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Having to repay a student loan is one of the most common realities for young people in the US. Unfortunately not many are lucky enough to land on a job that offers an income of hundreds of thousands of dollars per month, quarter or even year and at one moment the student loan turns out to be an unbearable burden. In case you are faced with other financial troubles you might be considering filing for a bankruptcy in order to get rid of the piling unpaid debt. It turns out, however, that the student loan is not considered a loan in the direct meaning of the term and it is difficult to bankrupt it through the general procedure. It is not impossible, though, and below you will find some possibilities of how to continue your life without the burden of the student loan.
How student loans became such a burden
In order to understand why it is so difficult to discharge student loans we shall have a look back to some 40 years go. In the USA prior to 1976 the debt from student loans was treated the same way as any other debt and it was possible to discharge it in a straightforward bankruptcy case. However, the default rates started rising, there were several stories of doctors who declare bankruptcy after graduating medical school and this caused kind of panic for the Congress. It was perceived as if people were trying to scam the government and simply get free education. Therefore a law was passed that students can discharge loans in bankruptcy only five years after it originated, unless they prove it is undue hardship. In 1990 the five-year period was extended to seven years, however in 1998 the Congress passed another law, according to which student loans could be discharged in bankruptcy only after proving they are undue hardship. Now this might seem a bit scary and difficult to prove, however, it has been done even by doctors and lawyers, so it is a valid possibility.
Success case studies
There are several options available that can help you manage, bankrupt or have your student loans forgiven. There are several studies showing that the success rate of discharging student loans through filing for bankruptcy is at least 40-50%. In the data reported in 2102 by Steve Rhode on his site – the get out of debt guy, shows that out of all cases filed for a student loan discharge 47% were discharged in full, 21% lead to a better repayment plan and 12% were settled for a lower amount than originally due. This makes an overall success rate of 80%. There are some other studies from previous years that also show a success rate of 40-50%. Such are the studies by Jason Iuliano, J.D. Harvard Law School and Ph.D. Student in Politics, Princeton University and another by Rafael I. Pardo, Associate Professor of Law, Seattle University and Michelle R. Lacey, Assistant Professor, Department of Mathematics, Tulane University. It is interesting to note that some of the cases were won simply because the lender failed to file an answer. It is also safe to draw a conclusion that lawyers are getting better in these cases and can find the right way to prove that the student loan is indeed an undue hardship. This means, however, that you need to find a reliable bankruptcy attorney who has experience in bankrupting student loans as they will be able to assist you properly.
The comprehensive guide to student loan discharge and forgiveness
Even though it is always better to go and directly speak with an attorney who can give you the right advice on how to proceed with your student loans and which is the best way to get rid of them, if possible without paying them, you can also do your homework and research some information. There are many useful sites and blogs that can give you advice on how you could proceed or whether your student loan is eligible to pass the Brunner test for undue hardship. This test consists of three criteria:
- Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
- Your current financial situation is likely to continue for a big part of the repayment period.
- You have made a good faith effort to repay your student loans.
So, if you meet these criteria you are eligible to file for bankruptcy that will discharge your student loans debt as well. If not, you can still be able to find a relief from this burden. One of the most comprehensive guides that presents more than 60 programs that can help you discharge or manage your student loan is compiled and present as a short e-book by Salt and you can find it here. It is free to download and gives a lot of valuable information.
Below you can also find a very useful and systemized flowchart, prepared by Nick Thompson, a bankruptcy attorney who is dealing with student loans discharge as well, which gives an insight of the student loan discharge process.