debtor’s allowable expenses exceed the debtor’s income, the minimal standard of living requirement is satisfied and the debtor may be eligible for a student loan discharge, subject to consideration of the additional factors below. If, however, after considering the analysis described above, the debtor has sufficient discretionary income to make full student loan payments as required under their loan agreement, the debtor has not satisfied the test for undue hardship.10 Where a debtor’s income allows for payment toward the student loan debt but in an amount insufficient to cover the required monthly student loan payment, the Department attorney
the Attestation) is required only for “consumer” debtors whose income exceeds a state “median,” and (2) in practice, the means test often allows expenses regardless of their necessity to the debtor’s basic or minimal standard of living, such as payments on multiple vehicles or for real property other than the debtor’s residence.
10 Department attorneys are expected to consult with Education to determine the monthly repayment amount. Generally, where permitted in a given jurisdiction, the Department attorney should use the monthly payment amount due under a “standard” repayment plan for the student loan in question when determining whether the debtor has the ability to make payments. The standard repayment amount is the payment amount required to pay the student loan within the remaining term of the loan, as determined by Education. See 34 C.F.R. § 685.208. Where the account includes unpaid interest, Department attorneys should take care to ensure that the monthly payment amount would be sufficient to pay the loan obligation in full. Except as required by controlling law, the Department attorney should not use the monthly payment amount available through income-driven repayment plan options as the comparator. Finally, where a student loan has been accelerated, whether based on a debtor’s payment default or otherwise, the Department attorney should, following consultation with Education, determine the standard repayment amount either prior to default or as calculated if the loan were removed from default status.
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should consider the potential for a partial discharge (discussed more fully in Section IV.E. below).
- Assessment of Future Circumstances
The second factor for discharge is whether the debtor’s current inability to repay the debt while maintaining a minimal standard of living will likely persist for a significant portion of the repayment period. This showing is required in both Brunner Test and Totality Test jurisdictions. See In re Thomas, 931 F.3d 449, 452 (5th Cir. 2019); In re Long, 322 F.3d at 554.
A presumption that a debtor’s inability to repay debt will persist is to be applied in certain circumstances, including: (1) the debtor is age 65 or older; (2) the debtor has a disability or chronic injury impacting their income potential;11 (3) the debtor has been unemployed for at least five of the last ten years; (4) the debtor has failed to obtain the degree for which the loan was procured; and (5) the loan has been in payment status other than ‘in-school’ for at least ten years.12 The Attestation is designed to identify any such circumstances, and it advises the debtor to disclose all of the circumstances applicable to their situation and not rely exclusively on a single presumptive basis for claiming a continuing inability to repay.
The presumptions identified in this Guidance are rebuttable. Although circumstances supporting rebuttal of a presumption will likely be uncommon, the Department attorney need not apply a particular presumption if the debtor’s attestation nonetheless indicates a likely future ability to pay. Such a rebuttal must be based on concrete factual circumstances. Mere conjecture about the borrower’s future ability is not enough. For example, the presumption in favor of a
11 The debtor may, but is not required to, submit information from a treating physician indicating that the debtor suffers from a disability or chronic injury impacting their income potential, and when provided, that information should be considered carefully. The presumption may be
applied even in the absence of a formal medical opinion.
Education offers Total and Permanent Disability (TPD) discharge for qualifying borrowers with certain severe disabilities. Because TPD discharge has its own requirements, the existence of that potential administrative relief generally should not foreclose the debtor from showing a future inability to pay. If, in the view of the Department attorney, the debtor may qualify for TPD discharge, the attorney can provide information to the debtor about the program. Finally, Education’s denial of a TPD discharge request is not dispositive of the future circumstances analysis: a prior denial for TPD discharge only implies that Education determined the borrower is likely to have some ability to earn income at the time of the application based on the information provided and evaluation criteria in place, but does not otherwise suggest that the debtor’s income is sufficient to service student loan debt or that future circumstances are likely to change.
12 In the case of consolidation loans, the length of time the debtor has been in repayment includes periods in repayment on the original underlying loans.
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debtor who failed to obtain a degree may be rebutted by evidence that the debtor has received employment offers with salaries significantly higher than their current income. In sum, a presumption may be rebutted by evidence that a debtor’s future financial circumstances render them able to pay their outstanding debt.
