Student Loans and the Current Bankruptcy Code 2021

Student Loans and Bankruptcy

$1.57 trillion. This is the total amount of money 42.9 million Americans owe in student loan debt, and the total is not getting any smaller. In fact, student loan debt in the United States is growing at a rate six times faster than national gross domestic product (GDP). This enormous financial burden on so many Americans calls for action from our policymakers.

For the first time since 1998, congress is talking about student loan relief. The Senate Judiciary committee has recently introduced the Fresh Start Through Bankruptcy Act. This bipartisan bill aims to overhaul the current student loan system by making it easier for individuals to discharge their federal student loans though bankruptcy.

President Joe Biden announced that he will extend the national student loan forbearance until May 1, 2022. The extension is due to the recent spread of Omicron variant which is only expected to surge as winter progresses. The administration said this 90-day extension will be the final push for student loans. Many Americans hope this will not be the only relief they see in regards to their student loans.

Student Loans and the Current Bankruptcy Code

Under current Bankruptcy code, updated in 1998, student loans are not able to be discharged unless they pose an “undue hardship” to the indebted individual. Determining undue hardship can be a complicated and a challenging task for bankruptcy lawyers, who must prove to the judge that their client’s situation passes the Brunner test.

In order to pass the Brunner test, one must display that they are unable to maintain a minimum standard of life while repaying student loans, they also must prove that their current financial situation will not improve, and lastly the client has had to make an effort to repay their loans in the past. The Brunner Test is difficult to pass as it is dependent on the judge’s opinion of your standard of living.

Proposed Changes to this Code

The 117th Congress has decided that it is time to throw a lifeline to millions of Americans who suffer from student loan debt. Senators Richard Durbin (D-IL) and John Cornyn (R-TX) introduced the Fresh Start Through Bankruptcy Act in August of 2021. The bill aims to make the discharge of student loans though bankruptcy easier by eliminating the “undue hardship” requirement and replacing it with new, more lax, requirements for discharge.

Under the bill, individuals who have been paying off their loans for ten or more years would become eligible to discharge their student loans through bankruptcy as easily as any other debt. Additionally, this bill would provide more oversight and regulations on educational institutions whose students consistently have high default rates due to misinformation offered by the schools about student loans.

Likelihood of Passage

The Fresh Start Through Bankruptcy Act has received bipartisan support, a rare feat in today’s divided political climate. It has support from both democratic senators such as Senator Dick Durbin, the chair of the Senate Judiciary committee, and republican senators, such as Josh Hawley.

However, at the current moment, student loan discharge is not at the top of the Biden Administration’s agenda. Striking a deal on the Democrat’s 1.75 trillion-dollar social spending deal is the main focus of the president, so this bill will likely take a back seat until those negotiations end and the bill is passed. While we anxiously await this lifeline from congress it is important to keep your loans in good standing.

This can be done by keeping up on your current student loan payments which are set to resume in May 2022, if you are currently in default, you have a few options. The first option is to rehabilitate your loans which consists of making 9 full payments during a period of 10 consecutive months, this can be quite expensive. The other option is consolidation, this will combine all your student loans and the new fixed interest rate will be the weighted average of your previous rates.

If you are looking to explore different student loan re-payment options and may need help getting your loans out of default call Hoglund Law today. We have recently adopted a new Student Loan Management program, for just $25 you can see what payment plans or forgiveness options you may be eligible for.

Hoglund Law also offers assistance for those who are seeking Total and Permanent Disability (TPD) Discharge of their student loans. This federal program is suited for individuals who can no longer engage in substantial gainful activity. Substantial gainful activity refers to a level of work performed for pay that involves doing significant physical or mental activities or a combination of both. If you believe you may be eligible for this program reach out to our office today.

Student loans can be a burdensome debt, if this bill were to pass, millions of Americans could have relief, but it is in the hands of congress. Do not wait for legislation to bail you out, take control of your situation today by calling Hoglund Law at (651) 789-5052  and exploring your student loan options.