Subscribe to our mailing list

X

Will You Finally Be Able to Get Rid of Your Student Loans in Bankruptcy?

By on March 12, 2015

This week the White House announced a new Student Aid Bill of Rights, which aims to help federal student loan debtors with better options and more clarity in dealing with their problem student loans.

While most of the new initiatives announced are geared toward eliminating unnecessary payment hurdles and make dealing with federal student loan repayment options easier, one section points to an important shift in government policy.

Many people continue to suffer under the misunderstanding that student loans can’t be discharged in a consumer bankruptcy. While student loans might currently be onerous to discharge in bankruptcy, some are very easy to eliminate. Take for example, these private student loans.

For the past couple of years I’ve been studying the elimination of student loans in bankruptcy. What is surprising to people I share this information with is that both federal and private loans have been and continue to be discharged by skilled bankruptcy attorneys who understand this shifting landscape.

The reality about discharge was first studied by Jason Iuliano, a Harvard trained lawyer. Iuliano discovered the reality of student loan discharge in bankruptcy was that four out of 10 who attempted to discharge their loans were successful.

Granted, a 40% rate is not success for the majority, but it’s not inconsequential either. More disturbingly, he found that in just the one study year, 69,000 debtors would have been good candidates to receive some or full relief from their student loan debt but they never even tried to discharge the loans. In fact, few ever try to discharge their student loans in bankruptcy. “99.9% of student loan debtors in bankruptcy never attempt to get a discharge,” says Iuliano.

The vast majority of bankruptcy attorneys continue to tell consumers a discharge is just not possible. One reason is the tough go the federal government and student loan lenders have given attorneys in the past. Student loan defendants have been forced some debtors and attorneys to enter expensive litigation to prove the loans create an undue hardship and should be legally eliminated in bankruptcy.

READ  Half Million Dollars of Federal Student Loans Discharged in Bankruptcy

But in the Student Aid Bill of Rights announced this week, one section in particular points to the government making it easier for struggling students to eliminate their debts in bankruptcy.

Section 3(b) says, “By July 1, 2015, the Secretary of Education shall issue information highlighting factors the courts have used in their determination of undue hardship, to assist parties who must determine whether to contest an undue hardship discharge in bankruptcy of a Federal student loan.”

One way to read this might be the government desires to make a discharge more difficult but buried in the same Bill of Rights is another section where the government wants to provide additional protections for student loan borrowers: “After assessing the potential applicability of consumer protections in the mortgage and credit card markets to student loans, recommendations for statutory or regulatory changes in this area, including, where appropriate, strong servicing standards, flexible repayment opportunities for all student loan borrowers, and changes to bankruptcy laws.”

It clearly appears to me the government is signaling coming clarity to make the undue hardship discharge of federal student loans easier through a unified set of guidelines that bankruptcy attorneys and courts will be able to use to make the elimination of federal student loans a swift and affordable process.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Related Articles:

This article originally appeared on Credit.com.

Source

Last step, fill out the information below or call us for Priority Assistance.

What problems are you having with your report?

Your first name is required. Your first name is required to be at least 2 characters. Your first name cannot be longer than 50 characters.
Your last name is required. Your last name is required to be at least 2 characters. Your last name cannot be longer than 50 characters.
Your email is required.
Your phone is required. Your 10 digit phone number is required.
Your state is required.
Your age is required. Your age must be greater than 18. Your age must be less than 100.

By clicking on the "Contact Me" button above, you consent, acknowledge, and agree to the following: Our Terms of Use and Privacy Policy and to receive electronic communications. We take your privacy seriously. That you are providing express "written" consent for Debt.com or appropriate service provider(s) to call you (including through automated means; e.g. autodialing, text and pre-recorded messaging) via telephone, mobile device (including SMS and MMS - charges may apply), even if your telephone number is currently listed on any internal, corporate, state or federal Do-Not-Call list. Consent is not required as a condition to utilize Debt.com services and you are under no obligation to purchase anything.

By clicking on the “Contact me” button above, you consent, acknowledge, and agree to the following: (1)That you are providing express “written” consent for Lexington Law Firm, Debt.com or appropriate service provider(s) to call you (including through automated means; e.g. autodialing, text and pre-recorded messaging) via telephone, mobile device (including SMS and MMS – charges may apply), or dialed manually, at my residential or cellular number, even if your telephone number is currently listed on any internal, corporate, state or federal Do-Not-Call list; and (2)Lexington Law’s Privacy Policy and Terms of Use and Debt.com’s Terms of Use and Privacy Policy. Consent is not required as a condition to utilize Lexington Law or Debt.com services and you are under no obligation to purchase anything.

About Research Department

Here is where you will find important stories located from around the web which can impact you and your financial life.

One Comment

  1. Rick Banks

    March 13, 2015 at 4:14 pm

    If you have a student loan that is backed by the federal government insurance, and managed by ECMC, then they will continue to be extremely difficult to eliminate. If you are having issues then don’t wait for it to get worst. A good option is to first refinance them. The original will be paid off. And the new refinanced debt is really no longer a student loan. There has been an ever increasing popularity will using peer to peer funding sites to refinance student loans.

Share a Comment / Leave a Reply

%d bloggers like this: