Did you know it is extremely difficult to discharge student loan debt through bankruptcy? That means that millions of student loan borrowers have no way to get out from under their crushing debt. Now, the Department of Education is showing interest in loosening requirements to allow more people to declare bankruptcy on their student loan debt.
This piece was originally published at CNBC.
Student loan borrowers in the United States collectively owe almost $1.5 trillion in student debt, and according to the Brookings Institute, almost 40 percent of borrowers will default on their student loans by 2023.
Currently, it is nearly impossible to have your student debt forgiven during bankruptcy — but that may soon change. In February, the Department of Education announced that it will review and potentially alter policies that make it difficult for student debt to be discharged in bankruptcy.
Miranda Marquit, personal finance expert at Student Loan Hero tells CNBC Make It that there are three steps for discharging student debt in bankruptcy: Borrowers must find a lawyer, decide what type of bankruptcy proceeding to pursue and prove that they face “undue hardship.”
“It’s almost impossible to discharge student loans in bankruptcy,” Student loan expert Mark Kantrowitz tells CNBC. “The problem was undue hardship was never defined, and the case law has never led to a standardized definition.” …
Now, the Department of Education is exploring how to explicitly define undue hardship…