A recent report found bankruptcy could cancel more than $50 billion of student loan debt for as many 2.6 million borrowers with private student loans. But, according to the report, the private companies servicing those debts have "systematically lied to borrowers for years" and continued collecting on debts that had already gone through the bankruptcy process. These companies routinely told borrowers that they weren't eligible for bankruptcy cancellation even though they were. It is not shocking that student loan servicers lie and break the law in order to protect their bottom line.
Getting rid of student loan debt in bankruptcy is a difficult task, regardless of whether the debt is federal or private/ Borrowers have high burdens of proof and courts have routinely imposed standards that are much higher than the actual laws call for. One thing is certain, the courts will always side with major money lenders over consumer and will bend over backwards to become activists for private money lenders and establish tougher laws and higher standards where none actually exist.
Whether it's federal or private student debt, getting rid of it through bankruptcy can be an arduous process. The borrower has to prove the loans have caused them "undue hardship," meaning they cannot maintain a minimal standard of living, their circumstances will likely not improve, and they have made a good-faith effort in repaying their debt.
The report states that private money lenders have used predatory tactics to prevent student loan borrowers from getting rid of the student loan debt in bankruptcy. For instance, in the early 2000s student loan companies, like Sallie Mae and its successor Navient, would lend directly to student loan borrowers and have them certify, prior to receiving the loan, that the loan was a “qualified education loan” even though it was not and essentially render it ineligible for bankruptcy. But the report estimates that up to 30% of all private student loan borrowers are eligible to cancel their debt in bankruptcy. The reality is that private student loan debt is no different than private consumer debt. Both types of debts are issued by private lenders, whgo charge interest, and make these loans as part of a business model to make profits. There is no law that protects these private loans other than the activist interpretations of laws made by the courts. Private student loan debt should eligible for cancellation as part of the bankruptcy process.
