Are Private Student Loans Dischargeable in Bankruptcy?

Posted on October 24, 2016 at 12:00pm by
Are changes coming to student loans?

Student loan debt in the United States stands at over $1.3 trillion. Many people have a manageable amount of debt, but some have balances in the hundreds of thousands of dollars. For people in the latter group, there is discussion on what options should be available for relief.

Many people with very large balances also have an excessive amount of private student loan debt. There are less attractive repayment options for private student loans, such as income-based repayment programs. Private loans might have these options, but they are not guaranteed. It depends on the lender.

At the moment, struggling borrowers prove undue hardship to receive discharges on their student loans. This can be done through the Brunner test, modified versions of the Brunner test or the totality of circumstances test. While it is easier to prove undue hardship with the totality of circumstances test, many places in the country still use some version of the Brunner test.

For borrowers who attended expensive for-profit colleges, fourth tier law schools or medical schools without graduating, it is common to have over $100,000 in loans with few employment options. There are cases of former students and graduates with $200,000, $300,000 or $400,000 in loans.

Has it Become Easier to Discharge Private Student Loans in Bankruptcy?

Court decisions have been more lenient towards student loan debtors in the past several years. The totality of circumstances test (Missouri courts allow this test) has led to the successful discharge of student loans in the Eighth Circuit Court of Appeals. In addition, some filers have found that filing adversary proceedings helped give them leverage to negotiate directly with their lenders.

There is a myth in this country that it is impossible to discharge private student loans in bankruptcy. It is not impossible, and it is becoming increasingly less difficult. Borrowers struggling with excessive student loan debts should not be deterred from having their cases reviewed by a bankruptcy attorney. Other means for reducing debts may also exist.

The Kansas City bankruptcy attorneys at The Sader Law Firm can help borrowers explore options for reducing or discharging student loan debts.