Student Loan Frequently Asked Questions

You have questions, we have answers.

Student Loan Law FAQ

We have put answers to some of the commonly asked questions that we receive.  If there is a question that we have not answered or if you would like to explore one of these answers in greater depth, feel free to reach out.

Disclaimer– These questions are made from a general perspective and may or may not apply to your situation.  These questions and answers do not represent specific legal advice to you or establish an attorney client relationship.  To be able to give an accurate answer that applies specifically to your situation, you will want to give us a call for a free initial consultation.

Bankruptcy Related Questions

  1. Are Student Loans Dischargeable?  Pursuant to 11 USC 523(a)(8), yes they are.  Functionally, the courts will want to see that you pass the Brunner test and that you (for Federal Loans) you have tried to use one of the various forgiveness programs such as IBR, REPAYE, PSLF, etc.
  2. Do Student Loans Discharge without an Adversary Proceeding?  No.  Most debts that are listed under 11 USC 523(a), including student loans, do not automatically discharge absent litigation.  You can file an adversary proceeding to discharge under hardship standards.  You can also file litigation to determine dischargeability (without hardship standards) if the loan is not qualifying as non-dischargeable (unaccredited program, unaccredited school, etc.).
  3. Can I use bankruptcy to force a collector/servicer to take less money per month?  Yes.  In a chapter 13 bankruptcy, you can limit how much a collector/servicer can get from you based upon your available disposable income.
  4. Does the poor quality of education provided help with a hardship discharge?  Yes it does.  Under prongs 2 and 3 of the Brunner test, it can impact your ability to pay and future earnings and can impact your inability in good faith to repay.  So if you went to ITT, DeVry, Seattle Art Institute, Corinthian Colleges, etc., it will help improve your chance of a successful hardship discharge.
  5. I heard Health Education Assistance Loan Program (HEAL) loans are harder to discharge, is that true?  Yes, these type of loans are held to a more stringent unconscionable standard compared to an undue hardship standard.
  6. Can I pay my regular student loan payments during a chapter 13 but not my other debts?  It is possible if you qualify.  There is a 4 factor test that originated from In Re Wolff that you would have to meet.  The test is (1) whether the discrimination has a reasonable basis; (2) whether the debtor can carry out a plan without the discrimination; (3) whether the discrimination is proposed in good faith; and (4) whether the degree of discrimination is directly related to the basis or rationale for the discrimination.  If you meet the factors, you can pay your student loans more than your other debts and come out ahead after the discharge.
  7. Is tuition debt where I did not receive money or a promissory note to repay dischargable?  Yes it is.  Under 11 USC 523(a)(8) as it is not a loan and you did not receive funds.  If you received a promissory note with specific terms to repay, some courts have ruled that it is not dischargable.

College/University Questions

  1. My college is withholding my transcript because I owe them money, can they do that?  It is a qualified yes they can but there are limits and bypasses potentially.  To start, 42 USC 292(f) allows it generally.  Many states have laws supporting this.  However, if you just need an unofficial transcript, you can use the Family and Educational Rights Act (FERPA) 20 USC 1232(g) to obtain them.  if you can’t pay off the debt, it is often possible to make a repayment plan and some schools will release official transcripts.  Bankruptcy (while the case is active) will force schools to produce your records as to not do so would violate the automatic stay.

