WASHINGTON–Under bankruptcy law, it has always been unclear whether private student loans were dischargeable. But now a new federal court opinion has found the loans are not considered qualified higher education expenses under the U.S. Bankruptcy Code.
“Discharging private loans in bankruptcy may provide much-needed respite for debtors who can't meet their debt obligations, but bankruptcy has a lasting impact on an individual's finances,” noted Fox Business.
The Bankruptcy Code prevents certain types of debt from being discharged in bankruptcy proceedings, including debt incurred as part of an "educational benefit." But private student loans don't fall into this category, according to a July 2020 court ruling, Fox Business reported.
A New York-based federal appeals bankruptcy court ruled in favor of a debtor whose private student loans issued by Navient were discharged in bankruptcy, Fox Business explained. The ruling further defines the meaning of an "educational benefit," setting a precedent for private loan holders who want to discharge their student loan debt in the future, the report added.
A Reminder for Consumers
The Fox Business analysis reminded consumers considering such a filing, “…Private student loan refinancing may offer a way to make your college debt more manageable without leaving a damaging mark on your credit history. Private student loan refinance rates are near historic lows, which means it may be possible for you to qualify for a better interest rate on your debt and lower your monthly payment. Under a more affordable repayment plan, you may be able to keep your finances afloat without defaulting on your loans.”