Non-dischargeable Student Loans

A statute of limitation is a law that limits the amount of time that a plaintiff or prosecutor has for filing a legal action. Most crimes have a statute of limitations which varies from state to state. For misdemeanors, like petty theft or public intoxication, the time most states allow to bring charges is one to three years, with a few states allowing up to seven years. Felony crimes generally have longer statute of limitations periods, and certain crimes are considered so heinous and unforgiveable that there are no statute of limitations to allow criminals to escape justice. Examples of crimes with no statute of limitations are: Murder; War Crimes; Kidnapping; Treason;

and Federal Student Loans.

While being unable to pay federal student loan debt is not really a crime, the law certainly makes a borrower feel like a criminal. Like murder, there is no statute of limitations for federal student loans. The debt will follow the borrower to his or her grave, unless it is paid; forgiven or canceled under a qualifying program or certain situations; or discharged in bankruptcy.

Forgiveness or cancelation programs are very narrow and the guidelines are strict. Consider the Teacher Loan Forgiveness program. If all of your federal student loans were obtained after October 1, 1998, and you teach full-time for five consecutive years at a low-income elementary or secondary school, you may have up to $17,500 of your subsidized or unsubsidized loans forgiven. Since the average college student graduating in 2014 has more than $33,000 in student loan debt (according to Forbes), and the average first year teacher salary for many states is just over $30,000 (according to the National Education Association), this “benefit” seems hardly beneficial.

If the debtor is unable to pay, and does not qualify for forgiveness or cancelation under a federal program, that leaves bankruptcy. Prior to 1976, an honest, but unfortunate debtor could file a Chapter 7 bankruptcy and discharge unaffordable federal student loans. Since that time Congress has raised the bar for discharging student loan debt to a very difficult height. Today, the standard is whether repayment of the student loan “would impose an undue hardship on the debtor and the debtor’s dependents.” See 11 U.S.C. § 523(a)(8).

Debtors who are truly unable to pay anything towards federal student loan debt, and will not be able to pay anything in the future (due to age or infirmity), often qualify for student loan discharge. Other cases of hardship discharge are fact-specific and can depend on the political leanings of the bankruptcy judge.

If you are buried in federal student loans that you cannot pay, speak with an experienced bankruptcy attorney and discuss your options. In some cases bankruptcy can reduce or eliminate federal student loans, or help you restructure your finances to make the debt more affordable.