Student Loans- Hardship Discharge is Hard to Get

Posted by Kevin on October 5, 2011 under Bankruptcy Blog | Be the First to Comment

When the Code was changed back in the late 1970’s, a debtor could discharge a student loan if there was a hardship situation or if loan payments were due more than 5 years before the filing. Now, a debtor can only get a hardship discharge.  I tell all my clients that you have to be in pretty bad shape with little or no prospects for a decent living to get a hardship discharge .  Even then, it was iffy.

A recent case out of Ohio illustrates this point.  Husband and wife file.  He was librarian and owed 35K on student loans.  She got a doctorate in folklore and ethnography and owed 237K.  She was teaching and making 62K per year but lost her job when she was found guilty of plagiarism.  Her doctorate was revoked.  Supposedly, the plagiarism was caused because she was bi-polar ??? She could not find work.

The court said that they could not pay the entire amount of the students loans.  But then the court found that the wife could get a job at a lesser salary and they could afford to pay $850 per month for 21 years for a total of $214K of the $267K they they owed.  The court also took into consideration that the $267 they owed on the student debt was about 1/2 of their total debts so the debtors were not filing solely to take care of the student loans.

So, the court took only 50K off the students loans even though wifey was never going to get a job in her chosen field and might wind up at McDonalds.

Parents should think long and hard about the debt that they and their children are going to incur by going to college.  The question is whether it is worth it.  If your kid is an A student with 1300 math and verbal SAT’s, I would say yes.  But, if he is a C student with 800 math and verbal SAT’s, I would think twice about incurring the debt.