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Student Loans Have Become a Presidential Campaign Issue


With the 2020 election fast approaching, candidates are beginning to talk policy, and one issue that keeps popping up is student loans. Readers of our blog will not be surprised to learn that student loans dwarf nearly all other debt in the U.S. According to Student Loan Hero, 45 million Americans are carrying an estimated 1.56 trillion in student loan debt.

From Forbes comes a story about Elizabeth Warren, a Senator from Massachusetts who is also running for the Democratic Party nomination. She is proposing to allow filers to eliminate student loans in bankruptcy. And she has cosponsored legislation to show that she is serious.

New Legislation on Student Loans and Bankruptcy

Senator Warren has cosponsored a bill along with Dick Durbin from Illinois and two Representatives from the House, Jerrold Nadler and John Katko. The bill would eliminate the part of the bankruptcy code that prevents borrowers from discharging student loans in bankruptcy. If passed, student loans would be treated like all other forms of debt.

People might be surprised, but before 1976 consumers could discharge all student loans in bankruptcy. Congress then changed the law and allowed discharge if the borrower had been making payment for a certain number of years. By 2005, however, all student loans (including private loans) could not be discharged in bankruptcy without showing undue financial hardship.

Proving Financial Hardship

As of now, the only way a debtor can discharge student loans is to show “undue hardship.” In Florida, this would mean showing:

  • You cannot repay your student loans and maintain a minimum living standard because of extenuating circumstances. For example, you might be disabled and unable to work, relying only on disability payments which barely cover your bills.
  • Your extenuating circumstances will probably continue through the repayment period of the loan.
  • You have made a good faith attempt at repaying your loans. For example, you might have repaid your loans for 4 years before becoming disabled, or you made a plan for payment.

Not many consumers meet this test, though most don’t even try to discharge their loans. If Senator Warren’s bill passes, then far more consumers could wipe out their student loans.

What Should Consumers Do?

If you are struggling to pay your student loans, you should carefully assess your options. We can’t guarantee that Senator Warren’s bill will pass or even that President Trump would sign it into law.

Until then, you will need to keep current on your student loans. You can talk to your lender about different repayment plans or whether you qualify for deferment or forbearance.

You should also look at your other debt. If you have a lot of credit card debt, then a bankruptcy could wipe that out, making it much easier to pay your student loans. You might be able to eliminate other debts which can allow you to keep your head above water.

Contact Nowack & Olson today. One of our Plantation bankruptcy attorneys will meet with you for a free consultation to go over your situation. You can call 888-813-4737.





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