In fact, recent policy changes have made it much easier to find a lawyer to help with your student loan issues.

The Historic Difficulty of Finding a Student Loan Lawyer

Until this year, finding a student loan attorney was often a massive struggle.

A primary reason for this problem is the fact that “student loan law” isn’t a discrete area of practice like criminal law or estate law.

Your student loan issue might require the services of a contract law specialist. You may need someone with expertise in consumer law. In the majority of cases, a bankruptcy attorney is needed.

Sadly, most bankruptcy attorneys refused to help with student loans. Between the way the law was written and the way the courts interpreted the law, a bankruptcy discharge was nearly impossible. Many attorneys considered pursuing this route a waste of their time and the client’s money.

Further Reading: Bankruptcy law with student loans moved slowly, but until last year, there was a cruel history that consistently made things worse for borrowers.

A Seismic Shift for Lawyers and Borrowers

In late 2023, the Department of Justice revised the internal policy for managing student loans in bankruptcy.

As a result of these significant changes, federal student loan borrowers have a much better shot of getting their student loans discharged in bankruptcy.

Bankruptcy attorneys have taken note, and now a far greater percentage are willing to take on student loan cases.

Critically, it means that if you call an attorney asking for student loan help, you are less likely to be shown the door. That attorney may take your case, or they may refer you to another attorney who can help.

Understanding Your Student Loan Issue

You don’t need a law degree to find the right lawyer. It is ok to call someone and learn that you called the wrong person.

Many lawyers are highly specialized, so it’s not unusual to call a handful before you find the right fit.

That said, a few different student loan circumstances may make one type of attorney a better starting point.

If a friend or family member isn’t holding up their end of things? Is your ex supposed to make student loan payments on a shared loan? Is your child not making payments on a loan you cosigned for?

These situations often require the help of a local attorney with a specialty in family law or contracts.

Did a bank or lender mislead you or lie? If you suspect fraud or illegal activity, an attorney specializing in consumer law is probably the best bet.

Is your loan unaffordable? If you are bombarded with collection calls or your wages are garnished, a bankruptcy attorney is probably the best bet. They can help you get your finances under control, sometimes without even filing for bankruptcy.

How to Find the Right Attorney

Some student loan issues deal with federal law. However, state laws often enter the equation.

For this reason, it is critical that you find someone local. Not only will it make communicating and meeting easier, but a local attorney should also have the state law expertise you need.

You can start by running a simple Google search for bankruptcy attorneys in your area or your state. Call or email them and explain that you need help with your student loans. If they can’t help, ask for a referral.

Sherpa Tip: If you have called local bankruptcy attorneys in the past and been rejected, don’t be afraid to call again.

The DOJ policy changes have caused a lot of bankruptcy attorneys to start helping student loan borrowers.

Getting Help with Your Search

In many states, the local or state bar association has a free attorney referral service. People who need legal representation can call the number.

The American Bar Association has a detailed directory of attorney referral services.

Because things are changing quickly with bankruptcy attorneys, it’s possible that you still might struggle to find someone able to help in your area. If that happens, feel free to send me an email. I may be able to direct you to someone in your state who handles student loans in bankruptcy.

The post How to Find a Student Loan Attorney or Bankruptcy Lawyer appeared first on The Student Loan Sherpa.

Other than a couple of notable exceptions, someone who is 18 has the full rights and responsibilities of an adult.

Why do we draw this line at 18? Is there that much difference between a 17-year-old and an 18-year-old?

Today we will dig into what it means to be an adult and examine how changing the definition of adult might impact college and student debt in the United States.

The Human Brain at 18

The consensus of the scientific community is that the teenage brain — even at age 18 — is still in development.

Most notably, the prefrontal cortex doesn’t reach maturity until about age 25. This is significant because the prefrontal cortex is the area of the brain used for rational thought. Teens often process information with their amygdala, the emotional part of the brain.

Put simply, the average 20-year-old doesn’t have the ability of an average 30-year-old to make rational decisions. Clearly, there are exceptions to this general observation, but there is a mountain of evidence to suggest that brains are not fully developed at 18.

The Implications for Student Loans

Borrowing money for school needs to be a rational decision. Someone considering a college or debt needs to consider the potential cost of school vs. the benefits. Even in the best of circumstances, the decisions made in planning and paying for college are complex.

