A Delaware court moved to eliminate $100,000 in student debt for a man who filed for bankruptcy.
Two weeks later, Biden's Education Department appealed that decision.
This places a burden on borrowers whose only option out of student debt is bankruptcy.
Editor's Note: On Friday, the Education Department announced it will be withdrawing its appeal of Wolfson's case and told Insider that "any borrower in an adversary bankruptcy proceeding can request and receive a stay on their proceedings."
Two weeks ago, Ryan Wolfson achieved a rare feat in court — a successful elimination of his nearly $100,000 student-debt load through bankruptcy. But the Biden administration might be standing in the way of the 35-year-old's relief.
The Daily Poster first reported on Wednesday that the Justice Department last week filed a notice of appeal on behalf of Education Secretary Miguel Cardona in the case Wolfson v. DeVos. Specifically, Wolfson said he struggled to find a full-time job after graduating college in 2010, and nine years later, when working full-time for ride-hailing services, he had a seizure and totaled his car.
The judge said Wolfson was diagnosed with "treatable, non-debilitating epilepsy" when he was 12 and that after being on medication for about a decade, he switched to medical cannabis as a safer long-term treatment option.
The judge ruled that Wolfson proved "undue hardship" — a standard that needs to be met for a bankruptcy discharge — and moved to eliminate Wolfson's entire student-debt load.
"The evidence shows that, despite considerable effort, Wolfson has been chronically un- or underemployed since graduating from college; that his sporadic full-time employment has consisted of low-paying gig work or jobs with little prospect of advancement; and that he has avoided living in abject poverty only through significant financial support from his father," the judge wrote in her opinion. "The record further shows that Wolfson's career prospects are unlikely to materially improve over time, and thus, his inability to pay his student loan debt will persist."
But on Friday, Cardona appealed that decision. That could leave Wolfson saddled with student debt he cannot afford to pay off. Dan Zibel, the vice president and chief counsel at Student Defense — an organization that advocates for borrower protections — expressed disappointment in the Education Department's decision.
"Easing the burden on student-loan borrowers in bankruptcy has support across the political spectrum," Zibel told Insider. "In this case, the bankruptcy court's decision is well-reasoned. It also joins a growing chorus of decisions noting how the discharge standards for student borrowers have been wrongly applied. The Department of Education should have welcomed this decision."
What this means for student-loan borrowers
As a senator, Biden was one of the lawmakers who supported the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which established stricter standards a borrower must meet to get rid of their loans through bankruptcy. Specifically, it created an "undue hardship" standard that Wolfson attempted to meet, in which the borrower cannot maintain a minimal standard of living, their circumstances will likely not improve, and they have made a good-faith effort in repaying their debt.
Since that bill was signed into law, many borrowers have struggled to meet the standards, which is why Wolfson's case was significant. The judge wrote in her opinion that courts had been too strict in their interpretations of "undue hardship."
The Education and Justice departments said last year they would be working to revise bankruptcy protections. But if the Biden administration moves forward with the appeal, it's unlikely the majority of student-loan borrowers will have success in court.
Still, a bipartisan group of lawmakers want the process reformed. Insider reported in August that Senate Majority Whip Dick Durbin and Sen. John Cornyn of Texas introduced the FRESH START Through Bankruptcy Act of 2021, which would allow borrowers to seek a bankruptcy discharge of their federal student loans after 10 years.
And in July, Reps. Steve Cohen, Danny Davis, and Eric Swalwell introduced the Private Student Loan Bankruptcy Fairness Act, which would treat private student loans the same as other forms of private debt, easing the process for bankruptcy discharge.
"Student loan debt follows you to your grave," Durbin said in a statement. "Our bipartisan bill finally gives student borrowers — some who were misled into taking out costly loans by predatory for-profit colleges — a chance to get back on their feet when they have no other realistic path to repay their loans."
Do you have a story to share about student debt? Reach out to Ayelet Sheffey at firstname.lastname@example.org.
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