How Recent Court Decisions Have Favored Student Loan Debtors

Posted on October 5, 2015 at 12:00pm by
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A recent article published in YES! Magazine shared how recent court decisions have favored student loan debtors. The article discusses several different cases and tests used by courts to determine whether debtors can qualify for reductions on loans or discharges.

One of the stories in the article mentions the plight of a young man with $60,000 in student loans, a doctorate in education and only $300 in his checking account. After speaking with two attorneys about the prospect of discharging his student loans through bankruptcy, both attorneys told him bluntly, “it can’t be done”.

However, depending on the circumstances, that is not always the case. Depending on where you file for bankruptcy, courts will use specific tests and relevant information to determine if someone is eligible for an undue hardship discharge.

Which Student Loan Court Cases Have Favored Students?

Myhre v. U.S. Department of Education involved an unemployed quadriplegic with excessive health care expenses and student loan debt. The judge ruled it would not be possible for Mr. Myhre to maintain a decent standard of living with his current student loan balance, and that he deserved a discharge.

Another case mentioned in the article is Roth v. Educational Credit Management Corporation, in which a 68-year-old woman was told by her creditor to use Social Security checks to make payments. The judge ruled in her favor, citing the need for a “totality of circumstances” test to determine an undue hardship discharge.

In Conway v. National Collegiate Trust, the court overturned a prior decision denying recent graduate Chelsea Conway a discharge on her $118,000 in student loan debt. The court used the totality of circumstances test to assess Conway’s past, present and future ability to pay her loans.

Courts Determine the Future of Student Loan Debtors

What can we learn from these three examples? Courts are starting to develop new criteria and tests for allowing former students and graduates to discharge student loans through bankruptcy. Although congressional legislation could one day restore normal bankruptcy protections on student loans, the courts may offer alternative solutions.

The Sader Law FirmKansas City Bankruptcy Attorneys