I’ve been quietly at work on a book for lawyers on effective ways of helping clients with both federal and private student loans, Discharging Student Loans in Bankruptcy. Lately, I’ve been running up against National Collegiate Student Loan Trust and their California attorneys at Patenaude & Felix. I am working with clients in both state court and bankruptcy court to sift through the issues presented by the alleged creditor and whether they have a right to collect a debt, if any, they believe my clients owe. I assert they have no right to collect; and I’ll tell you why I believe it.
On the surface, many lawyers and much of the media commentary on student loans explains they are nearly impossible to discharge in bankruptcy because of the debtor generally must prove Undue Hardship by suing his/her lender under 11 U.S.C. 523(a)(8). I’m going below the surface of Undue Hardship and looking into the Limitations on Exception to Discharge of Private Student Loans. From this article, I am looking at loans that are NOT qualified education loans:
Some of the more common ways in which an education loan may fail to satisfy the requirements
of a qualified education loan include:
1. Use at a college that is not a Title IV institution (i.e., a college that is subject to a program participation agreement under 20 USC 1087ll).
2. Use for costs not included within the definition of cost of attendance or in excess of the expected family contribution (or cost of attendance minus aid received).
3. Use for study abroad not approved for credit by the home institution.
4. Use for rental or purchase of equipment, materials or supplies that are not required by the institution.
5. Use for purchase of a computer without obtaining an adjustment to cost of attendance from the college for the cost of the computer.
6. Use for a previous year’s school charges.
So, if you are among the many parents who have taken loans to help your child struggling with addiction, then these loans MAY be discharged in bankruptcy! If you decide not to file for bankruptcy and National Collegiate sues you, there may be other defenses. It’s important to consult with an attorney that understands collections defenses, student loans, securitization to create a strategy that is right for you.