However, many high school seniors don’t engage in this analysis. They look at things from the perspective of attending their “dream” school. They might not find it fair that a classmate has opportunities that they don’t. That teenager might decide they deserve to go to the expensive school, even if it isn’t affordable or a wise decision.

This sort of decision-making happens when someone doesn’t have a fully developed prefrontal cortex. Instead of engaging in rational thought, they use the amygdala and make and make an emotional decision.

The Student Loan Significance: This analysis is critical in student loans because borrowers can be shackled to this debt for life. Those who face financial hardships often discover that student loan rules are far more harsh than credit card or mortgage debt.

Additionally, student debt is typically incurred at a much younger age than most credit card, mortgage, or other consumer debts.

In Defense of Making 18 the Age of Maturity

The science on aging isn’t clear on an exact age or definition of maturity.

On one hand, this makes sense. Just as people grow at different rates, brains mature at different rates.

On the other hand, this presents a significant issue. How do we define an adult for the purposes of signing a student loan contract? What happens if the age gets moved to 25?

If an 18-year-old student can’t sign up for a student loan, it might mean they can’t attend college. Are we doing more harm than good if we change the age-based rules?

Turning 18 also provides a clear, bright line. Some people may reach maturity before, others after, but everyone is on notice that things change at 18.

Additionally, college presents an opportunity for growth. Even if not fully mature, an 18-year-old leaving home for the first time has the chance to make mistakes, learn, and grow. Precluding someone from attending college because they are not fully mature could be a step backward.

Protecting Vulnerable Populations

The most helpful change might be the simple recognition that people are still learning, growing, and evolving at age 18.

It doesn’t mean they can’t make adult decisions. Instead, it means they are a more vulnerable segment of our population.

Think about all of the tools and resources that we have available for seniors. As a society, we recognize that some people have declining cognitive abilities beyond a certain age. Because of this, we create policies and tools to protect seniors from abuse. Things are far from perfect on this front, but it is better than doing nothing and leaving seniors to fend for themselves.

If an 18-year-old is vulnerable to making a decision based on emotion rather than reason, we must find a way to protect this age group from potential abuse.

Rethinking Bankruptcy and College Recruitment

If a potential student doesn’t have a fully-developed prefrontal cortex, they may be especially susceptible to recruitment based on emotion. Some for-profit colleges have a well-documented history of “pain points” recruitment — these schools used fear and pain to induce students to enroll.

Maybe the answer is to prohibit colleges from making an emotional appeal to encourage students to enroll. Perhaps we should penalize the schools that use these tactics if they lead to lousy student outcomes.

Along the same lines, we should reconsider how student debt gets handled in bankruptcy.

The history of student loans in bankruptcy is particularly cruel if we consider it from the perspective of not-yet-mature students who made decisions with devastating consequences. Recent policy changes show how easy it would be to help out former students who made ill-advised borrowing decisions.

The Constitutional Basis for Treating People Differently by Age

Most people know that someone who is 18 has their right to vote guaranteed by the 26th Amendment to the Consitution.

However, this isn’t the only mention of age in the Constitution. Article I of the Constitution says that an individual must be 25 to serve in the House of Representatives and 30 to serve in the Senate. Article II states that someone must be at least 35 to become President.

The founders recognized that people lacked the maturity for certain offices until far beyond the age of 18.

It’s time we all started thinking differently about the maturity of the average student loan borrower.

How to Protect Students Right Now

Public policy changes don’t happen overnight, but there are many steps that parents and advisors can take to help the young people in their lives.

Telling an 18-year-old that they are too young, emotional, or immature will probably only lead to an emotional response.

However, you can guide them through the rational thoughts necessary to pick a college and pay for an education.

Similarly, if a school is making an emotional plea to a student, you can point out that they are trying to manipulate the student into making an irrational decision.

There are no easy answers to this issue, but if we ask the tough questions, we can improve things for all.

The post Brain Development, College Planning, and a Lifetime of Student Debt appeared first on The Student Loan Sherpa.

Sadly, a bank going under or declaring bankruptcy usually isn’t good news for borrowers. While there have been reported instances of borrowers coming out ahead from a bank collapse, in most cases, they end up worse off.

