Student-loan borrowers 'who have no other place to turn' should be able to get rid of their debt in court, a top Democratic senator says — but Biden continues to stall those efforts

• Biden administration officials have appeared willing to reform the student-loan bankruptcy process.
• But the Education Department has continued to oppose debt-cancellation requests in court.

Daniel and Monica Woolley have $111,000 in student debt that they say they cannot afford to pay off.

Though he's employed by the US Postal Service as a letter carrier, Daniel exhausted his paid leave to undergo knee surgeries, and he's still unable to return to work because of complications from the surgery, a bankruptcy-court document the Woolleys filed in March said. Monica, his wife, is a salesperson who's making about $2,400 a month and who's been donating plasma to help pay the bills.

The Woolleys say the cost of day-to-day necessities and health insurance for Daniel's surgeries have placed a significant financial strain on them. They filed for discharge of their debt through bankruptcy because they do not see their income growing anytime soon.

"Due to his age and ill health, the plaintiffs believe that it is reasonably likely that his income will not recover because he will be physically unable to perform the demands of his occupation as a letter carrier for the U.S. Postal Service," the filing said. "Mr. Woolley would show that he has no reasonable likelihood for advancement in his occupation nor for an increase income. Plaintiffs would show that their economic prospects will either remain the same or deteriorate."

Just over a month after the Woolleys filed their complaint, President Joe Biden's Education Department filed an answer opposing the discharge request. While that's a common response in this type of legal case, it starts a process that makes it more difficult for student-loan borrowers than for people with other types of debts to get relief through bankruptcy.

Senate Majority Whip Dick Durbin thinks it's time to reevaluate that process.

"I also believe that we need to rethink the provisions in our federal bankruptcy laws that make student-loan debt one of the few debts that cannot be discharged in bankruptcy proceedings," Durbin said on the Senate floor this week, adding that "bankruptcy should be allowed to be used as a last resort for borrowers who have no other place to turn."

Biden administration officials have indicated a willingness to reform the bankruptcy process for student-loan borrowers. But there's no word on what those reforms would be, or when they would be implemented, meaning borrowers continue to fight the government in court.

'Borrowers facing extreme hardship are paying the price'

The reason it's so difficult to get rid of student debt in court largely boils down to the "undue hardship" standard, in which borrowers have to show that they cannot maintain a minimal standard of living, that their circumstances aren't likely to improve, and that they have made a good-faith effort to repay their debt.

But proving that hardship isn't easy; very few borrowers seeking relief through bankruptcy have been able to provide enough evidence to qualify. And as a senator in 2005, Biden expanded that standard to apply to borrowers with private loans.

Biden's Education Department has acknowledged issues with the process. On Monday, James Kvaal, an undersecretary of education, said: "We want to review that policy, and that is something that is underway now. There's an interagency process for that, it's not solely within the department's discretion, and we're working quite hard on that, actually."

Over the past year, though, the department has appealed approvals of discharges, including from a borrower who's said her costly cancer treatment prevents her from making enough money to pay off her debt.

Dan Zibel, the vice president and chief counsel of Student Defense, an organization that advocates borrowers' rights, said in a recent statement that "although the Department of Education has publicly acknowledged the problems, to date, we have seen little in terms of concrete policy changes, and borrowers facing extreme hardship are paying the price."

Durbin and some of his colleagues have offered legislative solutions. Durbin and GOP Sen. John Cornyn last year introduced a bill last year that would allow borrowers to seek a bankruptcy discharge of their federal student loans after 10 years and remove the undue-hardship requirement.

And in late March, 27 Democratic senators said student-loan borrowers had to clear an "unnecessary high bar" to get rid of their debt in court, making it "virtually impossible for those without representation."

Do you have a story to share about bankruptcy on your student loans? Reach out to Ayelet Sheffey at asheffey@insider.com.