83 FR 7460 - Request for Information on Evaluating Undue Hardship Claims in Adversary Actions Seeking Student Loan Discharge in Bankruptcy Proceedings

DEPARTMENT OF EDUCATION

Federal Register Volume 83, Issue 35 (February 21, 2018)

The U.S. Department of Education (Department) seeks to ensure that the congressional mandate to except student loans from bankruptcy discharge except in cases of undue hardship is appropriately implemented while also ensuring that borrowers for whom repayment of their student loans would be an undue hardship are not inadvertently discouraged from filing an adversary proceeding in their bankruptcy case. Accordingly, the Department is requesting public comment on factors to be considered in evaluating undue hardship claims asserted by student loan borrowers in adversary proceedings filed in bankruptcy cases, the weight to be given to such factors, whether the existence of two tests for evaluation of undue hardship claims results in inequities among borrowers seeking undue hardship discharge, and how all of these, and potentially additional, considerations should weigh into whether an undue hardship claim should be conceded by the loan holder.

[Federal Register Volume 83, Number 35 (Wednesday, February 21, 2018)]
[Notices]
[Pages 7460-7462]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-03537]


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DEPARTMENT OF EDUCATION

[Docket ID ED-2017-OPE-0085]


Request for Information on Evaluating Undue Hardship Claims in 
Adversary Actions Seeking Student Loan Discharge in Bankruptcy 
Proceedings

AGENCY: Office of Postsecondary Education, U.S. Department of 
Education.

ACTION: Request for information.

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SUMMARY: The U.S. Department of Education (Department) seeks to ensure 
that the congressional mandate to except student loans from bankruptcy 
discharge except in cases of undue hardship is appropriately 
implemented while also ensuring that borrowers for whom repayment of 
their student loans would be an undue hardship are not inadvertently 
discouraged from filing an adversary proceeding in their bankruptcy 
case. Accordingly, the Department is requesting public comment on 
factors to be considered in evaluating undue hardship claims asserted 
by student loan borrowers in adversary proceedings filed in bankruptcy 
cases, the weight to be given to such factors, whether the existence of 
two tests for evaluation of undue hardship claims results in inequities 
among borrowers seeking undue hardship discharge, and how all of these, 
and potentially additional, considerations should weigh into whether an 
undue hardship claim should be conceded by the loan holder.

DATES: Responses must be received by May 22, 2018.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via U.S. mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by email or those submitted after the comment 
period. To ensure that we do not receive duplicate

[[Page 7461]]

copies, please submit your comments only once. In addition, please 
include the Docket ID and the term ``Evaluating Undue Hardship Claims 
in Bankruptcy'' at the top of your comments.
     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket, is available on the site 
under the ``Help'' tab.
    U.S. Mail, Commercial Delivery, or Hand Delivery: If you mail or 
deliver your comments, address them to Jean-Didier Gaina, U.S. 
Department of Education, Office of Postsecondary Education, 400 
Maryland Avenue SW, Washington, DC 20202-6110. Though this Request for 
Information (RFI) is not regulatory in nature, the Department has 
elected to use the Federal eRulemaking Portal for submissions to ensure 
the process is transparent to all interested parties.

    Privacy Note: The Department's policy for comments received from 
members of the public (including comments submitted by mail, 
commercial delivery, or hand delivery) is to make these submissions 
available for public viewing in their entirety on the Federal 
eRulemaking Portal at www.regulations.gov. Therefore, commenters 
should be careful to include in their comments only information that 
they wish to make publicly available on the internet.


    Note:  This RFI is issued solely for information and planning 
purposes and is not a request for proposal (RFP), a notice inviting 
applications (NIA), or a promise to issue an RFP or NIA. This RFI 
does not commit the Department to provide a response to any of the 
comments or take any action proposed in any comment. The Department 
will not pay for any information or administrative costs that you 
may incur in responding to this RFI. The documents and information 
submitted in response to this RFI become the property of the U.S. 
Government and will not be returned.


FOR FURTHER INFORMATION CONTACT: Jean-Didier Gaina, U.S. Department of 
Education, Office of Postsecondary Education, 400 Maryland Avenue SW, 
Washington, DC 20202-6110. Telephone: 202-453-7551.
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION: 

Background

A. Statutory Authority

    The U.S. Bankruptcy Code, 11 U.S.C. 523(a)(8), currently provides 
that student loans can be discharged in bankruptcy only if excepting 
the debt from discharge would impose an ``undue hardship'' on the 
borrower and the borrower's dependents:

Section 523 Exceptions to Discharge

    (a) A discharge under . . . this title does not discharge an 
individual debtor from any debt--
    (8) unless excepting such debt from discharge under this 
paragraph would impose an undue hardship on the debtor and the 
debtor's dependents, for--
    (A)(i) an educational benefit overpayment or loan made, insured, 
or guaranteed by a governmental unit, or made under any program 
funded in whole or in part by a governmental unit or nonprofit 
institution; or
    (ii) an obligation to repay funds received as an educational 
benefit, scholarship, or stipend; or
    (B) any other educational loan that is a qualified education 
loan, as defined in section 221(d)(1) of the Internal Revenue Code 
of 1986, incurred by a debtor who is an individual.