In fact, the bankruptcy double standard is yet another example of how the deck is stacked against student loan borrowers.

Bank Failures and Your Student Loans

Many borrowers hope that a bank or lender going under means they no longer have to pay their student loans.

It is a reasonable theory at first glance. If the bank no longer exists, who collects the monthly check?

The problem for borrowers is that the debt is transferrable. The money owed to a lender is an asset that financial institutions can buy and sell. If you borrowed money from Bank A, and Bank A is desperate for cash, they might sell your loan to Bank B. At that point, you have to make payments to Bank B.

The terms of the original loan contract are almost always written so that the debt is transferrable.

Lender Hardships Usually Mean Problems for Borrowers

Having student loans move from one lender to the next isn’t just a minor inconvenience. For many borrowers, it results in a significant hardship.

When a loan holder changes, borrowers must adjust how they make monthly payments. For the borrowers that use automated bill pay, the transition to a new lender may cause issues and potentially missed payments.

In other words, the shift isn’t just a mere headache. The forced transfer to a new lender can result in late fees and adverse credit reporting.

Worse yet, the company that buys the debt may be especially hostile to borrowers.

The lenders that market directly to consumers are incentivized to have a good reputation. If the marketplace knows that a lender is awful, students will avoid that particular lender. Thus, some lenders cut borrowers some slack. This assistance might mean an extra deferment not required by the loan contract or forgiving the debt if the borrower dies.

If the new lender doesn’t market directly to consumers, they have less incentive to help struggling borrowers.

The Instances Where a Borrower Benefits from Lender Bankruptcy

I’m hesitant to include this information because it rarely happens, and I don’t want anyone to get their hopes up.

That said, it is a remote possibility that does exist.

In some rare cases, lenders do an awful job of keeping track of their records. If the bank or lender fails quickly and liquidates all of its assets, some loans could get overlooked.

I’ve heard anecdotal stories from borrowers who had loans with a lender who collapsed and then never received a bill.

Digital recordkeeping makes the odds of an accident happening especially remote.

Sherpa Tip: If you think your debt records might be permanently lost, it is a good idea to talk to an attorney in your state with collections experience.

The attorney can advise you on protecting your rights and let you know when you are legally in the clear.

The Bankruptcy Double Standard

Bankruptcy is an integral part of our financial system. It allows investors and consumers to seek a fresh start after a significant monetary setback.

If a lender fails and declares bankruptcy, the investors don’t get stuck with the lender’s debts. Their business failed, and they get to try again.

Borrowers don’t get the same second chance. If they attend college and it doesn’t work out, they don’t have an easy path to a fresh start. They carry a debt that could last for decades and fundamentally alter the trajectory of their life.

We saw this double standard play out when lender My Rich Uncle declared bankruptcy.

While there is some new hope for student loan borrowers in bankruptcy, borrowers have a long way to go before they get treated like business owners, home buyers, or credit card users in bankruptcy courts.

The post What Happens to My Student Loan if my Bank or Lender Collapses? appeared first on The Student Loan Sherpa.

Sadly, nearly every single change made it more difficult for borrowers to discharge their loans in a bankruptcy proceeding.

The Old Rules for Student Loans in Bankruptcy

Until the late 1970s, student loans were treated like most other debt in a bankruptcy proceeding. There were no special rules for student debt, and a discharge was a straightforward process.

This system protected all borrowers, not just the ones who couldn’t afford their debt. Lenders had a reason to avoid lending money to borrowers so they could attend lousy or overpriced schools. Additionally, lenders had a big incentive to work with borrowers to ensure they could eventually pay off their debt.

Eroding Borrower Protections in the 1970s

Things first changed for borrowers in 1976 when Congress passed a law prohibiting the discharge of federal student loans within five years of graduation unless it would cause the borrower an “undue hardship.”

Sherpa Tip: Pay special attention to the term undue hardship. Alterations to the definition and application of the undue hardship standard show how much things have changed for borrowers in a relatively short period of time.

At the time, this change didn’t seem particularly controversial. It’s fairly reasonable to expect that borrowers fresh out of school won’t need bankruptcy protection for their student loans. Additionally, the undue hardship exception meant that borrowers fresh out of school but facing a challenging situation could still discharge their debt.

