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Will President Trump take a new approach on student loan debt?

Will the ability to discharge student loan debt in bankrutpcy change?

President Donald Trump has taken a very active approach to a number of different issues. Thus far, his administration has aggressively fought against requests to forgive outstanding student loan debt with a petition for relief through bankruptcy. This stance may be in flux.

Announcement may signal a potential change in the administration’s stance on student loans and bankruptcy: A recent announcement has both financial and legal professionals wondering if this stance could change.

The announcement involves a review of the process used when a borrower moves forward with bankruptcy. The United States Department of Education recently requested public comment on the issue. More specifically, the group is looking into what loan holders take into consideration when evaluating a request from a borrower to forgive the debt through a bankruptcy proceeding.

As noted in a previous article, there are instances when a bankruptcy petition can result in the discharge of student loan debt. Unfortunately, it is difficult to qualify for this form of relief. Essentially, the borrower must establish that repayment of the loan would result in undue hardship. Examples that generally meet this requirement include poverty and permanent disability.

The Department may relax this requirement. As noted in a recent piece in Market Watch, the Department has stated that it is looking to ensure that those who qualify for bankruptcy are not “inadvertently discouraged” from an attempt to discharge student loan debt.

A second announcement fuels concern: Although this announcement appears promising, another announcement provides fuel for critics. United States Department of Education Secretary Betsy DeVos allegedly released an internal memo that addresses the attorneys generals in states that have sued student loan debt collectors for their deceiving and abusive practices. The memo appears to align the administration with the debt collectors – not the student borrowers.

Massachusetts Attorney General Maura Healey is one of many that has received word of this memo and is fighting back. She recently stated that the memo is an attempt to “stop states like Massachusetts and my office from holding companies accountable for ripping off students with predatory loan servicing practices.”

Takeaway lesson for those with unmanageable student loan debt: Although the process may be in flux, it is important to keep in mind that those who have taken out student loans and are struggling to meet repayment obligations have options. Although it is difficult to tell if the requirements to discharge the debt in bankruptcy will relax, it remains important to discuss this option with an attorney. Legal counsel experienced with these laws can review your situation and give you a clear picture of your options.

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