Can You Get Student Loans Discharged When You File for Bankruptcy?

Can You Get Student Loans Discharged
When You File for Bankruptcy?

It makes sense that many individuals who find themselves filing for bankruptcy also have defaulted student loans. In our current economic climate, you may be hard pressed to find a college educated twenty or thirty-something who isn't experiencing woes with student loan debt. Government statistics released in September of 2008 report only to FY 2006, when default rates were low, at 5.2 percent. However, when recession hits, student loan default rates go up. Right before the U.S. recession of the early 1990s (which had been looming since Black Monday of 1987) student loan default rates reached a historic high of 22.4% in 1989.

I think it's safe to say that default rates are on the rise again.

So, many borrowers who are considering filing for bankruptcy have defaulted student loans as well. The problem, however, is that generally student loans aren't dischargeable via bankruptcy. In fact, there is very little consumer protection involved with student loan debt in any respect. Such borrower vulnerability is the inspiration for a gripping new film, Default: the Student Loan Documentary. The trailer for this documentary sheds a lot of light on how student loans are some of the most dangerous financial products of our time:



The current recession is sure to cause many other borrowers to default on their student loans, and this may come as they are already considering filing for bankruptcy. The lack of basic consumer protections like the right to refinance, Fair Debt and Collection practices, adherence to usury laws, Truth in Lending requirements, and statutes of limitations build a financial trap that many college graduates cannot escape in a poor job market. Because so many borrowers are uninformed about their financial rights and responsibilities when they acquire these loans, the lack of bankruptcy protection can come as a shocker when it comes time to file. Most people filing for bankruptcy cannot get their student loans discharged.

However, there is a small group who can...technically. If you find yourself experiencing such a great hardship, as in the case of a crippling disability, that you feel you cannot pay back your student loans you can indeed file a separate motion for the discharge of that debt.

But how often does that happen?

How Hard Is It To Get Your Student Loans
Discharged Because of a Disability?

Unfortunately, it is extremely difficult, even in an exceptional case, to get your student loans discharged.



The truth is that most borrowers will never actually be so financially burdened that they can prove that they would never be able to pay back their student loans. AllExperts.com adds,

"...Court decisions that find undue hardship for the debtor have been extremely rare in the reported case decisions. A review of the reported court decisions in this area will disclose that most undue hardship discharges that have been granted typically go to individuals that suffer from some type of very severe permanent and total disability or some sort of permanent disability that drastically restricts the ability of the debtor to more than a subsistence level of income. The courts require a finding that the debtor has proven each of the following three elements:

1. That the debtor cannot maintain, based upon current income and expenses, a “minimal” standard of living for himself and his dependents if compelled to repay the student loans; and
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. That the debtor has made good faith efforts to repay the student loans..."

Furthermore, if they indeed did meet such qualifications, retaining legal counsel would probably be just as burdensome, preventing them from taking legal action at all. Therefore, in all practicality, it is nearly impossible to get your student loans discharged when you file for bankruptcy. If you do file for bankruptcy, you will still have to find a way to pay your student loan debt. It will only continue to compound if you ignore it; you simply have to pay it back.

So, I guess that there are three guarantees in life - death, taxes, and student loan debt.

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