Is Student Loan Debt Cancellation Possible Through Bankruptcy?

Student loan debt cancellation can be a difficult thing to achieve. Often, very specific requirements must be met by the debtor in order to qualify, and even meeting those requirements doesn’t guarantee your loan will be forgiven.

For instance, according to research done by Jason Iuliano of Villanova University and reported by National Public Radio (NPR), some 250,000 student loan debtors file for bankruptcy every year. More than 99 percent of them never seek forgiveness for their student loans despite the fact that they may qualify.

One reason these debtors may not be seeking loan forgiveness is the common misconception that student loans can’t be discharged through bankruptcy.

According to Forbes, this commonly-held belief was proven wrong once again early this year when a Navy veteran in New York had $220,000 of his student loans discharged as a part of his Chapter 7 bankruptcy case. Kevin J. Rosenberg borrowed $116,500 in student loans between 1993 and 2004. He filed for bankruptcy in 2018, at which point his debt had grown to $221,400 including interest. 

Traditionally, student loans were almost impossible to discharge as a part of a bankruptcy agreement because strict standards had to be met. Specifically, it had to be demonstrated that the debt would cause undue hardships to the debtor. As Forbes puts it, a borrower must face “extenuating circumstances creating a hardship” that is likely to continue for some time. The borrower must also show that they have made “good faith attempts to repay the loan.”

According to Forbes, the judge in Rosenberg’s case found his student loan debt would cause undue financial hardship, so the majority of the loan was forgiven. This case shows that some judges in some jurisdictions may be more likely to approve student loan debt cancellation in bankruptcy filings than others.

How Much Student Loan Debt is Out There?

According to data gathered by The Motley Fool, the total amount of student loan debt in the U.S. in 2004 was $345 billion. By 2017, that number had exploded to $1.39 trillion. In 2017, 65 percent of college graduates had some amount of student loan debt.

On average, students graduated college with $28,650 in student loan debt in 2017. The majority of U.S. student loan debt is held by people between the ages of 35 and 49, and nearly two-thirds of the total outstanding student debt is held by women. Student loan debt is correlated with the rapidly rising cost of tuition for higher education.

Now, student loan debt in America is 70 percent greater than even credit card debt.

Student Loan Debt Cancellation Options

According to the U.S. Department of Education (ED), there are many ways to see student loan debt forgiven, canceled, or discharged. Forgiveness and cancellation, according to the ED, both generally result from a change in employment, while discharge is based on disability or closure of the school where you received your loans. We will be discussing forgiveness and cancellation.

There are a handful of industries that allow workers to have their student loan debt forgiven. Working in public service and teaching at certain low-income schools are both ways to have student loan debt forgiven, but there are several conditions that must be met such as the length of your employment and the amount of your loans you’ve already paid off. Certain federal loans may be canceled through volunteering.

Other than seeking certain types of employment, there are few ways to have student loan debt canceled. If you were certified for a loan improperly, you may be able to have the loan canceled. If your school failed to refund you after you withdrew, you may be eligible for loan cancellation. Other than mistakes made by the loan provider or the school, there aren’t many reasons a student loan will be canceled.

Is Bankruptcy a Solution to Student Loan Debt?

Bankruptcy can be one way to seek help with student loan debt. Despite the common misconception that student loan debt can’t be discharged via a bankruptcy filing, about half of those who try to reduce their student loan debt received some sort of relief, based on a study by Jason Iuliano of Villanova University. Iuliano’s study found that, while less than one percent of those who file for bankruptcy with student loan debt try to have that debt forgiven, bankruptcy is a viable way to achieve student loan debt cancellation.

According to the Education Department, a person must declare Chapter 7 or Chapter 13 bankruptcy, along with demonstrating that repaying the loan would impose “undue hardship” on them and their dependents. Undue hardship can include a number of factors, such as being unable to maintain a minimal standard of living, the hardship will continue for a significant portion of the loan repayment period, and the debtor has made good faith efforts to repay the loan prior to filing for bankruptcy.

In some cases, filing for bankruptcy results in the loan being fully discharged. And in other cases, even when the loan is not fully discharged, it may still be partially discharged—or, the terms of the loan may be changed, such as a lower interest rate.

How to Find a Lawyer for Student Loan Debt

According to Student Loan Borrower Assistance, there are organizations that will provide free legal help to low-income individuals in most states. Market Watch reports that the field of student loan law is becoming more and more popular as lawyers across the country are “challenging that conventional wisdom” that student loan debt is impossible to get forgiven. Some lawyers are willing to work pro bono on these cases, as well.

If you filed for bankruptcy and did not include your student loan debt, some of which was from a private lender, you may be able to file a class action lawsuit over the issue. Filing a lawsuit can help you potentially discharge your student loan debt.

Filing a lawsuit can be a daunting prospect, especially while you’re also dealing with the often stressful nature of student loan debt and bankruptcy, so Top Class Actions has laid the groundwork for you by connecting you with an experienced attorney. Consulting an attorney can help you determine if you have a claim, navigate the complexities of litigation, and maximize your potential compensation.

Join a Free Student Loan Lawsuit Investigation

If you filed for bankruptcy and did not include your student loan debt, you may qualify to join this student loan debt lawsuit investigation.

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This article is not legal advice. It is presented
for informational purposes only.