The influence of gender and other extralegal factors on student loan bankruptcy decisions

What is it about?

Today student loan borrowers owe in excess of $1.6 trillion in loan debt. If a debtor is unable to repay their loan(s), they can seek relief in the courts through partial or full discharge of their student loan debt. To do this, they must submit a separate filing under the "undue hardship" exemption and demonstrate that (1) repaying their student loans would not allow them to maintain a minimal standard of living, (2) their current financial state will likely not change, and (3) they have made good faith efforts to repay their loans. The present research investigates how the courts make decisions based on the abovementioned criteria and explores potential gender biases that may affect these criteria and, thus, the court's decision whether or not to discharge the loan(s). Researchers analyzed over 900 student loan discharge decisions from 1985 to 2020. Findings reveal that female single parent debtors are more likely to receive a discharge of their loans relative to male single parents who are similarly situated. Additionally, male debtors alleging a medical condition are more likely than female debtors alleging a medical condition to receive a discharge of their loans. These findings are discussed in connection to stereotypes of men and women. Lastly, regardless of gender, having an attorney significantly increases a debtor's odds of obtaining a discharge. The article concludes with recommendations for debtors seeking relief in the courts and suggestions for how to combat potential unconscious bias in the decision-making process.

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Photo by Stephanie Hau on Unsplash

Photo by Stephanie Hau on Unsplash

Why is it important?

President Biden recently pushed back the federal student loan moratorium to August 31st, 2022, allowing many Americans to temporarily put off payments without accruing additional interest. A wave of debtors are likely to seek relief in the courts when the moratorium expires. The current inflation rate may make repayments on loans particularly difficult for many families. While set criteria exist to guide the courts in their decision to remove a debtor's debt, our research findings suggest that there are extralegal influences like a debtor's gender that may bias the court's decision.