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Student loan debt relief is elusive for many borrowers

On Behalf of | Sep 14, 2016 | Chapter 7 Bankruptcy, Firm News

Recent estimates indicate that as of March, borrowers owe approximately $1.35 trillion in student loans across the country. Many Florida residents are likely among the nearly 10 million people who are unable to repay these loans, which means that approximately 43 percent of all borrowers are either behind in their payments or are unable to make payments at all. To make matters worse, student loan debt relief through bankruptcy is unavailable for many borrowers.

From the time student loans became available in 1958 through 1976, student loans were treated as any other unsecured debt in bankruptcy. However, in 1976, Congress passed legislation to curtail the ability to discharge government guaranteed student loans during the first five years of repayment. In 1990, that period was extended to the first seven years, and in 1998, borrowers were unable to discharge their loans at all absent “undue hardship.” In 2005, borrowers became unable to discharge private student loans as well. 

Even though bankruptcy judges are beginning to loosen the requirements of proving undue hardship, the “Brunner test” (created during a landmark case) is still the standard. Under this test, a borrower has to prove the inability to maintain a minimum standard of living, that he or she will more than likely never be able to repay the loans and that a good faith effort was made to pay them. Many people have attempted to discharge student loans under these stringent criteria, but up until some successes seen recently, the requests were typically denied by the court.

It is obvious to many people that something needs to be done regarding the current law, but until and unless the law changes, Florida residents with student loans will continue to be responsible for them. Even so, bankruptcy may still help with their financial situations. Other debts could be discharged, which could leave a filer with more disposable income to put toward their student loans. Therefore, bankruptcy remains a viable debt relief option for many people whose financial situations do not currently allow them to pay their student loans.

Source:, “Why student loans are harder to write off than credit-card debt“, Neal Hutchens and Richard Fossey, Sept. 3, 2016

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