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Good News On Student Loan Dischargeability?

Yes!  It’s been a long time coming, but big news today –

Student Loan Dischargeability - getting easier?
Student Loan Dischargeability – getting easier?

OK, not as big as I would like, but, significant.

From the Wall Street Journal:

The Trump administration indicated Tuesday it is considering allowing more Americans to erase student debt in bankruptcy.

Consumer lawyer friends of mine are surprised.  Well, so

am I.

The Trump administration can’t change the law without congressional approval. But it can decide how aggressively to fight a borrower’s request to cancel loans in court. The government, the nation’s primary student lender, has traditionally fought such efforts, since any failure to repay loans comes at a cost to taxpayers.

Uh, yeah.  I am one of the few attorneys who handles these cases,  There are astoundingly few of them, but, of course, people in bankruptcy tend to be broke and not have money for attorney fees to sue the government.

Which never runs out of lawyers.

And almost half of the cases to discharge student loan debt in bankruptcy court are in pro per, which is Latin for

“I cannot afford a lawyer so I am doing it myself.”

A Wall Street Journal analysis found that fewer than 500 people attempted to extinguish student debt last year, when roughly 766,000 individuals and couples filed for bankruptcy. The number of cancellation attempts has fallen by 45% since 2010 as fewer people filed for bankruptcy and as repayment programs for federal student loans grew in popularity.

What Can You D?

The Department of Education is soliciting input. So, tell them what you think.

Better yet, tell them what I think, which is on this blog all the time.

But I will repeat myself below.

Here is the link to the DOE: https://drive.google.com/file/d/1YhT6OP9erxo8IkWZm9ykc5DchCcFi23u/view

Needed Student Loan Reforms

The President cannot change the law by himself.  This seems to be news to some of them.

Anyway, the Department of Education (DOE) is part of the executive branch, as is the Department of Justice. (DOJ)

The DOJ represents the DOE defending adversary proceedings brought in bankruptcy court to discharge student loan debt.

So, if the DOJ stops arguing about every student loan dollar, if it changes the Draconian standard used by most Courts to judge these cases, that is a big deal and moves the needle, as they say.

The 7th Circuit has an impossible standard, basically a certainty of hopelessness.  That is not what Congress said in the statute, which uses the term “undue hardship”.

Most Courts use the Brunner test, 3 prongs.

One is good faith effort to repay, which looks at what you did before the bankruptcy.  Did you just get out of school?  Did you decide you do not want to be a doctor after all , and just dig ditches?  That is, lowered your income voluntarily.  Did you go from one deferment to another, kicking the can down the road?

That one is not so bad.

The second prong is “that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans;”

What the heck does “additional circumstances” mean?  This should be eliminated.

The last is “that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans”

Courts have gone hog wild with “minimal”, which, again, is not in the statute.

They have held that debtors should sell their home and get cheaper accommodations, that cable and internet expenses are not needed, and so on.

It should also be clear that the ability to qualify for one of the income based repayment plans is NOT grounds to deny discharge of student loan debt.

The government always says, hey, this debtor could get in one of those plans and make minimal payments, and get any balance forgiven.

True as far as it goes, but only after 25 or 30 years, and any forgiven balance is taxable income.

I have more suggestions, but have gone on too long already.

Student Loan Crisis, Law Schools, And More

Another case of inability to discharge student loan debt. Judge Harlin Hale, the Dallas bankruptcy judge in Thomas’ case, said he felt a “great deal of sympathy” for Thomas in his December 2017 order but said that his hands are tied due to legal precedent. The “demanding standard” adopted by federal courts in the 5th… Continue Reading

Student Loan Defaults

“Student Loans – The Other Debt Crisis” posted by Alan White on the CreditSlips site deals with a number of themes of this blog, like,  Student Loan Defaults. How Many Student Loans In Default Now? To me, a tricky question, as many people keep taking classes, even taking on more student loan debt, to keep… Continue Reading

Handling Student Loan Debt

So, you fell for the “messaging” and racked up student loan debt to get a degree. We discussed the messaging that we both grew up with: Go to college, live the life you want, succeed. Or, don’t and be a failure. As I keep saying, the colleges keep the money whether you get a worthwhile… Continue Reading

Student Loan Update

Yes, you don’t need the reports to know the student loan crisis is going to get worse. Just keep reading this blog. Americans are facing a “looming” student loan default crisis that is more serious, and more complex, than previously understood, an analysis of new federal data suggests. Almost 40% of borrowers who entered college… Continue Reading

New Year, Same Tune!

From me, here, anyway. Student loan debt should be dischargeable in bankruptcy. DC area bankruptcy attorney Brian V. Lee blogs about this too: In 2016, 43 million Americans carried a total of over $1.3 trillion in student debt. More than 40% of the nearly 22 million borrowers with federal student loans were in default or behind… Continue Reading

Value Of A College Degree?

What is the value of a college education? That is a question, the connection to student loan debt raises our question. How much student loan debt is a college education worth? College Worth Bryan Caplan has a piece in the Atlantic delving in detail as to what students learn and why a college degree does… Continue Reading

Student Loan News

Planning for paying kid’s college costs consumes lots of folks these days, but the bubble is bursting. Timing when tuition will stop rising, even decline, is a bit like timing the stock market.  This bubble will burst for sure. Colleges Going Bankrupt? There are over 4,000 colleges and universities in the United States, but Harvard… Continue Reading

NCT, For Profit, More Student Loan Messes

Wow, NCT (National Collegiate Trust) just gets messier. The entity, which bought private student loans, made a deal with the CPFB (Consumer Protection Finance Bureau) last week, which is being challenged. Which Entity Owns the Student Loans? This is the problem NCT has had, and I have successfully defendant some of their student loan lawsuits… Continue Reading

Student Loan Solution?

So, I have thought for a while that part of the resolution to the student loan crisis was for the government to get out of the business of student loan lending, which has caused tuition costs to skyrocket without any increase in the value of a college degree.  And that part of getting the government… Continue Reading