Student loans have a notorious reputation to Las Vegas bankruptcy lawyers. They have few consumer protections, often high rates, and they are difficult to discharge in chapter 7. However, there are some situations in which student loans can be shed without showing passing the “undue hardship” burden set by the Bankruptcy Code. One example is a hardship discharge for totally and permanently disabled debtors, but another that isn’t frequently touched on is school closures, which are covered by 20 U.S.C. § 1087 (§ 437(c) of the Higher Education Act).
- The “closed school discharge” applies only to Title IV federal loans, not private loans. If you borrowed money from a private lender, you will be unable to use this option.
- If your loans are federal guaranteed or direct from the government and you are either enrolled or on approved leave of absence when the school closes, then any federal loan you took out for your education may be discharged. This can be quite a large sum of money, especially if you are nearing completion of your degree.
- If your school closes within 90 days after you withdraw from its program, and it closes, you are still eligible for the closed school discharge. If you withdrew more than 90 days before the school closed, you are ineligible. This simply an arbitrary line to ensure that students who had the rug pulled out from them benefit as opposed to students who walked away from the program.
- If you choose to continue your program at a different school, you may be required to repay the discharged loan because you benefitted from the education by receiving a degree or certificate.
- Similarly, if you completed all the coursework but did not receive a diploma or certificate, your loans might not be discharged.
- You will probably need your student records to prove that you are entitled to a discharge or transfer your credits to a different school, which can require contacting your school’s state’s licensing agency or accrediting authority to determine how to obtain those records.
- Important: Unlike a bankruptcy discharge or a hardship discharge, your closed school discharged loans will be considered income for income tax purposes.
- Otherwise, don’t expect your school’s program to close if you think it’s on the ropes. With significant forbearance, deferment, and income-based repayment options at debtors’ disposals, few schools will have a high enough loan default rate to disqualify them from access to federal loans.
Student loans aren’t permanent debt, but they are nasty, so make sure to talk to a Las Vegas bankruptcy lawyer before they become too much of a burden for you. You might have more options than you think.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.