The presumptions identified above are not the sole bases upon which a future inability to pay may be found. A debtor may attest to any facts the debtor believes are relevant to future inability to pay, and the Department attorney should review the Attestation to determine whether the facts presented by the debtor satisfy the standards for proof of likely persistence of inability to pay. A Department attorney may find, for example, that a debtor’s financial circumstances are unlikely to improve in the future where the debtor has a significant history of unemployment, even if the debtor’s unemployment does not meet the criteria for a presumption. A stipulation may also be appropriate, even absent a particular presumption, where the institution that granted the debtor’s degree has closed, and that closure has inhibited a debtor’s future earning capacity.13 Education has indicated that closure of a school after completion of the debtor’s degree may affect a debtor’s future ability to pay where the debtor incurs reputational harm from such closure or where the debtor’s lack of access to records hampers employment efforts.14
- Assessment of Good Faith
Whether a debtor has demonstrated good faith with regard to repayment of student loan debt depends upon the debtor’s actions relative to their loan obligation.15 Good faith may be demonstrated in numerous ways and the good faith inquiry “should not be used as a means for courts” or Department attorneys “to impose their own values on a debtor’s life choices.” Polleys, 356 F.3d at 1310. A debt should not be discharged if the debtor has “willfully contrive[d] a hardship in order to discharge student loans,” id., abused the student loan system, In re Coco, 335 Fed. App’x 224, 228-29 (3rd Cir. 2009), for example, by committing fraud in connection with obtaining the loans, or otherwise demonstrated a lack of interest in repaying the debt, id.
13 Education offers a loan discharge for students attending a school that closed while the borrower was in attendance or shortly after withdrawal. As with a TPD discharge, the availability of this administrative relief should have limited influence on the analysis discussed in this Guidance. Debtors may not receive the “closed-school” discharge for a range of reasons that do not implicate their financial status.
14 The presumptions discussed in this Guidance are intended to direct a Department attorney’s assessment of the debtor’s situation and do not shift any burden of proof in undue hardship litigation. Before the court in the adversary proceeding, the debtor retains the burden of proof on all elements of the undue hardship claim.
15 In discussing good faith, this Guidance intends to encompass satisfaction of both Prong Three of the Brunner test and good faith as considered under the Totality Test in evaluating the debtor’s past efforts at repayment.
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Where the debtor has taken at least one of the following steps and in the absence of countervailing circumstances as discussed below, the steps demonstrate good faith. We would normally expect the Department attorney to be able to determine the presence of any countervailing circumstances based on the information contained in the Attestation and provided by Education or that is publicly available.
Evidence of good faith: The following steps evidence good faith:
- making a payment;
- applying for a deferment or forbearance (other than in-school or grace period deferments);
- applying for an IDRP plan;
- applying for a federal consolidation loan;
- responding to outreach from a servicer or collector;
- engaging meaningfully with Education or their loan servicer, regarding payment options, forbearance and deferment options, or loan consolidation; or
- engaging meaningfully with a third party they believed would assist them in managing their student loan debt.
The good faith standard also assesses criteria such as “the debtor’s efforts to obtain employment, maximize income and minimize expenses.” In re Mosko, 515 F.3d 319, 324 (4th Cir. 2008) (citing In re O’Hearn, 339 F.3d at 564); see, e.g., In re Jesperson, 571 F.3d at 780. A debtor’s handling of finances in a manner that suggests responsible management of their debts, including student loan debts, also suggests good faith. A debtor has minimized expenses if their expenses fall within the IRS Standards as discussed in this Guidance.16 Good faith can be satisfied where debtors’ personal or family obligations significantly reduce their employment opportunities or increase their expenses.” Issues concerning employment, income, and expenses are case-specific and may be highly dependent on a debtor’s family, community, and individual circumstances. Debtors may provide an explanation of those circumstances, and the Department attorney should weigh the explanation in consultation with Education.
