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What can I do if I can’t pay my student loan?
What can I do if I can’t pay my student loan?
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Student loans are a bit of a problem right now. Back in the day when I originally started practicing, we could actually discharge student loans if it’d been due more than six or seven years, I forget which one at this point. But it was odd the way that they counted the due dates because you couldn’t count repayments as benches things of that, but if the student loan had been due long enough then they were just simply discharged right along with all the other debt. They got rid of that now that student loans aren’t dischargeable, but lately there’s been the Second Circuit and the Tenth Circuit, the Tenth Circuit of course covers Kansas, the Eighth Circuit state of appeals covers Missouri. But those two circuits have ruled that private student loans are in fact still discharged, it’s only the government guaranteed student loans that are not automatically discharged.
To discharge a government guaranteed student loan it’s extremely difficult to do because of what we call the Brunner test, there’s a significant number of factors that have to be met in order to do that. The ones that I’ve won has almost always involved a client that has a disability or has dependents that have disabilities, something that is making it extremely difficult for them to continue to pay or to pay that loan at all. In a nutshell the bankruptcy code just refers to it as the hardship test and basically, it’s whether or not requiring the repayment of the student loan would cause an undue hardship on the debtor or the debtor’s dependents. I’ve won several of those you don’t see them litigated very often. I know I’ve got a couple of cases coming up through the pipeline here in the Eighth Circuit, the western district of Missouri on the discharge of the private student loans.
I suspect there’s probably other cases out there and the two circuits that have looked at it the Tenth and the Second have both ruled that those are discharged. And I’ve actually got one case where that’s probably gonna happen no matter what we do right now. Student loans are difficult at best. There is fortunately, I don’t know whether they will get it accomplished but there’s talk in Washington D.C. about amending the code again to make all student loans dischargeable, the government guarantee student loans dischargeable once they’ve been due more than 10 years. I would suspect they would go back and use the same calculations that they previously did in the 10-year time frame doesn’t include any repayments suspensions such as forbearances or deferments or something like that.
We might get that back, who knows with Washington the way it is right now. I don’t know if that will come through but there is some talk at least about doing that. But there’s also been a significant recognition over the last several years that these student loans are creating a massive burden on the students. I mean they’re walking out of school with debts that are just astronomical and most of them don’t really have much of a chance to pay it.
Kansas City, KS bankruptcy attorney Tracy L. Robinson explains what to do if you can’t pay your student loan. He notes that student loans have become a complicated issue in bankruptcy law. When he first began practicing, student loans could actually be discharged if they had been due for more than six or seven years—he can’t recall exactly which. The rules were quirky back then, since repayment suspensions couldn’t be counted in that time frame. Still, if the loan had been due long enough, it was discharged along with all the other debts.
That’s no longer the case. Today, student loans are generally not dischargeable. However, recent rulings from the Second Circuit and the Tenth Circuit—which covers Kansas—have changed the landscape somewhat. Those courts have determined that private student loans can still be discharged; only government-guaranteed student loans are automatically protected from discharge.
Discharging a government-backed loan, he explains, is extremely difficult because of what’s known as the Brunner test. That test imposes a number of strict factors a debtor must meet to prove undue hardship. In his experience, the only cases he’s won have involved clients with disabilities or dependents with disabilities—situations where repayment would clearly be impossible. The Bankruptcy Code refers to this as the “hardship test,” which asks whether repaying the loan would cause undue hardship to the debtor or their dependents.
He’s successfully won several of these hardship cases, though they’re rarely litigated. He currently has a few cases pending in the Eighth Circuit, specifically in the Western District of Missouri, involving the discharge of private student loans. He notes that both the Tenth and Second Circuits have already ruled those loans dischargeable, and he expects one of his current cases will likely end with that same result.
Still, he admits, student loans remain challenging. There’s some discussion in Washington, D.C. about amending the Bankruptcy Code again—possibly to make all student loans, including government-backed ones, dischargeable after they’ve been due for more than ten years. If that happens, he expects lawmakers would use the same calculation method as before, excluding any repayment suspensions such as forbearances or deferments from the ten-year period.
He shrugs when talking about it, acknowledging that with Washington being as unpredictable as it is, there’s no telling if that change will actually come to pass. Still, he says, there’s growing recognition that student debt has become a crushing burden. Students are leaving school with astronomical loan balances and, for many of them, little realistic chance of ever paying them off.
