Will those with overwhelming student loans see some relief?
Falling behind on your bills can be an unpleasant experience. No one enjoys dealing with trying to juggle one bill with another, trying to make one enough of a payment on your credit card bill to avoid an exorbitant late fee and still have enough to pay your mortgage, rent or car payment.
But some recent students may feel as if they will never get ahead once they graduate and their student loans go into repayment. The reality hits hard that they will need to be able to make a $500, $700 or $1,000 a month payment for years if not decades in order to pay off that debt.
And for some, that is manageable. A struggle, but doable. However, what if you become ill? Or have other health issues, mental or physical? What if this leads to run-ins with the law as financial problems mount?
You may think a bankruptcy could salvage your situation, and allow you to start fresh with a new beginning. Then you remember that discharging a student loan in a bankruptcy is difficult. Very difficult.
Supreme Court could revise standard for undue hardship
A case is making its way towards that U.S. Supreme Court that could give hope to many individuals struggling with the weight of student loans that only seem to become larger, in spite of their attempts to pay them off.
A man who accumulated more than a quarter of a million dollars in student loan debt, but has suffered such setbacks as being out of work for more than a decade, failing to pass the bar exam twice and being forced to live with his 86-year old mother.
The Seventh Circuit Court of Appeals rejected his claim of “undue hardship,” which is the grounds for obtaining a discharge for student loans. The current test, known as the “Brunner test,” demands that a debtor show they cannot pay their loans and avoid being made destitute, practically prove that they will never earn more than they currently earn, and show that they made a “good faith” effort to repay the loans.
The test was created almost 30 years ago when worries over the “easy” discharge of student loans in bankruptcy led Congress and the courts the set up ever more difficult standards for debtors to meet.
A problem that won’t go away
Student loans today are a problem. With $1.4 trillion in outstanding loans and 41 million borrowers, it means millions are only one or two misfortunes away from being unable to repay their loans.
A better standard than the Brunner test would allow judges the ability to access the “totality of the circumstances” of debtors with student loans. The bankruptcy judges would have the ability to discern the difference between borrowers who were attempting to defraud the system and those who have suffered ill luck and simply cannot repay their loans.
The size of the outstanding student loan debt means we must honestly examine those that are likely to never be repaid, ending the temptation to sentence individuals to a virtual debtor’s prison from which they can never escape.
What can be done now?
Even if you have a student loan that is not dischargeable, bankruptcy can still be used to stop collection action for up to five years at a time. Even under the current law, a bankruptcy can put a stop to a student loan creditor that is harassing you, garnishing your paycheck, or seizing your tax refunds.
