Student loan debt and bankruptcy in 2023: An update

One of the main frustrations with student loan debt is the fact that it is often tied to attempts to better oneself. Society tells us to go to school, get a college degree, and then we can get a good job. Some of us even take it a step further and get a master’s or doctorate degree. After we follow this advice and apply for a job many of us are left facing astronomical student loan debt.

How does the debt get so unmanageable?

Unfortunately, some student loan providers offer predatory loans, or the original provider ends up selling the loan to others. In other cases, higher-level education institutions make false promises about job placement offerings. This leaves graduates struggling for work after taking on high levels of student loan debt. After years of trying to make loan payments, high-interest rates can quickly double the loan amount and leave borrowers facing outrageous balances.

What is the government doing to address this issue?

President Joseph Biden made national news when he proposed to cancel up to $20,000 of student loan debt. An attempt by lawmakers to overturn the proposal failed, and it is currently headed to review by the Supreme Court of the United States (SCOTUS). The conservative majority SCOTUS will review the legality of the proposal and could put an end to loan forgiveness in the near future.

Are there other options?

If President Biden’s attempt to remove this obstacle fails, there are other options. In some cases, borrowers can qualify for debt relief through bankruptcy. This often requires the borrower to establish undue hardship.  A court determines the presence of undue hardship through a process that involves a review of multiple factors. These factors can include:

• Standard of living. The borrower will need to show that if they repay the loan, they would not be able to maintain a minimal standard of living.
• Timeframe. The borrower will also need to show that the undue hardship would last for a significant portion of the loan’s repayment period.
• Good faith. The undue hardship argument can only survive if the borrower made efforts to repay the loan before filing for relief through bankruptcy.

Upon review, the court could grant a complete discharge of the student loan, meaning you do not have to pay any of the balance. The court could also grant a partial discharge or a new, more manageable repayment plan.

Other options exist if the court denies bankruptcy relief for student loan debt. This can include negotiations with the loan provider and proposing a new repayment plan.