September 4, 2020

A New Bankruptcy Ruling Could Impact Your Private Student Loans

A New Bankruptcy Ruling Could Impact Your Private Student Loans


Illustration for article titled A New Bankruptcy Ruling Could Impact Your Private Student Loans

Image: fizkes (Shutterstock)

One of the biggest downsides of private student loans is there are fewer borrower protections. Federal student loans, for example, offer more repayment plans, deferment or forbearance, subsidized interest, and loan forgiveness.

Unfortunately, both types of student loans can be difficult to discharge in bankruptcy, though, because of the need to prove “undue hardship” in court—which can be too expensive for most borrowers. But a recent bankruptcy ruling could change this.

This week, a Colorado-based couple discharged $200,000 of private student loans in a bankruptcy case in the U.S. Court of Appeals for the Tenth Circuit. The appellate court said the couple’s loans—which were issued by loan giant Navient—didn’t meet the Tax Code’s definition of “qualified student loans.”

The reason was that the cost wasn’t based on an “educational benefit” and didn’t cover the “cost of attendance” at their school. Therefore, the couple’s loans weren’t exempt from discharge in bankruptcy.

As The Wall Street Journal reports, the ruling could have implications for the millions of Americans struggling with student loans amid the coronavirus pandemic and recession. While it may still be a challenge to discharge private student loans in bankruptcy, experts say it may allow other borrowers to seek private relief. It may also impact how courts decide which loans may be discharged.

For now, this ruling may only set a precedent for the Tenth Circuit, which includes Colorado, New Mexico, Oklahoma, Utah, and Wyoming. And some experts suggest it may only impact loans that exceed the cost of attendance—rather than all private student loans—but it could have a bigger impact in the future.

Adam S. Minsky, a student loan lawyer and Forbes senior contributor, notes the potential of this ruling in a recent article:

Nevertheless, the decision is an important ruling, and serves as a reminder that pursuing a bankruptcy discharge of student loan debt is not a lost cause, despite the many hurdles.

In the meantime, if you’re facing bankruptcy due to unpaid student loans, it may be worthwhile to pursue legal guidance from an expert. They may be able to offer advice on the likelihood of private student loan discharge based on this ruling—and others in the future.



Click here to read original article