Actual payment history and IDRP enrollment: Department attorneys should consider the following two issues that frequently arise and deserve additional attention: a debtor’s actual payment history and a debtor’s enrollment or non-enrollment in an IDRP. Department of Education studies have shown that the servicing of student loan debt has been plagued at times
16 By contrast, a debtor whose expenses exceed the IRS Standards should not be foreclosed from showing they have minimized expenses, and the Department attorney and Education should carefully assess any explanations debtors may provide for exceeding the standard expenses.
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by administrative errors and dissemination of confusing and inaccurate information, and that these issues may have affected debtors’ responses to their loan obligations. In addition, the Consumer Financial Protection Bureau has found that debtors have been wrongfully denied IDRP enrollment and that monthly payments have been inaccurately calculated. See Consumer Financial Protection Bureau, Supervisory Highlights Fall 2022, Summer 2021, and Fall. The Bureau has also found that servicers falsely but affirmatively represented to borrowers that loans were never dischargeable in bankruptcy. See Consumer Financial Protection Bureau, Supervisory Highlights, Fall 2014 & Fall 2015. These problems have also given rise to a lack of trust by debtors in the repayment process. As a result, the good faith inquiry should not disqualify debtors who may not have meaningfully engaged with the repayment process due to possible misinformation, wrongful IDRP determinations, or a lack of adequate information or guidance. When considering a debtor’s attempts to engage with their student loan, attorneys should look at the entire life of the loan rather than merely considering the recent history.
Department attorneys should consider payment history within the broader context of the debtor’s financial means and personal circumstances. Where other evidence of good faith exists, including evidence that the debtor lacked financial means to pay or that the debtor made meaningful contact with Education or the servicer to explore repayment options, the failure to repay (or inconsistent or limited repayment) does not indicate a lack of good faith. In some circumstances, the Department of Education may not have records or have incomplete records about a debtor. The absence of ED data should not reduce the weight of the borrower’s evidence.17
Department attorneys should also exercise caution in assessing IDRP enrollment. IDRPs are intended to provide a means through which debtors may respond to difficult financial circumstances, and the model Attestation asks a debtor to identify if they enrolled in an IDRP and to offer an explanation if they did not. Where a debtor participated in an IDRP, this factor is evidence of good faith.18
17 Between March 2020 and December 2022, borrowers were placed into an automatic COVID-related forbearance. The vast majority of borrowers remained in that forbearance for the duration of the period because it included a zero percent interest rate and eligibility toward IDRP and PSLF forgiveness. Due to this extended period, many debtors may not have taken any action toward their loans. This period of inactivity is not evidence of bad faith and actions taken prior to March 2020 should not be discounted because they are not recent.
18 See, e.g., In re Tingling, 990 F.3d 304, 309 (2d Cir 2021); In re Krieger, 713 F.3d 882, 884 (7th Cir. 2013); In re Coco, 2009 WL 1426757, at *228–229; In re Mosko, 515 F.3d at 323; In re Barrett, 487 F.3d 353, 363-64 (6th Cir. 2007); In re Mosley, 494 F.3d 1320, 1327 (11th Cir. 2007); In re Jesperson, 571 F.3d at 782-83; In re Nys, 446 F.3d 938, 947 (9th Cir. 2007); In re Alderete, 412 F.3d 1200, 1206 (10th Cir. 2005); In re Bronsdon, 435 B.R. at 802.
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However, where a debtor has not enrolled in an IDRP, the Department attorney should give significant weight to the fact that, as noted, Education has found widespread problems with IDRP servicing. In particular, Education has advised that IDRPs have not always been administered in ways that have been effective for, or accessible to, student loan debtors. In some cases, borrowers may not have been aware of their IDRP options. At times, servicers failed to inform borrowers about these options in favor of other repayment plans or nonpayment options like forbearance. Likewise, many schools have failed to advise prospective borrowers about IDRPs, despite being legally obligated to do so. See 20 U.S.C. § 1092(d). Thus, non-enrollment alone does not show a lack of good faith.
