Our office defends student loan collection lawsuits. We often file bankruptcy cases to stop student loan collections or discharge the student loan debt. The bankruptcy code is supposed to make student loans nondischargeable. However, every year about 500 undue hardship cases are filed seeking to discharge student loans. Half of the cases are successful in getting one of the hardest discharges possible, called the “undue hardship student loan discharge.” Almost everyone can make their student loan affordable. Here we will explain just some of the solutions to making every student loan affordable.
The above diagram is a quick checklist of the questions to see if you can qualify for programs to discharge your loan or make it affordable. Your loan may be dischargeable in bankruptcy.
Some expenses and students can be discharged in bankruptcy
A. To not be dischargeable the loan must be a “qualified educational debt” as defined by 11 USC 523(a)(8)(B) and 26 USC 221(d)(1). To be a “qualified higher education debt” the expenses, cost of attendance, eligible educational institution status, and the student must all be elligible under these definitions. These limits on school loans are defined and hidden in the IRS code and section §472 of the Higher Education Act of 1965 (20 USC 1087ll). It is not in the bankruptcy code.
- Only debts which were made to “eligible” students are non dischargeable in bankruptcy. If you were not qualified to attend a school the loan is dischargeable.
- Only qualified higher educational expenses are non-dischargeable. Often private schools will offer loans above the cost of attendance. This makes the loan dischargeable. Also, debts directly to the school are dischargeable.
- Only loans made for attendance at qualified schools are discharge
Some schools are not qualified and can be discharged in bankruptcy
B. Only attendance at an accredited educational institution is non-dischargeable. Your loan is dischargable in bankruptcy if you attended an unaccredited school. Harvard is an accredited school. Bill’s school of scuba diving or truck driving probably isn’t. Here is the list of qualified schools. https://ope.ed.gov/accreditation/Search.aspx. If your debt is also dischargeable if it was directly with the school or funded by a non-profit school. If you owe Sullivan college 5,000 the debt is dischargeable if you or DOE it probably isn’t. Guaranteeing the loan is not funding your attendance.
VA student loans are dischargable in Bankruptcy
C. Some loans have separate statutes which allow a discharge. For instance, VA student loans can be discharged after five years 38 USC 303 a(e)(4). The Department of Defense also issues loans that are dischargeable after five years under 20 USC 6674(f)(3). The Toops to Teachers program bars any discharge even if it is an undue hardship. Heal loans use an unconscionable standard.
The Undue Hardship standard for bankruptcy discharge
D. The loan is dischargeable if it would be an undue hardship for the student or his dependants if you can’t afford food, shelter or medical care if you paid the loan you probably qualify. Private loans are easier to discharge under this standard because they have no income based repayment.
- The Debtor cannot repay and maintain a minimal standard of living
- The situation will continue for a significant portion of the repayment period
- The Debtor has made good faith efforts to repay.
E. The loan may qualify for an administrative discharge or other program. Many administrative discharges or rehabilitations are simple short forms. We and Salt list over 60 programs which repay the loan or help repay the loan. These are just some of the more popular administrative discharges.
- Stolen Identity
- Closed School
- Unauthorized Signature
- Public Service f. Disqualified Status
- Unpaid Refund
- Inability to benefit
- Unaccredited school
Private v Government Student loan collections
F. Government loans can seize wages, bank funds, tax refunds and social security benefits without going to court. Private lenders have to sue and win to collect. That may be hard or impossible for private loans. Private loans have higher interest rates and no income based repayment programs. This makes private student loans easier to discharge as an undue hardship.
If your debt is a private student loan, it was probably bought, sold and resold. If so it may be uncollectible. There are at least 63 defenses to any lawsuit by a private student loan debt collector including the statute of limitations. Private loans have to sue to collect. The common defenses include:
- Statute of Limitations
- Lack of Standing
- FDCPA, TILA
- Identity theft
- Business Records