Student Loan Debt

Dischargeability Of Student Loans

The dischargeability of student loans has been a subject that has piqued a lot of consumers’ interest and cases across the country are increasingly finding ways to get a particular student loan discharged in a debtor’s bankruptcy case.

In a recent article, it was stated that some debtors were able to discharge

$200,000.00 of student loans owed to a private lender, Navient Solutions, LLC. That  particular  ruling by the Tenth Circuit Court of Appeals just made on August 31, 2020 was a very narrow ruling in that it did not say ALL private student loans are dischargeable, but it discussed the three different kinds of educational “debts” that are non-dischargeable in a bankruptcy.

Those three types of “debts” are:

  • An educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit or under any program funded in whole or in part by a governmental unit or non-profit institution. This particular provision covers loans that are made and any educational benefit that was accidentally overpaid.
  • An obligation to repay funds received as an educational benefit, scholarship, or stipend. This particular provision was clearly explained in the recent Tenth Circuit Court of Appeals decision. An educational benefit, scholarship, or stipend is not a loan. Loans are covered under the first provision and the third provision, not this provision. This refers to a “conditional benefit” received by the debtor such as a scholarship that requires a certain amount of work to be earned.
  • Any other educational loan that is a qualified educational loan as defined in the Internal Revenue Service This particular loan by Navient was allowed to be discharged. This particular private loan was for the borrower to attend an unaccredited school and, therefore, it was not a qualified loan. In order to be qualified, the borrower must have attended an accredited school; it must not exceed the cost of attendance and cannot be for students taking less than six credits a semester.

These educational benefits and loans are still non-dischargeable in bankruptcy unless undue hardship can be proved. In many cases, it is actually harder to prove hardship in a Bankruptcy Court than it is to just apply for a hardship waiver through the actual creditor.

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