Attorney Austin Smith who is on my list of attorneys you should consider for student loan legal help has sent in an incredible post on a new angle on dealing with private student loans. Fascinating. Here is his post.
In previous posts, Steve and I have discussed how some private student loans can be discharged in bankruptcy. To wit, we discussed how a private loan must meet the definition of a “qualified education loan” in order to be non-dischargeable under the Bankruptcy Code.
What is a “qualified education loan”? Generally, it’s defined as a debt incurred by a full-time student, at an eligible school, for no more than the “cost of attendance.” Therefore, if you were only a part time student, or your school was not accredited, or you borrowed more than the “cost of attendance,” your private loan may not have been a “qualified education loan,” and there may be relief available to you in bankruptcy (link to previous posts).
But recent case law suggests that there is in fact another rather stringent requirement. In a recent case I litigated in the District of Minnesota, the Court concurred with my argument that among the many requirements for a private student loan to be a “qualified education loan” under section 523(a)(8)(B) and IRC 221(d) is that the debtor who incurs the debt have been a “taxpayer” at the time they borrowed the money:
A qualified educational loan is defined as, one, any indebtedness incurred by a taxpayer, two, solely to pay qualified higher education expenses, three, which are attributable to education furnished while the recipient was an eligible student . . . [l]et’s talk about taxpayer first. Navient argued that taxpayer is everyone. Anybody out there is a potential taxpayer and, therefore, everyone could be a taxpayer . . . [t]he Debtor argued that a taxpayer is only someone who actually pays—I think they argued—income tax, has positive income tax that’s paid to the United States government. Schultz v. Navient Solutions, Inc. 2016 WL 8808073, at *4 (Bkrtcy.D.Minn., 2016)
Who is not a taxpayer? Well, because a taxpayer is defined broadly in federal law, the only person who is likely not a taxpayer is a person who did not work even for a single day during the year wherein they borrowed the private student loan. So if while you were a student, you were not working (even during the summer) but borrowed a private student loan, that debt may be dischargeable in bankruptcy.
So, if you have large amounts of private student debt, and you ignored your parents’ demands that you get a job while you were in college, you may just be in luck. And I’m happy to review your materials if you believe you fit this definition.