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Dear ED: Clarify Undue Hardship

On May 16, 2014, seven Congressmen/women sent a letter to Secretary of Education, Arne Duncan, asking for clarification of “Undue Hardship” to allow Federal student loans to be discharged in bankruptcy.  The signers of the letter were Senators Dick Durbin (D-IL), Jack Reed (D-RI) and Elizabeth Warren (D-MA), and Representatives Steve Cohen (D-TN), John Conyers (D-MI), Elijah Cummings (D-MD), and Hank Johnson (D-GA).

Undue Hardship

While most debts are dischargeable in bankruptcy, student loans are not, be they Federal or private.  The only way for a student loan to be discharged in bankruptcy is upon a finding that not discharging the loan(s) would create an undue hardship.  There is, however, no firm definition of undue hardship in the bankruptcy code.  This leaves the Courts to define the term which has been, in a word, messy.

The Letter

A copy of the letter can be found on Representative Cohen’s (no relation) website.  It requests clarification of undue hardship under the bankruptcy code, and the establishment of criteria whereby a note holder, or agency working on their behalf (which should included servicers and debt collectors), would be required to determine if the borrower falls under the definition of undue hardship.  The letter also suggests that the word “borrower” should included co-signers or the like.  This would discharge the loan for both signers so long as one met the definition of undue hardship.


Lastly, the letter suggests situations that should qualify for an undue hardship discharge:

  • borrower is receiving SSDI.  This would expand coverage.  Right now, receipt of SSDI is not enough to discharge a loan.  An SSID recipient who is totally and permanently disabled can receive an administrative discharge (TPD Discharge).  Interestingly, this would do away with the need for the TPD discharge since the amount discharged under TPD is taxable.  The amount discharged through a bankruptcy discharge is not taxable.  Which would you choose?
  • borrower is a veteran who is unemployable due to a service connected disability.  This, believe it or not, already exists as this situation automatically qualifies such a borrower for TPD discharge.  The only difference is the tax issue previously discussed.
  • borrower’s only income is from SS or other retirement funds AND yearly household income is less than 200% of the poverty guidelines.  Based on the 2014 guidelines, a family of 2 with an income of $31,460 living on SS or other retirement funds would qualify for an undue hardship discharge.
  • borrower cares for an elderly, disabled, or chronically ill immediate family member and yearly household income is less than 200% of the poverty guidelines.  For a family of 4, an income less than $47,700 would qualify the borrower for an undue hardship discharge.
  • borrower is a caregiver to an eligible veteran.  Glad to see veterans AND their families are receiving the respect they deserve.
  • borrower’s annual household income for the 5-years proceeding the filing of bankruptcy was less than 175% of the poverty guidelines.  The 5-year period does not count any period during suspended payment (deferment or forbearance).  A single person would qualify if their annual income was less than $20,422 during the 5-year period (while repaying the loan).  A family of 4 would qualify with an income less than $41,738 for the 5-year period.

ED to the Rescue

The most interesting thing is that this is not legislation.  This is an open request that the Department of Education (ED) do something – actually DO something.  It bypasses the political stalling machine and explicitly tells ED that they have the power to act, with guidance.  It is a suggestion on how ED could “rescue” the neediest of student loan borrowers.  If one thinks about this, it makes economic sense too.  Instead of wasting tax-payer money on defending discharge litigation, why not create objective guidelines that discharge loans for those who are likely uncollectible.

If you like this letter, I’d like to suggest you take action.  Contact your Congressmen/women to lend support.  Contact ED to do what the the letter requests.


  1. Studentloanrefugee

    I’ve been calling for this for years. If Congress won’t act, the Executive branch can still offer meaningful reforms through administrative action, such as accepting receipt of SSDI as proof of disability for TPD discharge. (Although there is is still an unacceptable gap that allows those receiving VA benefits to escape the three year income monitoring rule that SSDI beneficiaries must endure.)

    However, doesn’t the bankruptcy code require an “adversarial hearing” on undue hardship claims? What about the numerous (draconian) tests that the courts have devised? Would the development of objective administrative criteria override the court precedents?

    • Joshua Cohen

      It wouldn’t override, but it would help the Courts greatly as they would have objective standards to mirror.


  1. […] According to student loan lawyer Josh Cohen, the congressional leaders behind the request are asking the Department of Education for a definition of undue hardship whenever a debtor receives SSDI, has a military service related injury that prevents employment, has income from only Social Security or retirement funds that does not exceed twice the poverty guidelines, cares for an elderly or disabled family member and earns less than twice the poverty guideline, or has a record of earning less than 175% of the poverty guidelines for the past five consecutive years. […]