Attorney Carla M. HandyAs many people considering bankruptcy relief are aware, student loan debt is generally non-dischargeable in bankruptcy (student loans can become dischargeable if an “undue hardship” can be proven).  This is true for both federally guaranteed student loan and student loans issued by private lenders.  The rules for the dischargeability of student loan have tightened over the years – at one time such loans were completely dischargeable in bankruptcy.  As a result of the tightening of these rules and the amount of student loan debt currently outstanding or in default, this debt category may likely be the next bubble to burst resulting in economic calamity for this country.  Due to this, the federal government has recently begun taking steps to help improve the ability to pay back student loan debt.  Could it be possible that a change to the Bankruptcy Code allowing for the discharge of student loan debt is not far behind?

The present administration implemented regulations in 2013 to help with the repayment of student loans that is frequently referred to as the “Pay as You Earn” program.  Basically, repayment programs were put in to place to reduce the monthly payments on student loans to 10% of a person’s discretionary income for 20 years.  If any balance remained after 20 years, that balance would be forgiven, i.e. wiped out.  “Discretionary income” is a term of art and refers to the amount a person earns above the poverty line that has been established by federal guideline for that person’s particular family size.  This discount is even greater for a shorter period of time, 10 years, for government employees or those persons employed in public service.  Jeffrey Dorfman of Forbes magazine seems to believe any help with student loan debt by the federal government is a waste of taxpayer money.  But I think these programs are fabulous and every person carrying any amount of student loan debt should apply to see if they qualify for this relief.

The most recent assistance by the present administration is the Student Aid Bill of Rights issued in by executive order this month.   The administration continues to advocate that every person should have the right to an affordable college education.  This has gotten the attention of bankruptcy attorneys who believe that dischargeability of student loans in bankruptcy may be just around the corner.  This may be a tad optimistic as dischargeability of student loans would require congressional legislation amending the current Bankruptcy Code and there is not much of the People’s business being conducted in the halls of Congress these days.  However, taking advantage of what has been improved by executive order in the repayment of student loans can be achieved today.  Bankruptcy attorneys frequently can assist with application for these student loan repayment plans as they frequently deal with student loan issues in their bankruptcy practice.

If you find that you would like to explore your options for student loan repayment plans, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation.


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Bond & Botes, PC
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