With the benefit of hindsight, this change has become far more controversial. It appears to be an example of Congress fixing a problem that didn’t exist. At the time of the passage of this first bankruptcy limitation, less than 1% of federal borrowers sought bankruptcy protection.

Things Get Worse for Student Loan Borrowers in the 1980s

The requirement that borrowers had to be in repayment for at least five years continued into the 80s. One noteworthy change was that the 5-year rule was expanded to apply to federal and private loans.

In 1987 things changed significantly.

The landmark case of Brunner v. New York defined the term undue hardship. The new definition made it extremely difficult for a borrower to get student debt discharged. Today, most borrowers live in jurisdictions where the Brunner Test is still applied.

Taking a Step Back: The Brunner Test is a difficult standard to meet, but it is worth noting that at the time of the Brunner decision, borrowers only faced this high hurdle if they had been in repayment for less than five years.

When the Brunner court defined undue hardship, they knew that a borrower who had been in repayment for greater than five years wouldn’t be subjected to the challenging standard.

The Final Decimation of Borrower Protections

In 1990, Congress changed the 5-year repayment requirement to 7 years. This meant even more borrowers would have to meet the challenging undue hardship definition.

In 1998, the 7-year requirement was erased, and all federal borrowers had to prove an undue hardship to get their loans discharged.

In 2005, private loan lenders successfully lobbied to have private loans treated the same as federal loans in bankruptcy.

Thus, for more than a decade, getting student loans discharged in bankruptcy was nearly impossible. Private lenders and the federal government consistently won in court, and many bankruptcy attorneys refused to even attempt to get student loans discharged.

Sherpa Thought: Erasing borrower protections in bankruptcy hurts all students. Lenders have little incentive to investigate school quality, and schools can raise prices with the knowledge that loans are easily attainable for most students.

Hope on the Horizon

For the first time in generations, things may finally be getting better for federal student loan borrowers in bankruptcy.

In November 2022, the Department of Justice revised how it would handle federal student loans in a bankruptcy proceeding. These new standards will make it easier for borrowers to show an undue hardship and empower more bankruptcy attorneys to take student loan cases.

We don’t know the full impact of the new rules, but there is plenty of reason for borrowers and advocates to be optimistic.

The History of Student Loans and Bankruptcy

For years I held off writing this article.

The history of student loans in bankruptcy is a story of gradually eroding borrower protections until it reached the point where a bankruptcy discharge became nearly impossible.

The news was all bad.

Fortunately, there is now a glimmer of hope. There is a growing recognition that the current bankruptcy rules don’t work. The new DOJ standards alone may be enough to help many borrowers.

The post The Cruel History of Student Loans in Bankruptcy appeared first on The Student Loan Sherpa.

Finding an attorney was a considerable challenge, even if a borrower was willing to take a longshot case to court. Most bankruptcy attorneys wouldn’t even take the case due to the many complications of discharging student loans.

New guidance issued by the Department of Justice aims to fix these issues.

A Note from the Sherpa for Attorneys: This article is written for borrowers to explain the new procedure for a bankruptcy discharge.

If you have a specific question about the new DOJ guidelines, feel free to contact me to discuss them in more detail.

Changes to the Rules for Federal Loans in Bankruptcy

To successfully discharge federal student loans in bankruptcy, borrowers had to show that the loans caused an “undue hardship.” Bankruptcy courts have interpreted the under hardship very strictly over the years.

For federal borrowers, showing an undue hardship has proven to be especially difficult because of the availability of Income-Driven Repayment plans and student loan forgiveness. Attorneys for the Department of Justice routinely argued that the federal debt was manageable due to these programs. This argument made it hard for borrowers and their attorneys to show undue hardship.

The big change is how Department of Justice attorneys will be handling these cases. Under the new guidelines, DOJ attorneys are supposed to use the standard repayment plan in their analysis. This change will make it much easier for borrowers to demonstrate a hardship.

Best of all, the new standards now encourage the DOJ attorneys to stipulate to a bankruptcy discharge when appropriate. This means that many borrowers won’t have to go through a trial to show that they should get their loans discharged.

To put things simply, bankruptcy used to be nearly impossible for most student loan borrowers. Today, we have a new express lane to make bankruptcy a realistic option for overwhelmed borrowers.

Finding an Attorney

The streamlined rules will make it much easier for most bankruptcy attorneys to help federal borrowers.

