In the U.S. alone, 44 million borrowers owe a collective $1.5 trillion in student loan debt. Student loan debt has recently surpassed credit card debt and automobile loans as the highest consumer debt, trailing behind mortgage debt. For many, filing for bankruptcy relief might be a viable option, but student loans are generally seen as bulletproof in bankruptcy filings. However, this might not be the case for all.
It’s certainly true that discharging student loan debt is difficult in a bankruptcy, but for some, it’s not impossible. The issue seems to be that most consumers don’t bother including student loan in debt in their bankruptcy proceedings because they assume they’ll never be eligible for a discharge. Consumers are better served when they speak to an attorney about their bankruptcy filing. If there is an option for assistance with student loans, an attorney will most likely know about it.
Recently, bankruptcy filers have begun trying different approaches for discharging student loan debt, and some succeeded. For example, if the borrower can prove that the loan causes undue hardship, they may be eligible for a discharge. Also, federal student loans and private student loans are often treated differently. Since private student loans are not eligible for an income-driven repayment plan, IDR, it might be easier to prove they are causing undue hardship.
Over the past few years, Courts have also been making decisions on cases involving loans taken to attend schools without a federally approved accreditation. If someone attended an unaccredited institution, the Court may decide that the loans borrowed to attend that school are not “student loans,” and rule them eligible for discharge.
With student loan debt soaring across the country, it’s important for students to manage their money and keep an eye on their budgets. However, it doesn’t hurt to speak to an attorney and find out if there are any options available for those with mounting student loan debt. In 2018, the U.S. Department of Education announced that it will begin reviewing policies that make it difficult for student debt to be discharged in bankruptcy, possibly even altering those policies. Making student loan debt dischargeable might be a lifeline for millions of borrowers, helping them restore their credit.