student debtHere’s more proof that if it sounds too good to be true, it usually is: Contrary to what you may read (Debunking the Student Loan Bankruptcy Myth, August 13, 2014), there are not “a lot” of instances in which students who are savvy enough to ask to discharge their student loan debts are allowed to do so.
In reality, the United States is crippled with what has been termed a “student loan debt bomb” that is virtually impossible to defuse under current laws.

How bad is this situation?

Americans have accumulated more than $1.2 trillion in student loan debt, exceeding even the level of credit card debt in our nation. Seven in ten college seniors who graduated in 2012 had student loan debt, with an average of $29,400 per borrower. Because federal law treats student debt as nondischargeable in bankruptcy proceedings, borrowers can be burdened with this debt for a lifetime even if circumstances make it unlikely that the borrower will ever be able to repay.

But isn’t there a way for students with true hardships to discharge their debts?

Theoretically, that’s true. Federal law does provide that bankruptcy discharge is available for student loans in cases of “undue hardship.” While the courts have established a high legal standard for a debtor to show “undue hardship” there are some debtors who should be able to avail themselves of this option.

But there’s a big gap between what is theoretically possible and what actually happens in the real world. The path to an undue hardship discharge is often blocked by U.S. Department of Education contractors, such as the Educational Credit Management Corporation (ECMC), which have a practice of aggressively challenging debtors’ efforts to show undue hardship.

For example, a recent New York Times article highlighted a case in which ECMC fought tooth and nail to defeat the undue hardship claim of a debtor who was working full time while caring for her bedridden and cancer-stricken husband. ECMC went so far as to scrutinize the debtor’s receipts from McDonald’s to argue that this dramatic situation was not a hardship case.

While we recognize the Department of Education’s right to fairly collect on student loan debts owed to it, we concur with several members of Congress who wrote to the Department raising the fact that it is “neither sensible nor cost-effective for the Department and its contractors to engage in lengthy legal challenges and appeals against bankrupt student loan borrowers who have demonstrated a clear and legitimate inability to repay their loans.” Too often what we see in bankruptcy courts is ECMC and other entities using their legal muscle and ability to drag things out to crush hardship cases. The simple truth is that most consumer debtors — particularly those most in need of a discharge on hardship grounds — cannot afford the litigation costs that pile up when ECMC and others pursue a win-at-all-costs strategy.

Proponents of maintaining the student debt status quo like to cite a 2011 “study” showing that there are in fact some hardship discharges taking place. But, as others have highlighted extensively, this study, the only one of its kind, has significant methodological shortcomings which as a result, generated findings that do not square with the real world in which debtors with few resources end up getting run over by the steamroller of deep-pocketed debt collectors.

So, what is the answer?

The U.S. Department of Education needs to take charge of the situation and make it clear that the over-the-top hardball tactics of ECMC are out of line. The Department needs to make the undue hardship discharge a more effective tool by issuing guidance to student loan creditors as to those circumstances that meet the “undue hardship” test, thereby avoiding the additional litigation that dissuades too many deserving debtors from seeking an undue hardship discharge. And we need to go one step farther: Students, parents, educators, lawmakers, and other concerned citizens should encourage Congress to restore meaningful and workable bankruptcy protections for student loans, so that those in real need are able to get a fresh start, rather than being devastated for life by insurmountable student loan debt.

Edward Boltz is a Raleigh, North Carolina, bankruptcy attorney and President of the National Association of Consumer Bankruptcy Attorneys (NACBA).