Student Loan Repayment Options
Student Loans (also known as educational loans) are tricky because they come in different forms (federal or private) and have different rights and remedies to collect.
Government student loan lenders can garnish wages and seize bank accounts without going through normal court procedures, but many of these loans can be dealt with through income based repayment programs and other means which can make repayment terms much easier.
Private student loans must go through a more conventional lawsuit process before they can collect, but there are less discounted repayment options available.
Student loans can be very difficult to deal with. It’s a national problem, but my clients in Los Angeles, California seem to have lots of student loan issues.
How I Can Help With Your Student Loan Problems
My office provides assistance in the student loan repayment process in several different ways. Some of the student loan resolution options are:
- Obtain a student loan repayment plan based on your ability to pay, and regardless of how much that is, your loan can wiped out in a maximum of 20-25 years.
- Stop or at least delay actions being taken by student loan agencies trying to collect.
- Negotiate settlements with the student loan agency
- Chapter 13 bankruptcy repayment (allows you to control the monthly payment and stop collections)
Different options are available depending on whether the student loan is federal or private, and whether the loan is in default or not. Which repayment option is best for you depends on the specifics facts.
Are Student Loans Dischargeable in Bankruptcy?
It is very difficult under the current laws to completely discharge student loan debts in bankruptcy.
For cases filed after October 7, 1998, Student Loans are dischargeable only if you can prove that having to repay it would impose an “undue hardship” on you (as defined below).
(for cases filed PRIOR TO October 17, 2005, if the PROGRAM under which your student loan is issued, insured, administered is a FOR-profit, PRIVATE (non-government) entity, it may be dischargeable. However, if the program itself, such as LAL, GSL, etc. receives nonprofit funding by participation of nonprofit entities, the loan is not dischargeable in bankruptcy. For cases filed prior to October 7, 1998, student loans were dischargeable if they were in repayment status for a certain period of time).
Student and educational loans can only be discharged in bankruptcy if the following can be proven at trial.
Discharging Student Loans in Bankruptcy:
To obtain a discharge based on undue hardship in the Ninth Circuit (which includes California) you must prove all of the following:
- That you cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for yourself and your dependents if forced to repay the loans; (This is usually the easiest prong to satisfy.)
- that additional circumstances exist indicating that this state of financial affairs is likely to persist for a significant portion of the repayment period of the student loans; and,
- that you made good faith effort to repay the loans. This does not just include making payments on the loans. It requires doing things over time such as making efforts to increase your income (which includes going back to school to get additional degrees or experience), consolidating loans with the Direct Loan Servicing Center, and other similar efforts.
The Brunner Test
The above is known as the “Brunner Test” named after an appeals court decision by that name dealing with student loan debts.
Courts do have the authority to issue partial discharges of student loans, in cases where the debtor shows the ability to repay some, but not all, of the student loans. This is a huge improvement in the ability to possibly discharge some of these debts, but all three of the above factors must be still be met.
It is very difficult to prove all the necessary elements to discharge student loans.
HEAL Loans are subject to a higher standard of scrutiny than regular student loans and are even harder to discharge.
Important Student Loan Resources:
For other non-bankruptcy resources to deal with Student Loans, including income contingent repayment plans, and methods of canceling the debt, see
1. the Student Loan Borrower’s Assistance page or,
2. http://www2.ed.gov/offices/OSFAP/DirectLoan/cancellation.html (U.S. Department of Education Direct Loans)
Student Loan Cases
To see more about how courts in the ninth circuit analyze the undue hardship Brunner test in bankruptcy, please see the following cases:
To see how certain student loans may be dischargeable if they are funded fully by a private institution, and not through any government program, for bankruptcy cases filed before October 2005:
see In re Pilcher.
by, Mark Markus