Supreme Court Denied Cancellation of Student Loan – Here’s Why



The US Supreme Court rejected a student loan borrower’s motion to annul the student loan.

Here’s what you need to know – and what does this mean for your student loans

Student loans

The student loan borrower, Thelma McCoy, petitioned the court for nearly $ 350,000 on a student loan after the 5th US District Court of Appeals ruled that her student loan could not be repaid in the event of bankruptcy. The court rejected McCoy’s motion to find the case guilty. McCoy borrowed $ 175,000 in student loans to earn his bachelor’s, master’s, and Ph.D. degrees. During her PhD, McCoy was injured and said she could not find a job due to her disability. McCoy argued that paying off student loans created unnecessary financial hardship. Unable to pay off her student loans, McCoy filed a Chapter 7 bankruptcy suit in Texas federal court to pay off her student loans, which rose at interest rates of $ 350,000. However, McCoy did not receive a student loan cancellation. Why?

Student Loan Cancellation Denied

McCoy raised an interesting legal point in her petition: The US Supreme Court must clarify what legal standard should be applied to bankruptcy student loan cancellations. For example, there are two main legal standards that district courts apply to determine whether a student loan borrower can repay the student loan in the event of bankruptcy. The first legal test is called Brunner test, which is the official test in all district courts except the 8th and 1st. Circle 8 applies a second legal test, a set of circumstances that is similar to Brunner, while the 1st circuit has not yet announced a standard. McCoy argued that the US Supreme Court should clarify which standard courts should be applied. Why? Otherwise, without universal application, different courts may interpret the law differently, which may lead to different results.


Student Loan Cancellation: Brunner Test

Unlike mortgage or credit card debt, student loan debt is usually not repayable in bankruptcy. However, a student loan can be forgiven if the student loan borrower can demonstrate excessive financial hardship. For example, most student loan borrowers who seek cancellation of a student loan as a result of bankruptcy must meet the requirements Brunner test. To repay a student loan through bankruptcy, an adversarial procedure (a claim in bankruptcy court) is required and the debtor will argue that paying off the student loan will create undue hardship for the debtor. IN Brunner the standard says:

  1. the student loan borrower has extenuating circumstances creating difficulties;
  2. these circumstances are likely to persist throughout the term of the student loan; as well as
  3. the borrower has made a good faith effort to pay off the student loan.

The bankruptcy court found McCoy did not meet the second aspect Brunner test. The US District Court for the Southern District of Texas and the 5th Circuit confirmed this. Why? The court found that McCoy’s health problems mostly arose before she borrowed most of her student loan, and her health problems did not affect her ability to complete her education or find a job.

Serious failure to cancel your student loan?

Is this a major obstacle to canceling your student loan? Not. This was a special case involving one particular student loan borrower. However, the US Court of Appeals for the Second Circuit ruled in April that could do so. harder to pay off student loans in bankruptcy… IN TinglingThe Second Circuit is the same court that created Brunner standard – confirmed that paying off student loans in the event of bankruptcy is a big burden. This has important legal implications as it signals student loan borrowers that a high bar is required to cancel the loan. While other circuit courts are not required to take the same approach, the Second Circuit Court confirmed that Brunner the test is reasonable even if the load is heavy. This is potentially bad news for student loan borrowers, who were hoping that the Second District could relax the Brunner test so that more student loan borrowers could get bankruptcy-discharged student loans.

What does this mean for your student loans

Will you receive a student loan cancellation? The US Supreme Court rejected the certiori, which means the court decided not to hear McCoy’s case. The court did not rule on the merits of the case. In practice, this means that Brunner The check and combination of circumstances will continue to apply in the respective district courts. While McCoy argued that there were major differences between the standards that led to disagreements in application and results, the federal government argued that the differences were relatively minor. In bankruptcy, it is still possible to obtain a student loan cancellation. For example, a veteran of the Navy paid $ 220,000 of his student loan, and a doctor canceled a $ 430,000 student loan. However, if you are considering canceling a student loan as bankruptcy, the facts of your particular case and circumstances may determine the outcome. Finally, Congress may amend the US Bankruptcy Code to help more student loan borrowers obtain student loan forgiveness. This has not happened to date, but there is bipartisan support to help student loan borrowers get more student loan benefits in the wake of bankruptcy.

Bankruptcy is usually the last option for student loan borrowers, and there are several important considerations. If you have student loans, make sure you understand all the options for paying off student loans. Let’s take a look at these popular options first:

Student loans: additional information

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