Changes to Student Loan Forgiveness

While student loan debt continues to be a hot political topic recently there have been changes to student loan forgiveness, particularly those from a private, for-profit school. The Tenth Circuit Court of Appeals (which sits in Denver and covers Kansas, Colorado, Oklahoma, New Mexico, Wyoming, and Utah) issued an important decision on August 31, 2020 that limited the discharge exception for student loans (i.e. allowed a certain type of student loan to be forgiven). The court ruled that student loans not guaranteed or subsidized by the government or a nonprofit institution and not made to pay tuition are dischargeable. More simply and generally stated, loans made by a private, for-profit school to pay living expenses can be discharged without having to prove an undue hardship.

Most student loans are not dischargeable (forgiven) in bankruptcy unless the debtor can prove that she and her dependents would suffer an “undue hardship” if the debt were not forgiven. Case law has developed that makes the “undue hardship” standard (the “Bruner test”) very difficult to satisfy, the result being that the vast majority of student loan debts cannot be discharged.

But the Tenth Circuit’s decision in McDaniel v. Navient Solutions, LLC (In re McDaniel), 973 F.3d 1083 (10^th Cir. 2020), permits debtors whose student loans are not made, insured, or guaranteed by a governmental unit or a nonprofit institution and are not “qualified education loans” to be discharged. The decision substantially follows a similar ruling made in 2019 by the Fifth Circuit Court of Appeals (which sits in New Orleans and covers Louisiana, Mississippi, and Texas) in Navient Solutions, LLC v. Crocker (In re Crocker), 941 F. 3d 206 (5^th Cir. 2019). To be a “qualified education loan,” the loan must be made solely to pay the cost of attendance at an “eligible institution.” An “eligible institution,” in general, is one “which is eligible to participate in a program under Title IV of the Higher Education Act” and excludes many private, for-profit schools.

In more plain terms, if you have a student loan from a private, for-profit school, and the loan is not limited to funding only tuition, you may have a student loan that can be discharged without having to satisfy the Brunner test. You’ll recall from a previous post the three-factor Brunner test that must be met to prove undue hardship in order to discharge student loans. If you are struggling with debt and have student loans that may qualify to be discharged, call our office to see if we can help.