Answer – Maybe

An article in the February 21, 2018 edition of the Wall Street Journal reported that the Trump Administration has indicated a willingness to freshly re-examine the potential discharge of federal student loans in bankruptcy.  

The U.S. Government has historically fought to disallow any efforts to discharge federal student loans in bankruptcy.  The current test as to whether or not a federal student loan is dischargeable in a bankruptcy case has to do with whether the repayment of the loan is an “undue hardship” on the borrower.  This test has been interpreted by the bankruptcy courts nationwide as a very high standard to prove.  The Journal found fewer than 500 persons even attempted to have their federal student loans discharged in bankruptcy out of approximately 766,000 bankruptcy cases filed in 2017.  The Journal cited the difficulty in pursuing a student discharge and the cost of bankruptcy counsel as two reasons for the lack of interest in attempting to discharge the federal student loans.  

The Wall Street Journal article stated that the U.S. Department of Education would seek input from the public on whether the U.S. Government should clarify when federal student loan borrowers can discharge their debts in a bankruptcy.   The position of the Trump Administration in potentially seeking to review the requirements of the dischargeability of federal student loans is an incredibly liberal step.  Not even during the first term of the Obama Administration, when President Obama had both houses of Congress supporting him, was there a mention of loosening the requirements necessary to discharge federal student loans in bankruptcy.  

The public policy decision to allow federal student loan borrowers to discharge their loans is tantamount to having the U.S. taxpayers pay for the college education for all those individuals who were able to obtain a discharge of the student loan debt.  Furthermore, if the U.S. Congress  and President Trump allow for the discharge of private student loans  in bankruptcy, it could very well have a negative impact on the ability of some individuals to obtain private student loans and a potentially devastating effect on some private colleges and universities.  The revenue of  private Christian colleges and private trade schools could be severely affected.  

According to the U.S. Debt Clock, the current student loan debt figure is over $1,500,000,000,000 .00 and rising rapidly.  In comparison, the U.S. Debt Clock reports that our total credit card debt combined in the United States of America amounts to over $1,005,000,000,000.00.  Interestingly, neither the Trump Administration now, nor the Obama Administration previously, are addressing or have addressed the subject of the exorbitant costs incurred by our public university systems and the large compensation packages afforded to the professors and instructors, which lead to higher and higher student tuition costs and student fees, not to mention books, supplies, and room and board.  Stay tuned……

If you have questions regarding the dischargeability of student loan debt, or if you would like more information on how a bankruptcy may solve your individual debt issues, call me at (727) 898-2700 (Pinellas) or (863) 802-4700 (Polk).