Laws For Student Loan Debt
In an ABI podcast two law professors debate Student Loan Bankruptcy Reform Law making student loans easily dischargeable in bankruptcy and possible proposes methods on how to do it. One law Professor proposes student loans could be valued using what an unsecured lender pay for this debt, based on ability to collect it. Daniel Austin examined over 3,000 bankruptcy cases from Pacer in 2011 22.4% of these bankruptcy cases had student loans with the average student loan debt being 29,000. The amount is increasing, in 2010 21% of observed bankruptcy cases had student loan debt and the average amount of student loan debt was 24,600. His studies show that private student loans cause the problems and impact the problems having higher balances interest rates and defaults. In some cases student could borrowing in minutes 50,000 or more debt for useless degrees that provide no career with an ability to repay that debt in reckless lending practices. Professor Cole counters and testified before congress about using caution and that discharges should be based on the value of the education. See our PowerPoint on how to discharge student Loans
Brunner Student Loan Bankruptcy Law Reform
Not all the courts and Circuits follow the Brunner test some including the 1st, 8th and 9th have modified or adopted other tests. The 9th Circuit uses a totality of the circumstances test and look at the debtor’s future income and any other relevant factors. The First Circuit bankruptcy appellate panel which originally approved and adopted Brunner now rejects it and also use the totality of the circumstances test but still uses the 1st part of Brunner while rejecting parts 2 and 3 of the Brunner test.
In relying on a judge’s equitable powers one First Circuit Massachusetts Bankruptcy judge Feeney gave a partial discharge under 11 USC 105(a). In giving partial discharges some courts have allowed a discharge of some of the loans but not others. In the First and Eighth Circuits student loan debtors have a better chance of getting a discharge but all of the circuits have had cases where it has been allowed and in some cases the lender has simply failed to respond and a default has been issued.
You can listen to American Bankruptcy Institute podcast #116 at http://podcast.abi.org/657 with professors Daniel Austin of Northeastern University School of Law, G. Marcus Cole of Stanford Law School, with host David Epstein. This year attorney general Jack Conway and Deanne Loonin, attorney with the National Consumer Law Center also testified before congress which is debating student loan bankruptcy reform.