26 February 2018

The DOE, Student Loans, and the Meaning of Undue Hardship: Part 2

What's the deal with the reference in the Request for Information I discussed here to a "2015 Dear Colleague Letter"?

In my previous post I described what I anticipate will be the non-event of the Trump Administration DOE's Request for Information about the factors for determining undue hardship in bankruptcy. Undue hardship is the legislative standard which, if met, permits student-loan borrowers to discharge their student-loan debt in bankruptcy. Suffice it to say that the standard is hard to meet.

Buried at the end of the Request was a solicitation for information about a related detail: "(5) whether and how the 2015 Dear Colleague Letter should be amended." The "Dear Colleague Letter," issued by the Obama DOE, which you can read here, goes into great detail with regard to both the specific factors a holder must consider when evaluating a bankrupt borrower's claim of undue hardship and whether the inevitable cost attending a legal battle would be worth the win. Taken together, the Dear Colleague Letter is a roadmap to stating a claim of undue hardship that at least will touch all possible bases.

One might suppose that attorneys who wish litigate an undue hardship claim on behalf of a client already know about this Dear Colleague Letter but--ahem--if not, they should work it into every adversary action they file.

Of course, one might wonder about the use of "Dear Colleague" letters that in effect frame a rule when, after all, the DOE has no rulemaking power on this question. Notwithstanding the Constitutional issues raised by this practice, I'll leave that wondering to any administrative law wonks who read this post.

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