Private Student Loan May Be Discharged in Bankruptcy
Private Student Loans and Bankruptcy – an evolving tug of war.
Just because a school calls a loan a “private student loan” does not mean it is a student loan for bankruptcy purposes. There are specifics requirements for a loan to qualify as a student loan under the Bankruptcy Code. If a loan is not a student loan then it is most likely discharged (forgiven) like medical bills and creditors cards.
So, what are the requirements of the U.S. Bankruptcy Code?
- The loan must be a “qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986.”
- Next question – what is a “qualified education loan“ under the Internal Revenue Code? It must be a loan from an “eligible educational institution.”
- How do you determine if your school is an “eligible educational institution”? Each year the Department of Education publishes a list of qualifying schools.
If your school is not on this list, the loan is not a “student loan” as defined by the Bankruptcy Code and can be discharged in bankruptcy.
Next steps:
- Determine whether your student loan is private or federal. Note – the above argument only works on private student loans. If you are unsure look at the National Student Loan Data System. If your loan is there you have a federal student loan, but it is not then you probably have a private loan. You should also check your credit report if you’re still unsure. (Sallie Mae and Navient have both federal and private student loans.)
- Once you have determined this is a private student loan then find out if the loan is from an “eligible educational institution.” See the list released each year by the Department of Education of qualified educational institutions. Note – make sure to look for the list for the year you received your student loans.
Beware the law is evolving every day and may change the above information. Also the court decisions may different in each state.
This information is not intended to be legal advice. In order to know your rights seek the advice of an experienced bankruptcy and student loan attorney licensed in your state.
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