Fifth Circuit Rules For-Profit Student Loans Are Dischargeable Without Proof of “Undue Borrower Hardship” – JDSupra
Written by Hinshaw & Culbertson LLP
Many student loan borrowers, lenders, and servicers operate under the presumption that student loans are generally not dischargeable in bankruptcy, absent an “undue hardship.” That notion may no longer be a bright line rule, following a recent ruling by the Fifth Circuit Court of Appeals. The court ruled that certain private, for-profit student loans can in fact be discharged without the borrower providing a showing of undue hardship. This decision is particularly notable as private, for-profit student loans—including loans to cover increasing tuition costs not covered by federal loans, refinance loans, and consolidation loans—continue to see increased use.
In Crocker, et al. v. Navient Solutions, LLC, et al., one bankruptcy debtor had previously obtained private, for-profit loans to cover bar exam preparation costs, while the other debtor had used private, for-profit loans to attend a technical school. The two debtors had completed a chapter 7 bankruptcy and received a debt discharge. When the bankruptcy concluded, the loan servicer sought repayment of the loans believing they had not been discharged. The debtors responded by filing an adversary proceeding seeking a declaration that their private education debt had been discharged.