11 U.S.C. 523(a)(8).

    Congress has amended the student loan bankruptcy discharge 
provision several times, tightening the restrictions on discharge with 
each amendment.

B. ``Undue Hardship'' Case Law

    Congress has never defined the term ``undue hardship'' in the 
Bankruptcy Code and has not delegated to the Department the authority 
to do so. Federal courts have established the legal standard for a 
student loan debtor to prove ``undue hardship'' as authorized by 
Congress. In general, the courts have used one of two tests to analyze 
whether undue hardship is proven: The Brunner test (named after the 
case in which that test was first articulated, Brunner v. New York 
State Higher Educ. Serv. Corp., 831 F.2d 395 (2d Cir. 1987)) or the 
Totality of the Circumstances test (Long v. Educ. Credit Mgmt. Corp., 
322 F.3d 549 (8th Cir. 2003).
    Under the Brunner test, the debtor must show that: (1) He or she 
cannot maintain, based on current income and expenses, a minimal 
standard of living for himself or herself and any dependents if forced 
to repay the loans; (2) additional circumstances exist indicating that 
this state of affairs is likely to persist for a significant portion of 
the repayment period of the student loans; and (3) he or she has made 
good faith efforts to repay the loans. Under the Totality of the 
Circumstances test, the court examines: (1) The debtor's past, present, 
and likely future financial resources; (2) his or her reasonably 
necessary living expenses; and (3) any other relevant facts and 
circumstances. Regardless of which test is used, the burden of proof is 
on the debtor to meet the standard and prove undue hardship.

C. Regulatory Requirements: Direct 34 CFR 685.212(c), FFELP 34 CFR 
682.402(i)(1) & Perkins 34 CFR 674.49(c)

    Department regulations currently require holders to evaluate each 
undue hardship claim to determine whether requiring repayment would 
constitute an undue hardship. If a holder determines that requiring 
repayment would impose an undue hardship, the holder must concede an 
undue hardship claim by the borrower in an adversary proceeding. The 
Department's current guidance to guarantors and educational 
institutions in defending bankruptcy proceedings is summarized in a 
July 7, 2015, Dear Colleague Letter (GEN-15-13 https://ifap.ed.gov/dpcletters/GEN1513.html) and provides for a two-step analysis when 
evaluating whether or not to object to a borrower's claim of undue 
hardship. The Department follows the same two-step analysis when 
defending bankruptcy proceedings for Direct loans. After receiving 
input from this notice, we will consider whether that analysis is still 
appropriate.
    Context for Responses and Information Requested: The undue hardship 
standard established under either test requires a variety of factors to 
be evaluated when determining whether repaying a debt will cause a 
debtor and his or her dependents an undue hardship, such as, but not 
limited to, the debtor's: Medical, work, or family history; history of 
mental illness; level of educational attainment; future employment 
prospects; payment history, including a borrower's willingness to avail 
himself or herself of all available repayment plans, including income-
driven repayment plans; and necessary expenses in excess of ordinary 
unique to the debtor.
    The Assistant Secretary for Postsecondary Education invites the 
public, including individuals, advocacy groups, and professional 
organizations, as well as other State or Federal agencies or 
components, to provide comment on, and offer information regarding: (1) 
Factors to be considered in evaluating undue hardship claims; (2) 
weight to be given to any such factors; (3) whether the use of two 
tests results in inequities among borrowers; (4) circumstances under 
which loan holders should concede an undue hardship claim by the 
borrower; and (5) whether and how the 2015 Dear Colleague Letter should 
be amended. The Department will review the data collected to determine 
whether there is any need to modify how undue hardship claims by 
student loan borrowers in bankruptcy are evaluated.

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    You may provide comments in any convenient format (i.e., bullet 
points, charts, graphs, paragraphs, etc.) and may also provide relevant 
information that is not responsive to a particular question but may 
nevertheless be helpful.
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FURTHER INFORMATION CONTACT.
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    Program Authority:  20 U.S.C. 1082(a).

    Dated: February 15, 2018.
Frank T. Brogan,
Principal Deputy Assistant Secretary and Delegated the duties of the 
Assistant Secretary, Office of Planning, Evaluation and Policy 
Development, Delegated the duties of the Assistant Secretary, Office of 
Postsecondary Education.
[FR Doc. 2018-03537 Filed 2-20-18; 8:45 am]
 BILLING CODE 4000-01-P