The appellate court ruled that private loans are repayable in bankruptcy


United States Court of Appeals for the Second Circuit ruled thursday that private student loans are repayable in the event of bankruptcy.

The case concerns loans taken by Hilal K. Homaidan, a former student at Emerson College, from Sally Mae and the successor corporation Navient.

Navient argued that the section of the bankruptcy code exempting “the obligation[s] for the return of funds received as an education grant, scholarship or scholarship ”, prevented the payment of loans. The court ruled otherwise.

“In accordance with Navient’s interpretation of this provision, the term ‘educational allowance’ will cover virtually all private student loans,” the court ruled. “But such a reading cannot be reconciled with the text and structure” of the provision, which, as the court established, “excludes a much narrower category of debt from repayment.”

Wall Street Magazine reported This is the third regulation in which private loans are made available for repayment through bankruptcy.

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