Outstanding student loan debt rose six percent from last year and is about to reach a record of more than $1.3 trillion dollars. I recently read an interesting article title, “Students must demonstrate ‘undue hardship’ to have their loans forgiven – and it could be causing a bubble”. The authors, Neil H. Hutchens and Richard Fossey, discuss the Brunner test and discuss how the undue hardship guidelines were established.
As student debt continues to rise and affect more families’ lives, more people are turning to the courts and government to find an escape. Under current law, student loans are not a forgiven debt during bankruptcy. There are a few exceptions but you need to have specific situations to even consider it as an option. The bankruptcy courts use the Brunner test as a guideline to determine if a person has undue hardship concerning the repayment of student loans. There are three basic guidelines a student loan debtor has to fulfill to establish forgiveness using bankruptcy. They are:
- A student loan debtor must prove that they cannot pay off their student loans and maintain a minimal standard of living.
- A student loan debtor must show additional circumstances that make it highly unlikely that they will ever be able to repay their student loans.
- The student loan debtor has to show proof that they have made a good faith effort to pay their student loans.
The authors go into more detail of the establishment of this law and site examples of people who have tried to have their student loans forgiven due to hardship. The article explains that more than 43 percent of current borrowers are behind or no longer making payments on their student loans. This is a great article to share with your college bound and in college student.
Many students and parents focus only on attaining the college degree. They minimize the financial consequence and long-term impact of student debt. Colleges are beginning to add financial literacy programs to address the rising debt issues as part of their college experience. Having an open discussion and better understanding of how student loans will affect the student’s life is just as important as getting the degree. The escape through the Bunner test is not an easy one and almost impossible. Having a defined college plan is recommended as key part of a student’s financial future.