Earlier this year, a judge excused a Navy veteran from having to pay $221,000 in education debt. Bankruptcy judge Cecelia G. Morris’ decision garnered plenty of headlines, along with speculation that the ruling might make such discharges easier.
The battle isn’t over, though. A few days later, Morris’ ruling was appealed by the Education Credit Management Corporation, a nonprofit company that guarantees and services federal student loans for the U.S. Department of Education.
The reality is that getting student loans erased in bankruptcy, while technically possible, is so hard and expensive that few people try; even fewer succeed. Without intervention by Congress and a change of heart at the Education Department, struggling borrowers will continue to be trapped in a virtual debtor’s prison.
Taxpayer money is being wasted, as well. ECMC has a long history of aggressively opposing student loan discharges, even when there’s little hope of recovering any money. Among other cases, ECMC has notoriously fought bankruptcy relief for a woman diagnosed with pancreatic cancer, and, in the case of Navy vet Kevin Rosenberg, the subject of Morris’ ruling, a man whose basic living expenses exceeded his income.
The American Bankruptcy Institute’s Commission on Consumer Bankruptcy suggested changes judges could make to help more borrowers, but real reform will require new laws and a more sensible, cost-effective approach by the Education Department.