Where a debtor did not enroll in an IDRP, the Department attorney is expected to look first to the debtor’s Attestation response and to accept any reasonable explanation or evidence supporting the debtor’s non-enrollment in an IDRP. Acceptable explanations or evidence could include, for example:
- that the debtor was denied access to, or diverted or discouraged from using, an IDRP, and instead relied on an option like forbearance or deferment;
- that the debtor was provided inaccurate, incomprehensible, or incomplete information about the merits of an IDRP;
- that the debtor had a plausible belief that an IDRP would not have meaningfully improved their financial situation;
- that the debtor was unaware, after reasonable engagement, of the option of an IDRP and its benefits; or
- where permitted under controlling case law, that the debtor was concerned with the potential tax consequences of loan forgiveness at the conclusion of an IDRP.
Where these explanations are based in part on contact or attempted contact with Education, servicers, or trusted third parties, they evidence good faith.
If a debtor provides an explanation that lacks sufficient detail or is not otherwise acceptable (or fails to provide any explanation), the debtor may still demonstrate good faith through other actions such as making payments, responding to outreach from a servicer or collector, enrolling in deferment or forbearance, making contact with Education or their servicer about their loan, or otherwise taking professional or financial steps that indicate a good-faith attempt to meet their loan obligations. In sum, we would expect Department attorneys not to oppose discharge for lack of good faith where there is a basis to conclude that the debtor’s IDRP non-enrollment was not a willful attempt to avoid repayment.
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- Consideration of a Debtor’s Assets
A debtor’s assets must also be considered in the undue hardship analysis. Department attorneys, however, should not give dispositive weight to the existence of assets that are not easily converted to cash or are otherwise critical to the debtor’s well-being, and should be cautious in concluding that the existence of real property or other financial assets demonstrates a lack of undue hardship.19
The Attestation facilitates this inquiry by seeking information regarding the debtor’s assets. It may be appropriate to suggest that a debtor consider liquidating an asset where the asset is unnecessary to the debtor’s and dependents’ support and welfare. Residential real property and funds in retirement accounts are often exempt from collection under federal or state exemption laws. Although the exempt status of property may not be dispositive of whether that property is necessary for a minimal standard of living, the Department attorney should be careful in considering such property in the undue hardship analysis. In re Marcotte, 455 B.R. 460, 471 (Bankr. D.S.C. 2011).20 The Department recognizes that liquidating a primary residence or retirement account is an extreme measure and therefore requests to liquidate those assets should be exceptionally rare.
- Partial Discharge.
Where appropriate and permissible under governing case law, Department attorneys may recognize the availability of partial discharge. Partial discharge occurs where the bankruptcy
19 The debtors’ assets may be liquidated by a bankruptcy trustee to fund payments to creditors of the estate. Such property, if liquidated by the trustee, would not be available for the payment of student loan debt and thus should not be considered.
20 The question of how exempt property should be considered under the “undue hardship” analysis has generated disagreement among courts. Generally, courts find that “the exempt character of an asset does not necessarily preempt its relevance to a hardship evaluation.” In re Armesto, 298 B.R. 45, 48 (Bankr. W.D.N.Y. 2003); see also In re Nys, 446 F.3d at 947 (recognizing courts must consider availability of assets “whether or not exempt, which could be used to pay the loan”); In re Gleason, 2017 Bankr. LEXIS 3455, at *14 (Bankr. N.D.N.Y. Oct. 6, 2017) (allowing consideration of IRA or 401K account, regardless of exemption status). Other courts, however, have noted the necessity to weigh the policies underlying certain exemptions, for example, the homestead exemption in the debtor’s residence, before considering such assets in assessing undue hardship. Schatz v. Access Grp., Inc. (In re Schatz), 602 B.R. 411, 427-28 (1st Cir. B.A.P. 2019) (reversing bankruptcy court’s treatment of exempt equity in homestead as dispositive of a lack of undue hardship). Notably, the Schatz opinion states that the bankruptcy court failed to make any finding whether the equity in the debtor’s home could be liquidated without imposing an undue hardship on the debtor. Id. at 428.
