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New rules will affect how student loan borrowers seek debt relief

On Behalf of | Aug 1, 2018 | Chapter 7 Bankruptcy, Firm News

Most borrowers know that they cannot discharge their student loans during bankruptcy. While this is generally true, relief through a federal program is an option for some people in Florida. Unfortunately, the guidelines for this program are currently under review, and projected changes could impact how some borrowers seek debt relief in the future. 

Under the borrowers’ defense rules, students who took out federal loans and then used those funds to attend schools that either committed fraud or did not prepare their students for future employment may seek debt cancellation. The closed school discharge rule allows students who attended within four months of their college’s closure to also seek debt cancellation, but only if their credits will not transfer to a comparable program within a period of three years. Individual situations might also call for canceled, reduced or modified loans. As of March 2018, there were more than 127,800 backlogged claims for student loan debt relief. 

Betsy DeVos — the current U.S. Education Secretary — said that she believes the guidelines for student loan debt cancellation should be more restrictive. Debt cancellation programs are currently suspended while her department reviews and modifies guidelines. One of her proposed changes planned to cancel only some of people’s debts based on an estimate of their potential income, but a judge barred this move. 

Debt relief can come through multiple channels — not just bankruptcy. However, as shifting guidelines make it more difficult for Florida borrowers to cancel their federal loans, filing for bankruptcy might become a more appropriate option. Although the vast majority of people cannot currently discharge their student loans through this process, getting rid of other debt can make repaying those loans much easier. 

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