Student loans have become a big business in this country, both for the government and private lenders. The high, seemingly ever-increasing, cost of college makes it impossible for most students to obtain a degree without taking on debt to finance their education. The student loan debt load that many borrowers have in this country will limit their financial options for years and make it difficult to do things like purchase a home or work in a chosen industry. If given the option, many would seek bankruptcy to relieve this burden, but the current laws and regulations do not allow for the discharge for this type of debt. Thus, borrowers have few choices, and a notable number will go into default because the payments are just too high.
A recent report from the American Bankruptcy Institute’s Commission on Consumer Bankruptcy may offer a glimmer of hope for student loan borrowers. While the recommendations in the report are not binding, and are geared to guide government officials and Congress on ways to address ongoing issues, they could influence how judges evaluate requests to discharge student loan debt. An overview of the standard a debtor must meet to discharge student loan debt, and the reforms the Committee suggest be made in this area, will follow below.
Bankruptcy and Student Loan Debt
The current rules on eliminating student loan debt in a Chapter 7 bankruptcy make it nearly impossible for most borrowers to access this relief. By and large, student loan debt is non-dischargeable, unless a very high burden is met – undue hardship. Undue hardship requires the debtor to show that he/she would not be able to maintain a minimum standard of living if the loans are paid, that the individual made a good faith effort to meet the obligation, and that the situation is likely to continue for a significant period of time. Essentially, the debtor will need to prove that he/she will be unable to secure employment that pays enough to both live and pay off these loans. That usually requires bringing in an expert to testify about the job market in the person’s field of study and experience. Paying for the costs associated with securing the expert are often beyond the means of the borrower, so even asking for relief may not be viable.
While it is not realistic that all the recommendations offered by the Committee will be adopted, such as suggesting Congress allow for discharging student loans seven years after they become due, it does give bankruptcy judges some support for taking a more lenient approach to granting discharge under the current rule. For instance, many judges expect that in order to consider discharging student loans the likelihood of ever being able to repay the debt be more or less hopeless. The Committee would like courts to approach this issue as an evaluation of whether the debtor could reasonably repay the loan within the contract period, while also meeting basic living expenses.
In addition, the Committee recommended the Department of Education, the agency in charge of federal student loans, not fight requests for discharge from individuals who qualify for Social Security or Veterans’ disability benefits.
In all, the Committee seemed interested in lessening the burden on student loan borrowers, which will hopefully manifest into the assessment of this issue over time.
Call a Bankruptcy Attorney
Massive student loan debt can be hard to overcome, and speaking with a bankruptcy attorney is the best way to learn if discharge is an option in your situation. Christopher L. Arrington, P.A. is committed to helping individuals like you through the Chapter 7 bankruptcy process, and is waiting for your call. Contact the Brownsburg bankruptcy firm to schedule an appointment.