According to an article in Market Watch, recent policy changes by Navient, a massive student loan lender, may result in more available paths to discharging student loan debt for those who have filed for bankruptcy.
During an ongoing class-action lawsuit against the company, Navient has agreed to cease aggressive collection attempts, like calling relatives and employers of debtors multiple times per day. This change focuses on borrowers who have attended unaccredited programs and filed for bankruptcy after October 2015.
Baby Steps Leading to a Larger Victory
In the past, student loan debt has been close to impossible to discharge in bankruptcy, but a group of lawyers is currently attacking that idea, and have had a few small victories in the form of cases filed throughout the country. The class-action lawsuit that is currently underway will be a larger victory. If the decision favors the plaintiffs, an estimated 16,000 borrowers will be redeemed. To dispel these types of loans, borrowers must prove that to repay the loan, they would undergo an “undue hardship.” It is notoriously difficult to prove undue hardship in a court of law.
Check out our recent post for more information about student loans and bankruptcy.
New Legal Strategies in the Works
Previously, lawyers went after the dischargeability of student loan debt by attacking the definition of undue hardship. Since it’s been argued so often, the definition of undue hardship is now quite mature, and there is little room for interpretation. In most cases, if a borrower can’t pay a debt back now and there is no reason they’d be able to in the future, an undue hardship is granted.
Since Congress first made student loan debt exempt from bankruptcy discharge, the amount of borrowers has dramatically increased, as well as the average amount of total debt. Legal precedents have made it more difficult for these borrowers to have their debt discharged on the grounds of undue hardship. Lawyers have taken on a new strategy –questioning which type of student loans are dischargable, a factor which many judges are willing to reexamine.
A Rosy Relief Outlook
While it’s too early to guess at whether this case will bring lasting relief to distressed borrowers, there is hope that things may improve. While 16,000 is a small portion of the total population with student debt, if this case ends in favor of the borrowers, it could represent a progressive victory.