Although the collection of college student loans centers this article, some background precedes its main topic. It begins by defining and distinguishing federal and private student loans. Next is repayment of loans, postponing repayment through deferment, forbearance, extensions, and public-interest assistance and cancellation. Perkins loan deferment, forbearance, and cancellation follow. Delinquency and default are next, including collection fees and penalties, administrative wage garnishment, state and federal income-tax-refund offsets, federal benefits offsets, and professional-license suspension. The lender’s judicial collection is followed by the borrower’s limited affirmative defenses and post-judgment tools. A borrower may exit default through consolidation and rehabilitation. There are two types of statutory discharges: school-related discharges and discharges for death and disability. The article turns to discharge of student loans in federal bankruptcy; the scope of the discharge exception leads to the rigorous statutory test, “undue hardship.” The article also compares collection techniques and policy justifications for delinquent family support with collection of student loans.
Like a maze, educational debt is easy to enter but difficult to exit. The important policy that a debtor should pay her just debts isn’t an absolute. Life happens. Considering the formidable pre- and post-judgment collection techniques and the absence of defenses like of the statute of limitations, the student-loan borrower’s only sure exit is the final exit of death.
The article concludes by recommending that the delinquent student-loan borrower’s plight be ameliorated. Treatment of student-loan debt like other debt, for example like credit-card debt, is a consummation sincerely to be wished
This paper serves as a very good primer on student loans, from inception through collection and various repayment and discharge options.
In regards to default, it addresses rehabilitation and also consolidation, but does not consider that 11 U.S.C. § 1322(b)(3) allow for the plan to “provide for the curing or waiving of any default”, which should allow a Chapter 13 plan to provide for waiver, i.e. forgiveness, of default without the same consequences as rehabilitation or consolidation.
In regard to bankruptcy discharge, the paper presents the “[t]he world of undue hardship litigation is one of uncertainty more than futility.” But then, as exemplars, it uses three cases from the 4th Circuit Court of Appeals- In re Frushour, In re Mosko, and In re Spence. It does not, however, recognize that all three began with trial at the bankruptcy court, a first appeal to the district court and only then a second appeal to the circuit court. That level of litigation by the Department of Education and its agents and attorneys is specifically intended to discourage attempts at discharge.
For a copy of the article, please see: