Americans have taken out over $1 trillion in student loans over the last 15 years.[1] National student loan debt was around $400 billion in 2004 but forty-four million Americans now owe more than $1.5 trillion in student loans.[2] Of those 44 million, around 1 million default on student loans each year.[3] Whether student loans can be discharged in bankruptcy is a hot topic in politics these days. And it should be seeing how much student loan debt is out there. There are currently bills in the House and Senate that would change the bankruptcy code regarding student loans.[4]

Usually, student loans cannot be discharged in bankruptcy. That means that even if you file for bankruptcy and shed most of your debt you will still owe on student loans after you are done. As of now, the only way to have your student loans discharged in bankruptcy is if you can demonstrate an undue hardship. Unfortunately, there is no hard-and-fast rule to determine what a qualifying undue hardship is. Suffice it to say that most attempts at demonstrating an undue hardship fail to meet the test. This is why most student loans survive a bankruptcy filing.

If Senate Bill 1414 is passed, both federal and private student loans would become dischargeable in bankruptcy just like other consumer debt. This would not be the first time that happened. Prior to 1978, student loans were dischargeable in bankruptcy. But, Congress has made numerous changes over the years, slowly chipping away at the bankruptcy laws until, in 1998, student loans were no longer dischargeable unless of course you could show the not-so-likely undue hardship.

There are still some very limited ways that student borrowers could have student loans cancelled or have payments restructured. The Student Loan Borrower Assistance website is a fantastic source for free student loan information from the National Consumer Law Center.[5] You can also visit the Federal Student Aid website for information directly from the U.S. Department of Education about federal student loans.[6]

Bankruptcy attorneys at Davis Miles McGuire Gardner are happy to do a free consultation to help you explore what options you have available if you are experiencing the weight of debt, including student loans, and help you decide if it makes sense to try to restructure or cancel your student loan debt.

 

[1] https://www.cnbc.com/2019/05/10/it-could-become-easier-for-student-loan-borrowers-to-file-bankruptcy.html

[2] https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2018q4.pdf

[3] https://www.durbin.senate.gov/newsroom/press-releases/durbin-warren-nadler-katko-introduce-bill-making-bankruptcy-relief-available-for-student-loan-borrowers

[4] See Senate Bill 1414 and House Bill 885.

[5] https://www.studentloanborrowerassistance.org/

[6] https://studentaid.ed.gov/sa/

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