For many, the swelling of student loan debt has created a “crisis” that requires some form of resolution that has, to date, been elusive. College graduates swimming in an ocean of past-due notices have tried to seek relief.
However, when it came to bankruptcy, wiping out these debts was simply not an option in those filings.
A Possible Seismic Shift In Bankruptcy Filings
Where blockades once existed except in cases of extreme financial hardship, a new route has been discovered to discharge private student loans in bankruptcy courts.
Private borrowers only account for less than 10% of the more than $1.3 trillion in outstanding student debt. Those institutions have never enjoyed the dominance in the student loan market possessed by a federal government not as vulnerable to bankruptcies.
That disadvantage may be coming to an end for private loans that cannot be discharged because they provide educational benefits.
Questions Over Educational Benefits Of Private Loans
Since March, loan cancellations have been on the increase because of new arguments that cite vague language in the legal definition of student loans. Based on those vagaries, new legal challenges are being pursued with increasing regularity.
Lawsuits to discharge private debt are becoming more prevalent as all forms of student loan debt increase. Some legal challenges have been successful.
One ruling for the borrower asserted that debt for bar exams is consumer debt, not student debt. Another case involved a private bank providing a loan application coded for an accredited institution when the college was not accredited or licensed.
Similar to the hard work put in academic pursuits, months and years of hardship for borrowers may become a thing of the past.