Bankruptcy Student Loan Forgiveness

Is anybody actually paying their student loan debt right now? Anybody?

While the pandemic raged on, two presidents pressed pause on student loan payments and interest accrual. When that happened, pretty much everyone completely stopped paying their student loans. After all, why would you make voluntary payments on a debt that incurs no interest and demands no minimum payments?

And every few months, our current president extends the forbearance. Every other day, there are conversations about partial loan forgiveness, mass loan forgiveness, and tuition reform to get us out of this mess in the future. Will it be $10,000 in forgiveness? Will there be income caps? Are they playing out the anticipation until right before the midterm elections?

For the indebted individual worried about what will happen when these forbearances end, bankruptcy may seem like an appealing option. File a case, ditch the debt, and get a fresh start. Is it really that easy?

Consider Waiting And Letting This Play Out

One news story says $10,000 in loan forgiveness is coming for everybody with college debt. Another news story says it could be as much as $50,000 in relief. Some of the more liberal politicians are demanding that all student loan debt be forgiven. And of course, you have more conservative politicians arguing that mass forgiveness of student loan debt will just lead to even more inflation, and heck, they paid their debt – why should the youths have it any different?

Meanwhile, the clock keeps ticking towards the next deadline and the expiration of forbearances. While President Biden has extended the forbearance a couple of times, it seems unlikely that he will continue to kick the can down the road throughout his entire term. At a certain point, he will have to ask borrowers to start making payments towards their loans.

If you were one of the millions of Americans with student loan debt, and you are worried about how you will make those payments when they are reinstated, you are not alone. And you may be considering bankruptcy as a proactive means of dealing with the problem before the debt collector starts calling.

The best thing to do is to discuss this with a bankruptcy attorney: there are many factors that go into whether your loans are eligible for discharge. Short of that, you may want to wait and see how this plays out over the next couple of months: it seems very likely that some student loan forgiveness will happen and the low end of the estimate is $10,000 per borrower, with rumors that there will be an income cap for people making six figures – those who do will get no relief. And if there is no agreement on student loan forgiveness, it may just so happen that the president extends the forbearance even longer while he continues to negotiate on Capitol Hill.

What About Private Student Loans?

Only a few news stories have even mentioned borrowers with private student loan debt. With federal loans, the federal government backs the loans and even services some of them, so forgiving the debt is extremely easy for them – they just tear up the promissory note. But, for those of us who have borrowed from private lenders in order to finance our education, a government relief program would have to pay the lender on our behalf – a more complex proposition.

There have been no clear indications one way or the other on whether private student loans would be included in this relief program. And, if you are struggling to make your private student loan payments (the federal moratorium on student loan debt was for public loans, not private) bankruptcy may be something worth discussing sooner, rather than later, since it seems like more of a longshot that there is any relief coming from the federal government.

Can Bankruptcy Help With Student Loans?

It is a myth that you cannot discharge student loans in bankruptcy. While it has proven extremely difficult, we recently discussed a growing but small trend of cases where borrowers have successfully had student loan debt discharged via bankruptcy, along with a call to action by a judge in one of those cases where she highlighted the common myth and the perpetration of that myth by the courts that student loan debt is somehow beyond the reach of bankruptcy courts.

The truth: it is more difficult to discharge student loans in bankruptcy than it is to get rid of other kinds of debt, but it is not impossible. You should discuss your circumstances with a bankruptcy attorney to see if they meet the heightened standards required to discharge student loan debt in bankruptcy.