Student Loan Debt Solutions in New York
Obtaining a student loan discharge is difficult, but not impossible. Even where a discharge is not available, you may be able to obtain partial relief.
The Standard for Student Loan Discharge in Bankruptcy Remains HighIt is true that the standard is very high; to receive a discharge of a student loan in bankruptcy, a debtor must establish undue hardship. In New York, this means a debtor must establish, based on current income and expenses, that (i) they cannot maintain a minimal standard of living for themself and their dependent(s) if forced to repay the loan, (ii) this state of affairs is likely to persist for a significant period of the loan repayment program and (iii) they have made good faith efforts to repay their loans.
Some Lenders Will Negotiate if You Have a Compelling CaseWhen faced with a complaint seeking to discharge a student loan, lenders must do a risk assessment. They must weigh their desire to obtain payment against the chance that they lose, in which case there may be unfavorable case law they must overcome in the future. I once represented a young woman who was educated and presented very well. Despite this, she suffered from medical issues that prevented her from being regularly employed. She was very young, had no dependents, and a supportive family. Ultimately, the lenders weighed their options and agreed to release her from her obligations rather than take the chance that they might lose in court.
There Are Signs of Change on the HorizonThere are also signs that at least some members of the judiciary may believe the loss and burden should be shared between the parties. While not binding on courts in New York, a Massachusetts bankruptcy court recently denied a debtor’s complaint seeking to discharge her student loan debt, but conditioned the denial on the debtor’s eligibility to participate in an income-based repayment program under which all remaining debt would be forgiven after she made payments for 20 years. In re Tamara Sara Parvizi (Tamara Sara Parvizi v. United States Department of Education, Great Lakes Borrower Services), 2021 WL 1921121 (Bankr. W.D.Mass. May 12, 2021). The debtor in his case had more than $650,000 in student loan debt, was very well-educated, had no dependents, no physical or mental disorder and never seemed to make any good faith effort to repay her loans, choosing to work in teaching rather than pursuing a possible career in medicine. The Parvizi Court reasoned that, while making payments under the income-based plan was not undue hardship for the 51-year old, it would be undue hardship for the debtor once she reached her 70’s. Accordingly, if the debtor was not deemed eligible for the income-based repayment program, she would be allowed to renew her request for a discharge. A Maryland court similarly granted a debtor equitable relief in a student loan discharge action. Randall v. Navient Sols. (In re Randall), AP No. 19-00368-MMH, 2021 WL 2550034 (Bankr. D. Md. June 21, 2021).
Private Student Loans Are Dischargeable in the Second CircuitRecently, a three-judge panel of the 2nd U.S. Circuit Court of Appeals upheld U.S. Bankruptcy Court’s refusal to dismiss a lawsuit against student loan servicer Navient Solutions LLC accusing it of violating a prior court order discharging a borrower’s loans. Hilal K. Homaidan v Sallie Mae, Inc. et al., U.S. 2nd Circuit Court of Appeals, No. 20-1981 (2021 WL 2964217) (July 15, 2021).
After graduating from Emerson College, the borrower filed for chapter 7 bankruptcy in New York and obtained a discharge in 2009. The discharge order was unclear about whether it applied to the debtor's two private loans. Navient, succeeding Sallie Mae as the loan servicer, sought repayment of them in any case. The debtor paid the loans back, but in 2017 reopened his bankruptcy case to file a putative class action against Navient accusing it of a pattern of demanding repayment on discharged loans. Navient moved to dismiss, arguing that the loans could not be discharged as the Bankruptcy Code prevents a borrower from discharging “an obligation to repay funds received as an educational benefit.”
The Second Circuit upheld the bankruptcy court’s finding that the language of the Bankruptcy Code indicates that Congress did not intend to protect all educational loans from discharge. The 5th and 10th U.S. Circuit Courts of Appeals have issued similar rulings on private student loans.
ConclusionDischarging a student loan is difficult, but not necessarily impossible. An experienced bankruptcy attorney can help you determine if you may be eligible to have your student loans discharged.