Cosigner/Guarantor Questions

  1. Why are they suing me when the borrower is working and can pay?  Unfortunately, if there has been a default, a servicer or collector can choose to sue the principal to the loan (the borrower) or the guarantor (you, the consigner).  If you are aware of where the borrower is and where they are working, you will likely want to tell the collector that information so that (if you are hard to target) they go after the borrower instead.  However, the right to go after you or the borrower is the collectors choice.
  2. Can I file for bankruptcy protection as a cosigner-guarantor?  Yes you can.  Unfortunately, you will need to meet the same hardship standards as the borrower themselves (meaning the Brunner test).
  3. The borrower filed bankruptcy and received a hardship discharge, do I still have to pay?  Yes you do.  Unfortunately, as a guarantor, you are still liable.  The borrower avoiding liability does not void cosigner liability.
  4. I paid off the loans of the person I cosigned for, they filed for bankruptcy, am I out of luck?  No, the Bankruptcy Court has found that if you paid off an educational loan for someone you cosigned for, then that debt is within the meaning of an educational loan.  It is highly advisable to bring an adversary proceeding to determine the dischargeabilty so you do not violate the automatic stay.
  5. If the person I cosigned for files for bankruptcy protection, am I protected?  Maybe.  If the student filed a chapter 13 and proposes full payments or the creditor does not object, you will be protected by the co-debtor stay under 11 USC 1301.  If the student does not propose full payment during the ch 13 plan or files a chapter 7, the co-debtor stay will only last a short time.  If the student files a hardship discharge and is discharged, unfortunately, you are left holding the bag.  However, you may be eligible for a hardship discharge or other technique to resolve.
  6. I heard private student loans for an unaccredited or overseas school is dischargable, is that true?  Yes it is.  Under 11 USC 523(a)(8)(B), a private school that is not accredited under Section 221(d)(1) of the IRS code does not qualify a presumptively non-dischargable loan and therefore a hardship analysis is not required.  It is usually safest to bring an action to determine dischargabilty but it is not required and you can sue for an automatic stay violation if the school or a subsequent purchaser of the debt attempts to collect.

Fraud/False Certification/Identity Theft Questions

  1. I have been a victim of identity theft and someone signed my name on their loans, what can I do?  This is usually easy to prove.  If based upon physical signature, a handwriting expert can be retained to prove you did not sign a loan.  If the signature is based upon electronic signature, an analysis of the ISP and other factors can prove alibi evidence.  You will likely need to litigate for a short amount of time to obtain subpoena power to obtain the necessary evidence but ultimately you should be able to prevail.
  2. I don’t remember taking out so much in loans and I think there may be fraud, what can I do?  You have likely been a victim of false certification (this is where someone signs your name for you).  Often the person doing this will kite some of the funds.  So for example if 20k was needed for tuition, they will borrow 30k in your name via false certification, send you 20k and keep 10k for themselves.  This is a particular problem at smaller schools and trade schools that have little oversite.  You can avoid these types of loans with evidence though it may require litigation.
  3. A family member forged my name on the loans, what can I do?  When wet ink signatures were common, this was an easy fix- we would retain a handwriting expert.  Now, with electronic clickwrap signatures, it is a little more challenging.  We can use discovery methods and compare the email used to apply, the ISP, time/dates of where you may have been, and other methods to show you did not take out the loan.

Litigation Issues

  1. What is standing and how can that help me win my case?  The legal definition of standing is that you have a legal interest in a matter.  If a creditor cannot produce evidence that they purchased a debt or a debt is properly in their possession, they can use a case.  You can attack the evidence the creditor has to include if it was properly securitized.
  2. Can I use the FDCPA, FCRA, or state laws like RCW 19.16 or RCW 19.86 if a student loan creditor violates those laws?  Yes you can.  Collectors, even for student loans, have to follow proper collection laws.
  3. Do student loans have a statute of limitations?  Yes and no.  Federal loans do not have a statute of limitation while private loans do (and usually vary based on the state law that applies or where you live).  You can use (and we have successfully) a statute of limitation defense on a student loan.

Military Student Loan Issues

  1. Can they recoup a military scholarship?  If you did not complete your education and did not receive your commission, then yes.  If you did complete your education, received your commission, and were separated afterward then it is more case by case specific.
  2. Can Student Loans impact my military security clearance?  It can.  In the instance of large loan amounts, if you had them when you entered your military service then likely not.  If you obtained very large amounts while enlisted or commissioned, then it would need to be quite large.  Generally, being current on your student loans should not impact you.  Defaulting, however, is something else entirely and if not handled can result in revocation or downgrade of clearance and in some instances separation.
  3. Can they recoup monies received under the GI Bill?  Yes, for a variety of reasons from accreditation, grades, failure to submit proper forms, etc.  There are methods to appeal or fight this or other ways to discharge the obligation.
  4. A military member transferred their GI Bill benefits to me, now a collector is trying to recoup it back, can you help?  This situation almost always arises when the military member failed to complete a service obligation.   Unfortunately, pursuant to 38 U.S.C. § 3319(i)(1), you are considered jointly and severally liable.  There are other ways to defend however.