There is nothing like being a graduate student who is potentially taking on a lot of loans to appreciate all those student loan articles that surface every fall. New York Times just published a great piece on what it takes to cancel your student loans. As many know, student loans, unlike almost any other type of loans such as home loans or credit card debt, are rarely discharged in bankruptcy. If someone wants to have his loans canceled, he would have to enter a completely separate process than normal bankruptcy and then prove to the judge that his situation is hopeless and his prospect for improvement is nil. The article describes it as such:
Most [judges] have settled on something called the Brunner test, named after a case that laid out a three-pronged standard for judges to use when determining whether they should discharge someone’s student loan debt. It calls on judges to examine whether debtors have made a good-faith effort to repay their debt by trying to find a job, earning as much as they can and minimizing expenses. Then comes an examination of a debtor’s budget, with an allowance for a “minimal” standard of living that generally does not allow for much beyond basics like food, shelter and health insurance, and some inexpensive recreation.
The third prong, which looks at a debtor’s future prospects during the loan repayment period, has proved to be especially squirm-inducing for bankruptcy judges because it puts them in the prediction business. This has only been complicated by the fact that many federal judicial circuits have established the “certainty of hopelessness” test…
Through my blog-life and real life, I knew a small handful of folks who have filed for bankruptcy. I have never, however, known anyone who has managed to get his or her student loans discharged. In fact, when I signed up for loans in college, a very colorful counselor described the loans as something we’ll have until: (1) we pay them off, (2) we die, or (3) we are so horribly maimed that we might as well be dead, which ever comes first. Not a speech a high schooler forgets.