To date, attempts by debtors to meet the “undue hardship” test have largely been ineffective and expensive.2 As a result, many realistically but also mistakenly assume that student loans simply are not dischargeable in bankruptcy.

The Guidance seeks to change that by providing the objective standards through which the DOE and DOJ will review a debtor’s case–safe harbors of sorts. If the debtor can demonstrate the existence of these facts and circumstances, then the DOJ and DOE will stipulate that the student loans should be discharged. And, while an adversary proceeding will still be a necessary protocol to initiate the review, the clarity provided by the Guidance will allow debtors to more effectively evaluate their likelihood of success before even engaging in the process. Moreover, the DOE will provide its recommendation to the debtor’s counsel and then the DOJ’s decision to stipulate (when appropriate) will allow for abbreviated and less costly proceedings instead of full-blown litigation.

Another important benefit of the Guidance is that DOJ is providing transparency as to how its attorneys will evaluate critical financial information. For example, DOJ has advised that it will allow debtors to take the full amount of any expense covered by IRS National Standards, while it will look to actual borrower expenditures for expenses covered by IRS Local Standards.3 Perhaps most importantly, the DOJ has made clear that its attorneys, when determining student loan affordability, should look to the benchmark affordability of student loan payments under the Standard Repayment plan formula (normally the most expensive and least affordable plan). This is a major shift since previously, great emphasis was placed on affordability of Income-Driven Repayment plans which are normally the least expensive.