In the past, handling student loans in a bankruptcy often required student loan specialists. With the new rules, many more bankruptcy attorneys will be empowered to help their clients with student loans.

These changes have been a significant development for the bankruptcy attorney community, and finding an attorney to take on your case should be very easy.

Are You Struggling to Find an Attorney? If you can’t find an attorney willing to help with your student loans, please send me an email.

I can’t endorse or recommend anyone, but I can usually help you find someone in your area willing to handle a student loan discharge case.

When does bankruptcy make sense?

The new Department of Justice standards make it significantly easier to discharge student loans, but not all borrowers will qualify.

There isn’t a simple way to say who will qualify and who won’t.

Instead, I’ll say this: not everyone is a good candidate for bankruptcy. If you just graduated college and have a good job, discharging your federal loans probably won’t work. However, if you are genuinely struggling to get by financially and repaying your student loans in full seems unlikely, bankruptcy may now offer a fresh start.

A Small Request

I usually don’t ask anything of my readers. I’m here to help you, not the other way around.

However, these new bankruptcy rules are uncharted territory for everyone.

If you have the time, I’d appreciate two things:

1. If you see someone on social media or an internet discussion reference how bankruptcy is impossible, please consider pointing out that there are new rules and things are changing. If people mistakenly think that student loans can’t get discharged, they could miss out on critical help.
2. If you decide to pursue bankruptcy to address your student loans, please let me know how it goes. The more I know about the new process, the better the guidance on this site becomes.

The post New Bankruptcy Rules Bring Hope to Federal Student Loan Borrowers appeared first on The Student Loan Sherpa.

The reality is that neither is right.

Major Changes to Student Loans in Bankruptcy! In late 2022, the Department of Justice created new guidelines for how they handle federal student loans in bankruptcy cases.

The statutes and case law described below have not changed. However, the way the DOJ interprets the law has changed. As a result, it will now be significantly easier for student loan borrowers to get their debt discharged in bankruptcy.

Bankruptcy Law and Student Loans in Most States

The law in the vast majority of states makes it very difficult, but not impossible, for student loans to be discharged in bankruptcy. (If you are interested in reading the seminal case on student loan bankruptcy, it is Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987).

The bankruptcy court will require the debtor to prove:

1) That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans;

2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

3) that the debtor has made good faith efforts to repay the loans.

Bankruptcy Rules in the Other States

The remaining states (Arkansas, Iowa, Maine, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, North Dakota, Rhode Island, and South Dakota) use what is called the totality of the circumstances test.

The rule states that “reviewing courts must consider the debtor’s past, present, and reasonably reliable future financial resources, the debtor’s reasonable and necessary living expenses, and ‘any other relevant facts and circumstances.’ The debtor has the burden of proving undue hardship by a preponderance of the evidence. The burden is rigorous. ‘Simply put, if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt – while still allowing for a minimal standard of living – then the debt should not be discharged.’” Educational Credit Management Corp. v. Jesperson, 571 F.3d 775, 779 (8th Cir. 2009).

When to Hire an Attorney

If you feel that your situation meets the strict standards described here, you will want to contact an attorney to help you.

If your financial situation is so dire that you believe you qualify to have your loans discharged, paying for an attorney will be difficult. It will also be difficult finding someone with past success getting student loans discharged.

However, it is worth spending some time reaching out to professionals who can help, and attorneys in this field will have experience working out payment with people in similar situations.

Under the new bankruptcy rules, it will now be signficinatly easier and more affordable to find an attorney.

Final Thoughts

Remember, your lender will fight hard to prevent your loans from going away. They have attorneys who fight student loan discharge every day, and the law is on their side.

Getting rid of your student loans through bankruptcy is very difficult, but not impossible. If you are going to attempt to go this route, the deck is stacked against you, but it can be done.

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If you are interested in pursuing student loan discharge through bankruptcy, you may want to read over the following resources:
http://www.studentloanborrowerassistance.org/bankruptcy/
http://www.independent.com/news/2013/may/12/student-loans/

If you think you have a case for a bankruptcy discharge of your student loans, check out our tips for finding a student loan attorney.

The post Student Loans and Bankruptcy: A Quick Introduction appeared first on The Student Loan Sherpa.