Millions of borrowers rejoiced when the Biden Administration announced its plan to forgive up to $20,000 in federal student loan debt.
So, imagine the disappointment when 700,000 to 800,000 lost that relief in a “quiet rule change.” Borrowers whose loans are FFEL loans are no longer eligible for debt relief. The White House claims it is “exploring legal avenues” to provide relief to these borrowers, but for now, FFEL borrowers are out of luck.
Now, only ED loan borrowers are eligible.
What is an FFEL loan?
An FFEL loan is an older kind of loan. It’s a federal loan, managed by a private bank.
Newer loans are Direct educational department loans.
There was very quiet guidance to borrowers to consolidate their loans into Direct Loans, but it was poorly publicized, and the guidance was changed a month later. Some of the guidance was highly confusing. For example, many borrowers were told to wait on consolidation clear up until the rules got changed.
Can FFEL loans be discharged in bankruptcy?
They can be, but they’re very difficult to discharge. You must have been in repayment for at least seven years, excluding periods of deferment and forbearance, or the bankruptcy court has determined that repayment of the loan would cause an undue hardship to the debtor and his or her dependents.
However, there’s no harm in trying. Only 0.1% off bankruptcy filers even attempt to discharge their student loan debt. A good bankruptcy lawyer may succeed in convincing a judge that your loan is dischargeable. To do so, we submit a complaint called an Adversary Proceeding. Your student loan lender can attend the resulting meeting to challenge the complaint.
Undue hardship uses the Brunner Test or the Totality of the Circumstances test.
The Brunner Test:
- Poverty. You and your dependents will be unable to maintain a “minimal” standard of living if you’re forced to repay. There’s no standard for what “minimal” looks like; judges decide.
- Persistence. There must be substantial evidence that the undue hardship is likely to continue for a significant portion of the repayment period.
- Good faith. You’ve made a good faith effort to repay student loans for at least five years.
Totality of the Circumstances looks at the total circumstances of the borrower. For example, in Smith v. US Department of Education, the borrower had multiple physical and mental health problems, including a seizure disorder, depression, panic attacks, ADHD, and various other disorders they’d been treated for since the age of nine. He was on food stamps and social security disability. The courts found the totality of the circumstances was more than sufficient to show that his debt should be discharged in bankruptcy.
Even if it becomes impossible to discharge your student loan debt in bankruptcy, it is still possible to obtain financial relief from your other debts.
Need help? Reach out to our office to schedule a consultation today.