Student Loans in Bankruptcy: A Disturbing Trend and Certainty of Hopelessness

Student loans have a unique place among the various forms of debts.  The rising cost of education, and minimal jobs for young people, have caused student loan debts to a rise.  As a student loan debt is unsecured, there is nothing for the bank to take possession of and sell to reduce their losses.

Therefore, these debts can be more difficult to discharge in a bankruptcy case.  The court can order that the debtor repay a certain percentage of the obligation over a period of years, or a lump sum payment be made before the debt is discharged.  In contrast to many other types of debt for e.g.; credit cards, student loans will often survive a bankruptcy and still be the full obligation of the debtor. But there is a way to discharge student loans in bankruptcy.

In order to discharge student loan debts, the debtor must prove that repaying the obligation would cause an “undue hardship.” To prove undue hardship the debtor must often show that there is a “certainty of hopelessness” that s/he would ever be able to repay the debt.  They are only dischargeable under the “Brunner Test” in cases where the debtor is overwhelmed by the most hopeless of circumstances.  Even when a right level of hopelessness is achieved, a discharge is available only when the debtor has made reasonable efforts at payment and there are “additional circumstances.” see Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. N.Y. 1987).

Student loan debt became this difficult to discharge after mid seventies. Congress changed the laws in 1976 to prevent abuse of the use of bankruptcy to wipe out student loans by doctors and other professionals. Since then, these laws have been toughed at the federal level and extended so as to apply to private lenders as well as the federal government.

However, this trend cannot go on as many students are graduating under large amounts of debt with less job opportunities. The numbers of struggling graduates attempting to discharge their student loan obligations are on a rise and certainly it is a disturbing and hopeless situation seen faced by the nation’s youth.


Inside Student Loans in Bankruptcy: A Disturbing Trend and Certainty of Hopelessness