Hope For Student Debtors?
Unlike other types of debt, student loans are notoriously known for being near impossible to discharge, with the debtor given the burden of proving that repaying the loan would cause “undue hardship”. A recent court case, however, has paved the way for a spark of hope for student debtors.
In Sara Fern v. Fedloan Servicing, et al, the bankruptcy court ruled in favor of Fern, stating that repaying her $27,000 student loan would indeed cause undue hardship, and therefore it was dischargeable. What makes this case unique is that Fern could have enrolled in repayment plans where she would not have had a monthly obligation to repay it.
Fern, who had 3 children to take care of and no incoming child support, was barely able to make ends meet with her job at a call center that paid $1,506.78 a month, collecting on government assistance programs, and even through her mother’s financial assistance. She easily fulfilled her burden to establish that she had searched for and was unable to find a better job and that her monthly expenses were necessary. However, the U.S. Department of Education argued that since she was not required to make monthly payments, it was not imposing undue hardship.
Taking into account the costs of the repayment plans, including accrued interest and the impact debt would have on Fern’s access to credit and housing, the bankruptcy court rejected the U.S. Department of Education’s argument. While this in itself is unique, the most interesting facet of the court’s argument was that the debt would take an emotional toll on Fern, citing her distress as a cost.
While this case still stands alone as unique in how student debt is treated, it still presents an opening for a new approach to how these cases are handled.