Many Florida residents struggle with excessive and unrepayable debt, and student loans often form a large portion of that burden. Student loans have been exempted from bankruptcy protection, which means that even people who have their credit card bills, medical debt and other loans wiped out through Chapter 7 bankruptcy have for the most part been unable to pursue relief from their student loan obligations. Political solutions for student loan forgiveness have been widely touted. However, the future remains cloudy as to whether any relief will be found in Congress.
Differing views on loan forgiveness
Even supporters of student loan forgiveness are at odds over the amount of debt that should be discharged. Some advocates are calling for full forgiveness of federal student loans, while others are calling for a $10,000 cap per borrower for federal loans. Any canceled student loan debt will remain tax-free until 2025 under the American Rescue Plan Act of 2021, meaning that recipients of any forgiveness will not receive a sudden large tax bill as a result. Others call for changing federal programs like income-based repayment or public service loan forgiveness to make them easier to access and workable for larger numbers of applicants.
Student loans excluded from bankruptcy
Still others urge reform of the bankruptcy system to allow student loan debt to be included alongside other types of debt. In order to receive student loan forgiveness in bankruptcy court, applicants must make a showing of “undue hardship,” which is extremely difficult to prove absent specific circumstances like a sudden disability or incapacity that prevents the applicant from working.
Until student loan forgiveness or reform becomes a political reality, borrowers may look for other options to seek relief. Some bankruptcy lawyers are working to argue for an expanded definition of undue hardship. Others may benefit from seeking bankruptcy to discharge their other debts in order to allow them to pay down their student loan bills.
