One of the most common questions we get on our bankruptcy forum is whether or not student loan debt can be discharged in a bankruptcy. If you have graduated with high student loan debts you are not alone.
CNN online reports today’s MBAs are taking on more and more student debt than ever before. It is estimated that many MBAs graduate with debt which exceeds $100,000, with the highest graduate debt “assumed by graduates of the University of Pennsylvania’s Wharton School, where average debt hit an estimated record of $117,200.” Other schools with high graduate debt include Columbia Business School, New York University’s Stern School and Duke University’s Fuqua.
Student Loan debt exceeds salaries and bonuses
It’s one thing to graduate with high student loan debt and immediately find a high-paying job which allows you to repay the loan in a few years. But according to information provided by business schools to the U.S. News this is currently not the case for most students. Graduates are finding that while their debts have increased upwards of 18 to 29%, salaries have stagnated.
MBA debt is often combined with debts that have been accrued by these same students for undergraduate courses, although many schools have started pursuing options to offer scholarships or decrease tuition. Harvard has been credited with the highest decline in student debt in recent years. According to CNN, “Harvard Business School MBAs graduated with average student debt of $70,731, some 9.2 percent less than 2011, when the average was $77,880.”
Can I discharge my student loan?
With the high unemployment rate many college graduates are finding it more and more difficult to find employment after graduation, making it impossible to repay student loans. There are some examples when a student loan may be discharged.
Discharge Student Loan Debt for Permanent and Total Disability
If you are disabled due to a severe mental or physical health condition you may have your loan discharged if you can prove the following:
- Your condition will result in death.
- Your condition has lasted for a continuous period of not less than 60 months
- Your condition can be expected to last for a continuous period of not less than 60 months; or
- Your condition has been determined by the Secretary of Veterans Affairs to make you unemployable due to a service-connected disability.
Federal loans may also be discharged if the parent of the student dies, assuming the parent was the loan holder, or if the student dies.
Can bankruptcy discharge a student loan?
Discharging a student loan in bankruptcy is very difficult. To receive a discharge you will have to prove “undue hardship.” Whether or not the payment of the loan will cause an undue hardship must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request. The court uses this three-part test to determine hardship:
- If you are forced to repay the loan, you would not be able to maintain a minimal standard of living.
- There is evidence that this hardship will continue for a significant portion of the loan repayment period.
- You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).
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