As both an attorney and a holder of a postgraduate degree I am often approached by people, clients and associates alike regarding an American’s ability to discharge student loan debt in bankruptcy. I have recently read, “The Student Loan Scam” and found it to be an enlightening, albeit depressing, read. The book outlines the history of the non-dischargability of student loan debts in bankruptcy from the early stages when it was discharged like any other debt to when it required a five year Chapter 13, then a seven year case and then finally being practically impossible to discharge in any scheme at all. Apparently, student loans have only held their practically non-dischargable status since the passage of the 1998 Higher Education Act.
In Canada, recent changes to their laws have permitted discharge of student loans which originated seven (7) years prior. Recently, I spoke to an attorney out of Calgary, Canada who informed me that while Canadian loans can be discharged within the seven year period and that any of my clients who might want to file in Canada would still be liable on their U.S. loans.
Student loan borrowers are not without alternatives. “The Student Loan Scam” gave gruesome examples of those who migrated form the U.S., went underground or even committed suicide as a result of their non-dischargable debt. About three years ago the “Income Based Repayment” program went into effect. This program allows those with state backed loans to pay only a percentage of their income toward their debt. This is on a graduated scale and allows a person making less than $15,000 to have no payment. After twenty-five (25) years of these payments, the remaining debt is discharged. Just last year, this twenty-five (25) year period was reduced to fifteen (15) years. In short, the ability to discharge student loans in the United States went from dischargable in bankruptcy, to dischargable in five years, then seven, then not at all, then twenty-five years and now fifteen. What length of time is appropriate? Who knows.