Can I Discharge a Non-Qualified Education Loan in Bankruptcy?

There are many myths about discharging student loans in bankruptcy, and even when you have the correct information, it can be presented in a complicated manner. As such, many people do not have a clear understanding of how the bankruptcy process works when it comes to discharging student loans, and how private and federal student loans may be treated differently in a bankruptcy case. It is important to know up front that the U.S. Department of Justice (DOJ) will be evaluating requests to have federal student loans discharged in bankruptcy, streamlining the process and making it easier for debtors to prove that they qualify for a discharge. Yet if you have private student loans, you might not even have to go through the process of proving an “undue hardship” in order to have your loans discharged.

Have you heard about non-qualified education loans and how they are handled in bankruptcy cases? Our experienced West Palm Beach bankruptcy lawyers can provide you with more information.

Understanding the Difference Between Private and Federal Student Loans in a Bankruptcy Case 

Before we explain non-qualified education loans and how they are treated in personal bankruptcy cases, it is important to understand the difference between private and federal student loans for bankruptcy purposes.

Private student loans, as their name suggests, are borrowed by a student through a private institution — a bank or another private lender. Federal student loans, differently, include money borrowed from the federal government to pay for an education.

What is a Non-Qualified Education Loan? 

Both private and federal student loans can be borrowed to pay for direct education expenses (including tuition, fees, and other similar expenses that “are required for enrollment or attendance at an eligible educational institution,” according to the IRS). Both private and federal student loans can also be borrowed to pay for non-qualified education expenses, which include the following, according to the IRS:

• Room and board costs;
• Health insurance;
• Medical expenses, which include student health fees;
• Transportation expenses;
• Living expenses;
• Family expenses;
• Fees for sports, clubs, and non-credit courses (unless part of the student’s degree program); and
• Any other personal expenses.

 Non-Qualified Private Education Loans and Bankruptcy: What to Know 

If you are seeking to discharge private student loans — this does not apply to federal student loans, to be clear — and you can show that the loan was a non-qualified education loan (for non-qualified education costs or expenses), it may be possible to have the loan discharged like any other unsecured debt in a personal bankruptcy case. In other words, you may not need to prove an undue hardship in order to have non-qualified education loans discharged. In addition to the non-qualified education expenses listed above, non-qualified education loans can also include loans for unaccredited educational institutions, and loans obtained during professional residencies or exam periods.

Contact a West Palm Beach Bankruptcy Lawyer 

Whether you have questions about discharging private or federal student loans in a consumer bankruptcy case, the experienced West Palm Beach bankruptcy attorneys at Kelley, Kaplan & Eller are here to assist you. We have years of experience representing debtors in South Florida, and we are prepared to help you with a discharge of non-qualified education loans in a standard bankruptcy case, or the new process of showing that your federal loans should be eligible for discharge. Do not hesitate to reach out to our firm for additional information about our services.

Sources:

studentaid.gov/help-center/answers/article/what-is-federal-student-loan

consumerfinance.gov/about-us/blog/busting-myths-about-bankruptcy-and-private-student-loans/

irs.gov/credits-deductions/individuals/qualified-ed-expenses