Student Loan Guru Austin Smith Writes on Private Student Loans

Austin Smith is a force nationwide championing issues for student loan debtors.  You can get his excellent article, Why So Many Get It So Wrong That a Private Student Loan is Uniquely Protected in Bankruptcy, here. 

The common belief that all student loans are protected from discharge in bankruptcy is based on a misunderstanding of 11 U.S.C. § 523(a)(8).  Since 1990, bankruptcy courts have been misreading the statute to prevent any student debt that could be construed as providing educational benefits or advantages from discharge.  The flawed logic in student bankruptcy cases has thus become (1) all debts that confer educational benefits are protected from discharge; (2) the debt in question facilitated the debtor’s education and as such, conferred educational benefits; and (3) the debt is not dischargeable.

First, subsection (A)(i) only protects federally insured or nonprofit student loans.  Second, subsection (A) (ii) only protects debts resulting from noncompliance in contractual service scholarships and grants.  Third, subsection (B) only protects private student loans that meet narrow Internal Revenue Code qualifications.  A sizeable portion of private student loan debt falls outside all three of these categories, and must be treated as non-qualified private student loans that have no protection from discharge.

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