New Bankruptcy Ordinance May Affect Your Private Student Loans

One of the biggest disadvantages of private student loans is the less protection for borrowers . Federal student loans, for example, offer more repayment plans, deferral or deferral, subsidized interest, and loan forgiveness.

Unfortunately, both types of student loans can be difficult to repay in bankruptcy due to the need to prove “excessive hardship” in court, which can be too costly for most borrowers. But a recent bankruptcy decision could change that.

This week, a Colorado couple awarded $ 200,000 in private student loans in a bankruptcy case in the US Tenth Circuit Court of Appeals. The appellate court said the couple’s loans issued by credit giant Navient did not meet the Tax Code’s definition of “qualified student loans.”

The reason was that the cost was not based on an “educational allowance” and did not cover the “cost of attendance” at their school. Thus, the couple’s loans were not exempt from repayment in bankruptcy.

The decision could have repercussions for millions of Americans grappling with student loans amid the coronavirus pandemic and recession, The Wall Street Journal reports . While paying off private student loans in the event of bankruptcy can still be a challenge, experts say it could allow other borrowers to seek private help. It can also affect how the courts decide which loans can be repaid.

For now, this decision could only set a precedent for the Tenth District, which includes Colorado, New Mexico, Oklahoma, Utah and Wyoming. Some experts speculate that this may only affect loans in excess of tuition fees and not all private tuition loans, but it may have a larger impact in the future.

Adam S. Minsky , student loan attorney and senior contributor to Forbes, notes the potential of this solution in a recent article :

However, the decision is an important ruling and serves as a reminder that a student loan bankruptcy case is not a lost cause despite many obstacles.

Meanwhile, if you are facing bankruptcy due to unpaid student loans, it might be worth seeking legal advice from an expert. They can advise on the likelihood of a private student loan repayment based on this and other regulations in the future.

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