DOE Reaches Decision About Discharging Student Loans

The Department of Education has recently released guidance on how it will handle bankruptcy discharge requests for government-backed student loans. These guidelines attempt to provide a balance between collecting student loan debts and offering relief when the loans would pose an undue hardship on the debtor. The “Undue Hardship Formula” is used to determine if an undue hardship is present and that student loans should be discharged. The following factors and considerations are offered as points that should be considered by lenders for debt discharge:

• If a debtor has filed for bankruptcy due to factors that are beyond his or her control and which impact the debtor’s ability to repay the student loan debt.
• Whether a debtor asserts undue hardship due to physical or mental impairment. The debtor may qualify for Total and Permanent Disability Discharge (TPD) and/or other administrative discharges including:
  • Death Discharge
  • Closed School Discharge
  • False Certification Discharge
  • False Certification Ability to Benefit
  • Unauthorized Signature or Identity Theft
  • Unpaid Refund Discharge
  • Borrower Defense
• If a veteran has been determined by the Department of Veterans Affairs to be unemployable due to a service-related disability.
• If a debtor is approaching retirement, the rules allow the court to take into account the debtor’s age at the time the student loans were incurred as well as resources available to the debtor in retirement.
• If a debtor’s health has materially changed since the student loan debt was incurred, the debtor’s current state of health may affect discharge.
• If significant time has elapsed since the debt was incurred, the debt may be more likely to be discharged.
• If a debtor’s expenses are reasonable and indicate minimization of unnecessary expenses in order to provide funds for student loan repayment, the guidelines allow for more leniency.
• If a debtor had the mental and/or physical capacity to pursue administrative discharge options and/or income-driven repayment plans, the court may reduce payments.

While this guidance is helpful, it is also a bit disingenuous in that it puts the burden of debts on students who believed the promises schools and colleges gave them that going into such debt for a degree was a smart financial move. Bankruptcy attorneys can follow these set guidelines to seek a discharge of student loan debt. However, if the government does not allow for a total discharge of the debt, there is an opportunity to “agree to discharge of a portion of the amount owed” which will allow the consumer to get a fresh start in bankruptcy. The Oswalt Law Group in Phoenix understands the complexities surrounding discharging student loan debt as well as other types of debt. Give us a call today and let us help you build a brighter, debt-free financial future.