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Why can't I discharge my student loans?

We meet people with varying types of debt and financial situations. However, we are seeing more and more people with student loan payments that are simply unbearable. In many situations the student loan payments are so high that other bills are not being paid. In some cases, the people we meet cannot make payments on student loans at all because they are unemployed or underemployed. Unfortunately, most student loans are not dischargeable. However, we understand that our clients want to know why they are not dischargeable.

Laws come from a few different sources. Sometimes they come from a statute, other times they come from case law. The policy regarding discharging student loans came from case law. In the case a recent graduate attempted to discharge her student loans in bankruptcy. Notably, she was a very recent graduate who filed for bankruptcy within about a month of her payments becoming due without ever making a payment. The legal battle went back and forth, but ultimately, the court adopted a three part standard for evaluating whether student loans could be discharged. The courts are to evaluate whether:

1. The debtor can maintain a "minimal standard of living" for themselves and any dependents if forced to repay the loans,

2. There are additional circumstances that are likely to persist for a significant portion of the repayment period of the loan, and

3. The debtor had made a good faith effort to pay the loan.

The Court made a point to state in its decision that there was not any indication of additional circumstances by stating that she was not disabled, nor elderly, nor did she have any dependents. This is what creates the basic rule that most people will not be able to have their student loans discharged.

What we find interesting, is that almost inarguably this particular individual did not meet the third prong of the test as she never made any portion or any payment, nor did she attempt to utilize any other available options, like a forbearance or deferment. Arguably this would make the first two prongs of the test what is called "dicta", meaning that it is an opinion of the court but doesn’t control the outcome of the case. If it doesn’t control the outcome of the case it is not binding authority on those issues. However, as this case has been followed for the past twenty five years, this case is certainly settled case law by now.

Though, interestingly enough, there have been many changes to student loans and loan forgiveness since that time. Particularly, time period after which your student loans are forgiven is two and a half times what it was then.

If you have questions about this, or any other bankruptcy questions, please contact your St. Louis Bankruptcy attorney today.


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