Quick Answer: Student loans exceeding education costs can potentially be discharged in bankruptcy if the excess wasn’t used for qualified educational expenses like tuition, fees, books, and required supplies. Alicia’s $36k debt versus $6k annual school costs suggests possible discharge eligibility for the non-educational portion.
“Dear Steve,
I have both private and federal student loans. My private loans make up about 3/4 of my student loan debt which is around $36k. I fell for the whole, “wait until you graduate to deal with your loans” advice my school and others gave me. I definitely regret that now!!
I saw in an article today that you wrote that if your student loan debt is more then the cost of your education it can be discharged. Can you explain that to me in greater detail? My school costs around $6000 a year but it took me longer than 4 years to graduate. But even then, my loans equal way more than my education actually cost.
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Alicia”
Dear Alicia,
Ah yes. The key information you need to know is if the loans were used for “qualified higher education expenses.”
If not, then that amount not used for such expenses is not protected in bankruptcy.
(A) In general
The term “qualified higher education expenses” means—
- (i) tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution;
- (ii) expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance
- (iii) expenses paid or incurred in 2009 or 2010 for the purchase of any computer technology or equipment (as defined in section 170 (e)(6)(F)(i)) or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution. Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.
(B) Room and board included for students who are at least half-time
- (i) In general In the case of an individual who is an eligible student (as defined in section 25A (b)(3)) for any academic period, such term shall also include reasonable costs for such period (as determined under the qualified tuition program) incurred by the designated beneficiary for room and board while attending such institution. For purposes of subsection (b)(6), a designated beneficiary shall be treated as meeting the requirements of this clause.
- (ii) Limitation The amount treated as qualified higher education expenses by reason of clause
- (i) shall not exceed—
- (I) the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or
- (II) if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.
Here is where that information came from.
So as an example, if you attended a qualified educational institution but were not at least half-time it appears an argument could be made to discharge room and board expenses. Or if you used part of your student loan for living expenses outside of room and board, those may be be eligible for discharge as well.
For more information on this, read this article and scroll about halfway down the page.
Please post your responses and follow-up messages to me on this in the comments section below.
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