The policy of the US government is so tailored that student loans for education are easily available. The result is that liberal loan schemes are on the anvil and loans for higher studies are open for all.
However during the seventies a different phenomenon had taken place. Students then in large numbers took education loans and accordingly obtained their degrees. But on completion of their courses, before they had got a job the students would file for bankruptcy. The purpose was to get out of the liability to pay back the loan.
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They could thus represent to the courts that they had no income in their plea of bankruptcy as they were unemployed. However to obviate this lacuna and also due to intense pressure the government changed the law and the requirements in 1998. There were further changes in 2005 and private loans were also brought within the legal net.
The changes have effectively made it difficult to discharge student loans with a simple plea of bankruptcy. The only condition that can lead to a discharge of a student loan now is,if the student can prove that repaying the loan would create an undue hardship on him and his family. Proving this is the responsibility of the student himself. Prior to this student loans could be discharged in case they were paid for 7 years but this has also changed since 1998.
Student loans are contracts like any other loan and are subject to laws governing contracts.Thus fraud, misrepresentation etc are open to challenge in a court of law. Another point in students favor is that the students' loans are not enforceable when the school has closed prior to the student completing his education. These challenges could be raised in a Chapter 13 proceeding and decided by a bankruptcy judge.
According to these new changes a student loan can only be discharged if the bankruptcy court is convinced that paying back the loan would bring about undue hardships for him or the people who are dependent on him. The Federal Student Aid Ombudsman (FSAO) has thus come into the act and has laid down three accepted standards to determine whether a person is eligible to have his student loan discharged or not. They are worth a recap:
a) Firstly the student will have to prove that in case he is forced to pay his student loan than he will not be able to maintain a minimal standard of living for himself and his dependents.
b) The second criterion is that in case he pays the loan for a significant period of time than the he will find it difficult maintain his finances.
c) The last criterion is that a student has made an effort to repay the loan before he decided to file for bankruptcy. The student's efforts to repay would usually be taken into consideration if the payments have been effected for at least 5 years.
If you do not meet these criteria then filing for bankruptcy will be a waste of time as the courts will throw out your case.Thus the bankruptcy act is tightened, perhaps in good measure to inculcate a sense of responsibility in the student community after they have got their degrees and commenced work
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