Can I discharge My Student Loans In Bankruptcy?

Not a week goes by that I am not asked by a debtor if they can discharge their student loans in bankruptcy. The short answer I have given my clients over the years has been a quick “NO”. However, the short answer I now give clients now is “MAYBE”.

The reason for the softening of my answer is that student loan lenders and servicers have been softening their stances a bit. Evidence of that softening was just released by the U.S. Department of Education on July 7, 2015, in a letter of guidance to guarantors and educational institutions participating in the FFELP and Perkins loan programs.

Find a link to the letter Click here.

In this letter of guidance, the Department of Education lays out a two-step analysis for student loan programs to follow in determining whether or not to oppose a debtor’s efforts to discharge a student loan in bankruptcy.

The first step of the analysis is for the lender to determine if it believes the debtor is suffering an “undue hardship”. If it believes the debtor is suffering an undue hardship, it has the authority to not oppose (or even consent to) a debtor’s effort to discharge the student loan. If the lender believes the debtor is not suffering an undue hardship, it can still choose not oppose (or even consent to) a debtor’s effort to discharge the student loan if the lender believes the cost of defense is more than 1/3 of the amount due on the loan. If one assumes it would cost a lender $10,000 to defend against a debtor trying to discharge a student loan, this suggest that loans at or below $30,000 will be easier to discharge.

So, if you owe $30,000 or less in student loans and cannot pay them, call my office for your free, comprehensive, confidential consultation.

Click here to see how to make the most of your consultation.

And read my Associate’s blog post on the same subject here.