- Resolution would have ABA prod Congress on “nearly impossible” bankruptcy standard for student loan discharges
- Young lawyers say pandemic has created the right conditions for student loan reform
- Surveys show massive student debt influences life decisions lawyers make early in their careers
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(Reuters) – Young lawyers and law students are urging the American Bar Association to pressure Congress to make it easier to pay off federal student loans through bankruptcy.
Existing bankruptcy law sets the bar too high for distressed borrowers to find relief, they say, and the pandemic has created an opportunity for lawmakers to rethink the student loan discharge standard now in place. On Monday, the ABA House of Delegates – the organization’s policy-making body – will consider a resolution calling on the ABA to push Congress to amend the bankruptcy code.
“Debt is absolutely the # 1 problem for young lawyers,” said Chris Jennison, an attorney with the Federal Aviation Administration and current Assembly speaker for the Young Lawyers Division of the ABA. “There are millions of people with crushing student debt and other debt, and with the economy as it is, we need some kind of action to keep people afloat.”
The latest figures from the US Department of Education show that law school graduates walk away with an average debt of $ 138,500 in student loans. Jennison cited a 2020 survey conducted by the Young Lawyers Division in which many respondents said they postponed important milestones such as buying a home and getting married because of their student loans. More than a third said they took better paying jobs they didn’t want because of their debt, and some said their loans were a source of anxiety and depression.
The resolution calls for the removal of the US Bankruptcy Code’s “undue hardship” standard for discharging federal student loans, which has been in place since 1998. While undue hardship is not defined in the code, de many courts have interpreted it to mean that a borrower cannot maintain a “minimum” standard of living while making loan repayments; that they are unlikely to be able to make their loan repayments in the foreseeable future; and that they have made good faith efforts to repay their loans.
“In practice, this standard has proven to be an almost impossible hurdle to overcome in court,” reads the report that the Young Lawyers Division submitted in support of the resolution.
U.S. lawmakers have introduced bills to remove the undue hardship standard in recent years, without success.
On August 3, Senator Dick Durbin of Illinois, a Democrat, and Senator John Cornyn of Texas, a Republican, introduced the Fresh Start Through Bankruptcy Act of 2021. If passed, the bill would eliminate the undue hardship standard for borrowers in bankruptcy, but only after having been repaid for 10 years. The ABA resolution does not provide for a waiting period before student loans can be canceled through bankruptcy. But Jennison said he hoped the legislation signaled a renewed appetite for reform in Washington.
“The fact that there is bipartite legislation in the same stadium is very promising,” he said.
The Young Lawyers Division has made lawyer debt a priority over the past year. In February, the ABA House of Delegates overwhelmingly passed its resolution supporting the cancellation of student loans and measures that would make it easier for student loan borrowers to make their monthly payments. (President Biden has said he does not support large-scale student debt cancellation.) Jennison said the ABA’s pending resolution is the “next logical step” in the division’s efforts to reduce the loan burden for early career lawyers.
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