Department of Education Provides Guidance on Bankruptcy and Student Loans Discharge

by San Antonio Attorney

The Department of Education recently introduced a guide on how it will address requests to forgive government backed student loan debt. The guide is helpful, but not really favorable for the students who have to carry the debt burden.

The guide aims to create a balance between getting repayments of student loans except where the obligations would cause an undue hardship on the borrower.

The Department of Education is seeking to find its balance in collecting debts as opposed to forgiving the debt.  However, consumers feel that what is missing in this formula is the lack of focus on owing money to begin with by institutions that are driving consumers to take the loans.

The July 7, 2015 notice from the Department of Education offers some light at the end of the tunnel for those hoping to receive a relief from the burden of student loan debt.  The agency said it would not hinder undue hardship discharge of student loans where paying back the loan would inflict an undue hardship on the debtor.

Lately, attorneys have been aggressive in challenging consumers who have tried to eliminate their federal student loan debt regardless if it has caused them an undue hardship.  But the guide provided by the Department of Education has also informed consumers when it is disadvantageous for the government to fight the discharge request.  If the expenses to pursue the matter in bankruptcy court are likely to go beyond one-third of the overall amount payable on the loan, it won’t be necessary to oppose an undue hardship claim by the debtor.

Though it’s too early to know how many lenders will follow the guides, having this on paper is a beneficial tool for bankruptcy attorneys.

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