Can student loan debt be eliminated through bankruptcy?
With the rising costs of education, Americans across the country now owe more than $1.48 trillion in student loans. Over 44.2 million Americans have student loan debt, according to federal reserve data, and at least eleven percent of borrowers are considered delinquent in repayment of their debts. The average monthly student loan payment is $351, with many borrowers who attended grad school paying twice that amount or more. America is in the midst of what has been termed a student loan debt crisis, and as of yet the federal government has taken little action to assist borrowers. Our Ohio bankruptcy lawyers explore student loan facts and examine when student loans can be erased in bankruptcy below.
Federal and Private Loans
Federal loans comprise the majority of all loans for educational purposes, but more than $10 billion exists in private loans for college. These loans often have far more onerous implications for borrowers and their families. While most federal loans will not transfer to relatives of the borrower upon his or her death, private loans often will. As a result, parents and other loved ones may find themselves struggling under massive inherited debt loads, with few options for relief.
Student Loans and Bankruptcy
Compounding the problem is the inability of most borrowers to discharge student debts in bankruptcy. Most types of debt can be eliminated through bankruptcy for qualifying individuals, including credit card debts and medical debts. Student loans remain one of the few types of debts that can almost never be discharged.
Student loan borrowers seeking to eliminate their debts through bankruptcy will have to meet stringent legal standards. Most bankruptcy courts use what is known as the Brunner test, or a similar variant. Per the Brunner test, a borrower must prove that:
- Extenuating circumstances create a hardship to repayment;
- These circumstances are likely to persist for the duration of the repayment period; and
- The borrower has made good faith attempts to repay the loan.
Some circumstances that could potentially allow for discharge include a severe illness or other condition that makes it impossible to earn a living. The Brunner test is not easily met, but some judges in recent years have been more open to allowing for the discharge of student loan debt due to the immense burden to some borrowers. Contact a bankruptcy attorney for more information as to whether you could qualify for discharge of your student loans in a bankruptcy action.