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court discharges a portion of the outstanding student loan debt while requiring payment of the remainder. 21
Department attorneys may consider recommending partial discharge based upon a determination that the debtor has the ability to make some payments on the loan while maintaining a minimal standard of living, but an inability to make the full standard monthly repayment due. A partial discharge should not result in a remaining (undischarged) balance larger than what a debtor’s discretionary income (as determined under the Prong One analysis) permits them to pay off in monthly payments over the remaining loan term. In practice, a full discharge is appropriate for debtors whose expenses are equal to or greater than their income where they meet the other elements of the analysis. Partial discharge may also be available to a debtor who is able to liquidate assets to pay a portion of the debt but remains unable to pay the remainder while maintaining a minimal standard of living. See In re Stevenson, 463 B.R. 586, 598-99 (Bankr. D. Mass. 2011); In re Clavell, 611 B.R. 504, 531-32 (Bankr. S.D.N.Y. 2020).
Although the process for soliciting and reviewing the Attestation may vary from case to case, Department attorneys should generally observe the following procedures in soliciting Attestations.
- Submission of the Attestation
Upon a debtor’s commencement of an adversary proceeding seeking discharge pursuant to 11 U.S.C. § 523(a)(8), the Department attorney should provide a debtor the opportunity to complete and submit the Attestation. The Department attorney is encouraged to contact the debtor or debtor’s counsel as soon as practicable after service of process in an adversary
21 Section 523(a)(8) is silent with respect to whether bankruptcy courts may discharge part of a student loan based on undue hardship. The concept, however, has been recognized by several courts of appeals. See generally In re Miller, 377 F.3d 616, 622 (6th Cir 2004); In re Saxman, 325 F.3d 1168, 1173-1174 (9th Cir. 2003); In re Alderete, 412 F.3d at 1207; In re Cox, 338 F.3d 1238, 1243 (11th Cir. 2003). In most jurisdictions where no circuit level authority exists, lower courts have permitted partial discharges. See, e.g., In re Rumer, 469 B.R. 553, 564 n.12 (Bankr. M.D. Pa. 2012) (recognizing majority rule is to allow partial discharges); In re Gill, 326 B.R. 611, 644 (Bankr. E.D. Va. 2005) (recognizing lower courts have generally allowed partial discharges); but see, e.g., In re Conway, 495 B.R. 416, 423 (B.A.P. 8th Cir. 2013) (explaining that the general rule prevents discharging parts of individual loans). Prior to any partial discharge, a debtor must have established all elements necessary for an undue hardship determination. See In re Saxman, 325 F.3d at 1175; Hemar Ins. Co. of Am. v. Cox (In re Cox), 338 F.3d 1238, 1243 (11th Cir. 2003).
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proceeding, advising the debtor of the opportunity to submit the Attestation for review by the United States. Any Attestation should be submitted by a debtor under oath by signing under penalty of perjury pursuant to 28 U.S.C.§ 1746. The Attestation requests that a debtor provide documents corroborating the debtor’s stated income (tax returns, or where appropriate, paystubs or other documents proving income). The Department attorney may seek additional evidence where necessary to support representations in the Attestation.
Education will provide debtors’ account history and loan details to the Department and that information will be provided to the debtor with the Attestation form.
- Time for Attestation
Ideally, the Department attorney would solicit the Attestation from the debtor at the outset of the case to permit early consideration whether to stipulate to facts relevant to undue hardship. The Department attorney is not required to impose any strict time limit for the Attestation.
- Bankruptcy Court Authority
The Department attorney should advise debtors that although the United States may stipulate to facts relevant to undue hardship and recommend to the bankruptcy court that a finding of undue hardship is appropriate, the United States’ position is not binding on the bankruptcy court, which will render its own determination whether a debtor has met the standard for an undue hardship discharge. Department attorneys and debtors should cooperate to file appropriate documents to enable the court to consider whether to issue an order to discharge student loan debt based upon undue hardship.
The goal of this Guidance is to provide Department attorneys with a consistent and practical approach for handling student loan discharge litigation. Because of the fact-specific nature of such litigation, questions may arise about how the Guidance should be applied in particular cases. For assistance in interpreting and implementing the Guidance, Department attorneys are invited to contact the Commercial Litigation Branch, Corporate/Financial Litigation Section of the Civil Division.22
22 This memorandum applies only to future bankruptcy proceedings, as well as (wherever practical) matters pending as of the date of this Guidance. This Guidance is an internal Department of Justice policy directed at Department components and employees. Accordingly, it is not intended to and does not create any rights, substantive or procedural, enforceable at law by any party in any matter.