Bloomberg Business recently published an article that pretty much shows the reality of how much “hardship” is required under the “undue hardship” standard when determining if a debtor can discharge student loans in bankruptcy. The Headline read:
“Courts Rule That Disabled Woman Living Below the Poverty Line Must Repay Student Loans.” “Despite providing that paying back her student debt would leave her unable to afford basic living expenses, two judges ruled a woman could not discharge it in bankruptcy.”
According to the article, an unemployed, disabled, 45 year old woman living far below the poverty line was not allowed to cancel more than $37,400.00 student debt in bankruptcy. That statement alone would suggest to most that under the “undue hardship” provision, she should be one of the rare few that are supposed to be allowed to discharge student loans in bankruptcy.
“Not to be!” said the Judge, while acknowledging her income was only $10,000.00 per year derived from Social Security Disability and Public Assistance since 2008. Even though the debt had grown from the original amount of $13,250.00 to an astronomical $37,400.00 due to interest and late charges, the Judge ruled she didn’t satisfy the undue hardship test because one year she had earned an extra thousand dollars and had not paid any of it towards her student loans!?
The court noted that she might be eligible for a Federal Loan Student Consolidation Program in which she would not be required to make ANY payment as long as her income didn’t increase! Then, in 25 years the loan would be forgiven!
Let’s see . . . she’s 45 now . . . in 25 years she’ll be 70. Then she’ll get her fresh start! Really? She might even be able by then to retrain and get a job that pays enough for her to live on, AND pay those student loans she’ll need to get the re-training she’ll need to get a job that will pay enough to cover it all! (Maybe you’d like to help her out by guaranteeing her new student loans since her credit will still be in the can and she won’t have enough income to qualify otherwise!)
At a time when student loan debt AND default has reached critical mass, this Judge has raised the bar even higher. Lack of employment opportunities that pay enough to retire the debt that was supposed to provide the means to pay the loans (which now are exceeded only by mortgage debt), has sentenced student loan borrowers (and in many cases their parents and even grandparents) to a life of indentured servitude to the government. (Or to the private investors who buy these loans!) Instead of Guaranteed student loans, we now have GUARANTEED STUDENT LOAN HARDSHIPS!