The Covid-19 deferment of student loan payments ends this month and required payments will resume by summer’s end. Interest will resume on September 1, 2023 and payments will be due again starting in October.
This is the perfect time to take a hard look at those student loans to see if there is a basis to either discharge them in bankruptcy as an undue hardship or apply for one of the various income based repayment plans offered for federal student loans by the Department of Education.
As we have noted before, there is a unique opportunity in place for those with overburdening federal student loan indebtedness based on the revised guidance by the U.S. Department of Education on what constitutes undue hardship in their interpretation of 11 U.S.C. §523(a)(8).
This revision has opened the door for many individuals with large and unmanageable student loan debts incapable of repayment. We encourage all potential student loan debtors to obtain a student loan review as soon as possible and discuss whether their situation might qualify for relief under the D.O.E.’s revised guidance.
Limited Window of Opportunity
Since this is a suggested interpretation by a federal agency, and is not law nor binding upon future administrations, it may well be a limited window of opportunity for relief. The legal precedent still in place before the Courts (called the “Brunner test” for defining “undue hardship”) is fairly draconian and remains the legal standard for most courts absent consent from the Department of Education.
Without question, not every case will qualify for either debt relief or modification of terms so a comprehensive review at the outset is imperative in making a informed decision as whether to file for such relief under the Bankruptcy Code.
What if I don’t qualify for student loan relief?
However, even for those individuals who may not qualify for relief under the revised D.O.E. guidance, there are still possibilities of loan consolidations or various income based repayment options geared toward the debtor’s ability to repay. This often can lead to massive reductions of student loan payments.
Private student loans remain more problematic but dependent upon the severity of the circumstances, negotiation of these loans are not out of the question. We stress however that default of these loans, federal or private will not assist a borrower. The opportunity for relief requires a non-default status so if you are unable to pay starting in September, you should immediately consider all viable alternatives.