Student Loan Laws are Changing

Student loan debt is a major problem in Ohio, with 67 percent of the state’s college graduates dealing with debt from financing their education. According to The Institute for College Access & Success’ Project on Student Debt report, the average Ohio student loan debt stood at $29,353 in 2014, a 53% increase from 2004. Since many people cannot find a job after graduation with pay high enough to meet expenses and also cover their high student loan payments, it is no wonder that borrowers wind up seeking debt relief.

However, there may be some changes on the horizon that can amount to good news for holders of student loans. A class-action lawsuit has been brought against Navient, a loan-servicing giant. As a result, the company has agreed to suspend collection activities on some borrowers who have filed for bankruptcy. The lawsuit brings temporary relief and the hope for the discharge of some student debts.

It is commonly believed that student loans cannot be discharged in bankruptcy, but fortunately, this is not always true.  A knowledgeable bankruptcy lawyer can often find ways for you to obtain relief from at least part of your student loan debt or enable you to get caught up on student loan payments. And filing bankruptcy can make it possible for you to get a fresh financial start by wiping out other debts.

The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that financial problems can happen to even the most well-intentioned people.  We offer a free consultation to evaluate your financial situation.  We can help by looking at your income, your student loans and other debts, and coming up with a plan that’s best for you.

What Navient Did

According to the lawsuit, Navient tried to collect money on loans which had been discharged in bankruptcy. The company used high-pressure tactics, including making harassing phone calls and calling borrowers’ employers and relatives.

As a result of this lawsuit, Navient voluntarily agreed to temporarily halt collection activities against borrowers who filed for bankruptcy after October 2005 and used the loans to attend nonaccredited programs. Navient is also facing additional lawsuits about their lending practices. According to the New York Times, the Consumer Financial Protection Bureau and Attorney Generals in Illinois and Washington all claimed that Navient engaged in predatory lending practices.

Student Debt and Bankruptcy

Before 1976, student loans could be included in bankruptcy proceedings. However, due to large numbers of defaults, Congress made changes to the bankruptcy code to make it more difficult for borrowers to discharge (eliminate) student loan debt in bankruptcy. Currently, debts are not dischargeable if they fall in the following categories:

  • Federal student loans
  • School-offered student loans
  • Qualified education loans from private lenders

The only way for borrowers to get rid of these debts is to prove that repaying the loan would be an “undue hardship”.  This hardship is not determined in the bankruptcy filing, but is determined through an adversary hearing and this is an extremely hard standard to prove.

Ohio courts follow the Federal bankruptcy laws, which state that to qualify under the undue hardship standard, you must meet the “Brunner” test. This is a three-part test used to evaluate whether you are able to continue to pay off a debt:

  1. Have you made a good faith effort to repay the student loans?
  2. Will you be unable, based on your current income and expenses, to maintain a minimal standard of living for yourself and any dependents if forced to repay the loans?
  3. Are there additional circumstances that exist that indicate that this state of affairs is likely to persist for a significant portion of the repayment period for the student loans?

Bankruptcy judges are aware that the student loan situation has greatly changed since Congress first exempted student debt from bankruptcy discharge. Today, the number of borrowers and amounts they owe are becoming unmanageable. Attorneys have been trying to expand the definition of undue hardship, but unless laws are changed, judges are limited in what they can do to ease the burdens of student loans.

Changing Laws

As a result of the worsening student debt situation, attorneys and legislators are exploring ways, such as the Navient lawsuit, to challenge student loan bankruptcy laws. Instead of focusing on the undue hardship part of the law, they are focusing on the categories that may make students eligible for bankruptcy.

For example, lawyers claim that loans that don’t fall into the previously mentioned categories should be eligible for discharge under bankruptcy, including:

  • Non-accredited programs, such as career training or bar exam study
  • K-12 education
  • Medical school overseas

If successful, the Navient lawsuit could be a groundbreaking change that attorneys say will impact approximately 16,000 Navient borrowers, including many who may not have known their rights.

Is Bankruptcy Right for You?

If you are drowning in debt that you cannot control, bankruptcy might be the answer for you. If you do attempt to include student loans in bankruptcy, you might be able to have at least some of your debt discharged or gain more time to re-pay your loans.

If you can prove undue hardship, your student loan will be completely canceled. Even if you cannot, filing for bankruptcy can give you some breathing space, as it also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Contact Us for a Free Consultation

If you have questions about your student loan or any other debt, the seasoned and compassionate Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your entire financial situation.  Even if total discharge is not possible, we can help you explore other options such as negotiating with the lender to get more favorable terms, and modification or consolidation of the student loan debt. We understand what you are going through and will walk you through the process.

Delaying can only worsen your situation, so call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today!  Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what debt relief solutions will work best for you.

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