Student loan borrowers who seek to have their debt canceled in bankruptcy — what’s known as discharge — typically find it an expensive process with standards that can be difficult to meet.
But recent bankruptcy court rulings and lawmakers’ support of relief for overburdened borrowers may signal a change is coming.
In January, a New York court discharged over $200,000 of student loan debt for one borrower.
Then, in August, a federal appeals court ruling eliminated $200,000 for a Colorado couple who held 11 private student loan accounts.
And in September, a New York judge ruled to enforce a prior bankruptcy discharge of a borrower’s $400,000 of federal student loans that a servicer had failed to carry out.
These decisions could serve as a precedent for future bankruptcy cases involving student loans, says John Rao, an attorney with the National Consumer Law Center.
“A lot of people, even some of the lawyers who represent consumers, thought for years that you really shouldn’t even try because there’s not a chance you’ll win, but I think everyone is looking at it now with sort of a fresh look,” Rao says.
Courts aren’t the only example of potentially easing standards.
The House of Representatives recently took up a bill that would expand bankruptcy relief to more student loan borrowers.
And the platform of former Vice President Joe Biden, the Democratic presidential candidate, included a bankruptcy reform proposal to end rules that make it “nearly impossible” to discharge private student loan debt.
A possible reason for a shift toward dismissing these loans in bankruptcy is the student loan debt crisis in the U.S.
Overall student loan debt increased 107% in the past decade, according to data analyzed by the Federal Reserve Bank of St. Louis.
Higher education experts say the extra hoops borrowers must jump through to get student loan relief with bankruptcy make discharge more expensive and difficult to achieve than canceling other types of consumer debt.
Cost is a key reason student loans are so onerous to get rid of in a bankruptcy filing, says Douglas Webber, associate professor of economics at Temple University.
“To get to those hoops, you usually need more money to pay, and usually the people who are trying to declare bankruptcy on their loans don’t have that money available to them,” he says.
Anna Helhoski is a writer at NerdWallet. E-mail: email@example.com. Twitter: @AnnaHelhoski.