Can I Discharge My Student Loans?

Today, American students owe more than $1.4 trillion in student loan debt, all of which is spread out among about 44 million borrowers. Considering the average class of 2016 graduate had $37,172 in student loan debt, it’s not surprising so many young adults find it hard to get a good running start on life when they’re beginning their careers. It’s almost impossible to achieve the American dream of finding a great job, buying a house, and starting a family when you can barely afford to pay rent on top of your student loan payments. Because so many students have fallen behind, some often wonder whether or not it’s possible to discharge their loans entirely.

Under normal circumstances, many loans are not eligible for discharge when people file for Chapter 7 or chapter 13 bankruptcy. However, student loans are not entitled to priority status, or a preferential payment status by the chapter 7 or chapter 13 Trustee. Other loans, such as income taxes that were supposed to be filed less than three years before the filing of the debtor’s bankruptcy petition, get such a preferred status. In order for student loans to be discharged, the debtor has to file an adversarial complaint with the goal of procuring a favorable final judgment from the bankruptcy court.

However, the problem lies in the way the courts have historically interpreted the standard the debtor needed to prove “that there is no reasonable likelihood in the foreseeable future of the debtor being able to pay back these loans.” Case law historically almost universally went against debtors seeking to have their student loans discharged. This isn’t surprising, considering how much lower student loans historically used to be.

From 2007 to 2017 alone, public universities increased their fees by a total of 27%. In 1973, tuition for one year at a private college averaged $9,846, while public schools were just $2,175. After that, college costs began to increase at a rate much higher and faster than inflation. Since the mid-1970s, college prices have risen 5% to 6% above inflation. In 2003, average college costs rose 14%. Because of their student loan debt, many students have decided to delay marriage, having children, and buying a home until the majority of their debt has been paid, a process that takes years to accomplish.

There were discussions during the last couple of years during the Obama administration about issuing executive orders to the attorney general’s office, directing the AG’s office to make it less difficult for debtors to have their student loans discharged. For example, significantly lessen the AG’s historical rigorous opposition to debtor’s actions filed with The Bankruptcy Court seeking a judgment finding their student loans to be dischargeable. Other conversations have taken place within Congress to pass legislation making it easier for bankrupt debtors to have private student loans discharged. For example, not holding the debtors to the same high standards to prove a debt’s eligibility to be discharged as is the case with government-backed loans. Regardless as to the U.S. Congress’ failure to pass any specific laws easing the dischargability of student loans and/or the Obama administration’s issuance of any directives concerning same to the Atty. Gen.’s office, the fact is the climate has now changed throughout the country, including in the second and third circuits (which includes New York and New Jersey) and student loan dischargeability complaints are being routinely settled around the country on much more reasonable terms than in the past. Dischargeability complaints that do go all the way to trial our being W ON by Debtors about as frequently as they are being lost.

Over the past few years, student loans have become more than a minor hassle to current students and graduates. Student loans have become the albatross around the necks of many U.S. citizens. If you find yourself in this situation, you could be under similar financial and emotional stress. Whatever your case, Marc G. Alster and his legal team are always available to help guide you through the financial process related to your student loans. He has been recognized by many prestigious legal associations and offers more than 20 years of legal experience. You can rest assured your financial troubles are in good hands. Give his office a call today at (201) 878-4630 for your free initial consultation.


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