Federal Judges Push Back On Student Loan Debt Creditors

Signs of pushback from judges Legal experts say there are signs judges are beginning to push back against creditors in student loan cases, as seen in cases such as Wolfson's and Wheat's. In a New York case, U.S. Bankruptcy Judge Cecelia Morris railed against the “myths” that debtors can’t erase their student loans through bankruptcy court because of how the Brunner standard has been applied.

Her 2020 ruling wiped out $221,385 in student loan debt for Kevin Rosenberg of Beacon, New York. He had earned a bachelor’s degree at the University of Arizona in 1996 and a law degree from Cardozo Law School in 2004, sandwiched around two stints in the Navy. Rosenberg left the legal profession quickly to open a business selling camping equipment in Brooklyn, which he said yielded more than $100,000 in income some years. But the business suffered and he filed for bankruptcy in 2018, when he was earning about $1,500 per month less than expenses while still facing huge debt. “If those loans are allowed to stand, I have no chance at having a life," Rosenberg told USA TODAY. "I’m basically just an indentured servant working to pay off my loans and never actually benefitting from them."

In discharging Rosenberg’s student loans, Morris found interpretations of the Brunner case yielded "harsh" results because judges treated the standards as "punitive." “Brunner has received a lot of criticism for creating too high of a burden for most bankruptcy petitioners to meet,” Morris said in her ruling. “The court will not participate in perpetuating these myths.”

The Educational Credit Management Corp., which took over collection of Roseberg's payments, appealed her decision to the U.S. District Court, which sent the case back to Morris for a full trial that is still pending. New York Attorney General Letitia James filed an argument supporting Rosenberg in the case by arguing the legal regime and practical experience had changed in the decades since the Brunner test, with "vastly increased" student debt that led to "a nationwide crisis in student debt." “I think they appeal everything just to scare people as well," Rosenberg said of student loan creditors.