Student Loans and Bankruptcy

Increasingly, younger workers are awakening to the nightmare of unemployment and the inability to repay educational loans they believed would pave their way to success and financial security. Education costs have risen and unemployed graduates are going broke.

Special Interest groups comprised of Banks and Credit Card Issuers asserted strong political lobbiest pressure on politicians during the 90’s to amend bankruptcy laws to exclude student loans from bankruptcy discharge. In 2005 student loans became non-dischargeable with minor execeptions. These "undue hardship" exceptions are rare but they do exist – mainly in cases where people paid for bogus degrees and/or were fraudulently induced to enroll in schools which had misrepresented their accreditation.

The applicable Bankruptcy Code section can be found in 11 U.S.C. Section 523, which states, in pertinent part:

§ 523. Exceptions to discharge

A. (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—

• An educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
• An obligation to repay funds received as an educational benefit, scholarship, or stipend; or

B. any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Deceptive Advertising by Education

Deceptive advertising in the educational field is more common than one might think. I have represented a woman whose degree for medical billing was both expensive and useless because it did not provide her with the most common requirements of employment in that particular field. The school's advertising circular stated that the school provided these common course requirements of employment.

She proved that she had been deceived, was unemployable as a result, and that she had been forced to take the entire course curriculum a second time at another school. Also - she never got the money from the lender. The school, which arranged the loan, got the money directly from the lender. Her case is still pending. I intend to argue for the discharge of the debts which are listed in her petition as unsecured and disputed. Cases elsewhere have upheld discharge of student loans from bogus schools like this one.