Senator Durbin advocates for the removal of student loans from the list of debts that cannot be eliminated through bankruptcy proceedings.
In the face of the COVID-19 pandemic, the C.A.R.E.S. Act, a $2 trillion relief legislation passed by the United States Congress in March 2020, has provided support to individuals, businesses, healthcare entities, and students with loans as part of the pandemic relief efforts. However, the Act does not discuss the treatment of student loans in bankruptcy or provide information on qualifying for student loan discharge in bankruptcy.
Under current U.S. law, it is almost impossible to discharge student loans in bankruptcy. To qualify for a bankruptcy discharge of federal student loans, students must file a bankruptcy case under Chapter 7 or Chapter 13 and then initiate a separate legal action called an adversary proceeding within that case. They must prove "undue hardship," typically using the Brunner test, which requires showing:
- The inability to maintain a minimal standard of living while repaying the loans.
- That this inability will persist in the foreseeable future.
- And evidence of a good faith effort to repay the loans.
Only certain federal loans, specifically Direct Loans and Direct Consolidation Loans held by the U.S. Department of Education, currently qualify for discharge; private student loans generally do not. The borrower must file an adversary complaint listing all student loans and serve it to the loan servicer, the U.S. Attorney’s office, and the U.S. Trustee.
Recent updates, including 2022 Department of Justice guidance, have clarified and somewhat eased the process, leading to a high success rate of about 98% for discharges or partial discharges in cases filed under these newer procedures as of mid-2024.
Senator Richard J. Durbin, as Senate Majority Whip, has been involved in legislative efforts around consumer and student loan issues. He maintains that private student loans should be treated similarly to other private debt in bankruptcy. Despite this, current law still requires the hardship showing through bankruptcy rather than automatic discharge.
Meanwhile, the C.A.R.E.S. Act does not mention any changes to the fixed, affordable interest rates of federal student loans or the manageable repayment options such as the income based repayment plan. Federal student loans offer forbearance in times of economic hardship.
As the student loan debt continues to grow, with Americans currently owing $870 billion, Senator Durbin is convening a judiciary subcommittee hearing to alleviate the next potential "debt bomb" - student loans.
Equity financing, where companies sell ownership shares to investors in exchange for capital, and debt financing, where companies borrow money from lenders which must be repaid with interest, are two options for raising capital for business needs. Equity financing has no debt obligations, making it beneficial for companies as they do not have to repay the funds received.
This article does not relate to student loans or bankruptcy but rather discusses complex real estate legal issues, including foreclosures, lien priority, LLCs, and bankruptcy considerations. It is important to note that these issues are distinct from the student loan discharge process and the provisions of the C.A.R.E.S. Act.
Communication platforms such as Facebook, Messenger, Twitter, Pinterest, LinkedIn, Whatsapp, and Email can be used to stay informed about the latest developments in student loan legislation and relief efforts.
- In the realm of personal-finance and education-and-self-development, it's challenging for students to discharge federal student loans in bankruptcy, as they must provably demonstrate "undue hardship" under the Brunner test, even with the recent DOJ guidance and all its clarifications.
- Moving from student loans to broader economic topics, senators like Richard J. Durbin are advocating for the treatment of private student loans like other private debt in bankruptcy, but under current politics, these loans still require a demonstration of hardship rather than automatic discharge. Meanwhile, general-news sources can provide updates on the latest student loan legislative developments via communication platforms like Facebook, Messenger, Twitter, Pinterest, LinkedIn, Whatsapp, and Email.
