Opinions on Undue Hardship & Student Loans

[anonymuse]

As we've heard time and time again, that it is nearly impossible to discharge a student loan. To qualify, you must show that the payment of student loans would cause "undue hardship"; however, that is not clearly defined in the BK code and is left to the interpretation of the courts.

I wrote this in another thread, but wanted to share it as a separate one for those even thinking about trying to get a hardship discharge on their student loans.

I found the Second and Eighth Circuits tests that they use to determine whether someone should qualify for a hardship discharge.

Second Circuit

The three-part Brunner test required the debtor to prove:

1) That the debtor cannot maintain, based on current income and expenses, a minimal standard of living if forced to repay the student loans;

2) That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

3) The debtor has made good faith efforts to repay the loans.

Under the Brunner analysis, if the court finds against the debtor on any of the three parts, the inquiry ends and the student loan is not dischargeable.

Eighth Circuit

Under the Eighth Circuit totality of circumstances test, the Bankruptcy Court should consider:

1) The debtors past, present, and reasonably reliable future financial resources;

2) A calculation of the debtor's and the debtor's dependents reasonable necessary living expenses; and

3) Any other relevant factors and circumstances surrounding each particular bankruptcy case.

NOTE: Other circuit courts have adopted these two rules, but I don't have a list of which ones are used by which courts. However, from my reading, the Brunner test seems to be the most popular one.

Bankrupty Hardship is considered "normal", but they're looking to prove UNDUE hardship:

Brightful, 267 F.3d at 328, and necessitates that a "certainty of hopelessnessillness, disability, a lack of useable job skills, or the existence of a large number of dependents." Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382, 386 (6th Cir. 2005).

The intent of this law was to make ensure the security of the student loan system.

[keepmine]

People just need to be damn careful with student loan debt.
I think the difference in the eyes of many is when SL's are discharged in bk, the taxpayer is hurt. When we discharge credit cards or other unsecured debt, it's private ventures {and their shareholders} that take it in the shorts.


Kids need a lot of input before going down the SL path. Don't ring up large debts with degrees that won't allow you to generate the income to repay comfortably. And. as others point out, even if you get a good job there i no guarantee years down the rod that you'll keep it.

[melonhead]

Student Loan Dischargability

When Congress passed the non-dischargibility of Student loans in Bankruptcy as part of the bankruptcy code in 1995/6, it was the second time they attempted to stop abuse.

Back in the late '60's and early '70's, students, after graduating and before starting employment, would stop by the Bankruptcy office and file.

Reagan tried to put a stop to this in the early '80s and required student loans to be in repayment for 5 years to be eligible for discharge.

Let's count up the 9 months before repayment begins, 3 (6 month deferments) possible extentions for public service, and stalling while searching for new addresses, telephone numbers, state red-tape, etc. and the 5 years proved to be ineffective.

The GOVERNMENT was losing billions.

The second attempt eliminated discharge under just about any circumstances.

Short of permenant disability. discharge just isn't likely. And it's not that attorneys didn't try, there just isn't many loopholes. And it's been that way since '97'.