For many individuals, student loans are the greatest financial burden to their daily lives. With the rising cost of education and high interest rates, it can be impossible to repay student loan debt. College loan balances in the United States have jumped to $1.4 trillion dollars, with a default rate of over 11 percent. However, the federal government may soon be revising its policies concerning student loan forgiveness in bankruptcy.
On Monday, the Department of Education released a Federal Register Notice seeking public comment on how the government should evaluate policies of student loan bankruptcy claims. Following the 2005 Bankruptcy Code amendments, it became nearly impossible for students to get their federal or private student loans discharged. A debtor seeking to discharge student loan debt must demonstrate an “undue hardship”, but the standard is very difficult to meet.
Generally, the “undue hardship” standard requires debtors to demonstrate that they cannot maintain a minimal standard of living if forced to repay their student loan debt, the debtor made a good faith effort to repay the loan, and their financial struggles will persist if the loan is not discharged. Very few people are successful in meeting this standard, particularly due to income-based repayment plans.
According to the request for public comment, the Department of Education expressed concerns that the “undue hardship” standard as currently applied, may be discouraging borrowers from filing for bankruptcy. The legal costs to obtain a “undue hardship” discharge is substantial, and the government maintains an aggressive approach in defending against student loan discharges. In fact, only 1 of 300 bankruptcy cases where the individual had student loans, did the debtor seek a student loan discharge.
Although the Department of Education cannot change the law, they can issue guidance on how the “undue hardship” standard should be defined. Congress will be responsible for changing the law. Notwithstanding, this is a significant step towards resolving the student loan crisis and relieving individuals from student loan debt.
If you are an individual and contemplating bankruptcy, please call our law firm for a free consultation and speak with one of our experienced bankruptcy attorneys.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.