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The Student Loan Crunch

Options when Lawsuits and Collections hit for Student Loans

By: Heather M. Thacker

Everyone knows the general rule ― student loans do not go away, even in bankruptcy.  But, there are some exceptions that you should consider. 

1. Chain of Title

Student loans are continuously being sold in bulk to other companies, and some of the paperwork is falling through the cracks.  If your loan was sold to a new company, in order for the new company to enforce the loan they must be able to prove they are the actual owner of your specific loan.  They must show the chain of title, or documentation for each step of the transaction.  A lot of times the new owner simply does not have the documentation to prove that your particular student loan was in fact transferred in the bulk loan sale. 

2. Statute of Limitations

It is important to determine which statute of limitations (the deadline for bringing a claim) applies to your particular loan. Under Kentucky law, it could be 5, 6, 10 or even 15 years[1] depending on a number of factors. If the applicable statute of limitations has expired, the student loan can no longer be enforced.  

3. Undue Hardship Exception

In bankruptcy, many courts follow the Brunner test to determine if student loans may be dischargeable: “(1) that the debtor cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.” [2]  Admittedly, this is a hard standard to satisfy, but some court are beginning to loosen the Brunner test.

4. Partial Discharge

Are you eligible for a partial discharge? When a debtor does not satisfy the undue hardship exception, some courts have used their equitable powers to allow a partial discharge of the portion of the student loan debt that would otherwise create an undue hardship on the debtor.[3] Other courts have used their equitable powers to institute repayment schedules, defer repayment, and even acknowledged that a debtor may later reopen a bankruptcy proceeding to revisit the question of undue hardship.[4]

5. Discharge Exception

Does your student loan actually fall within the exception to discharge set forth in 11 U.S.C. § 523(a)(8) (i.e. the student loan discharge exception)?  Just this year, the 10th Circuit Court of Appeals found a certain private student loan did not constitute an “educational benefit”, and therefore did not fall within this exception to discharge.[5]  While Kentucky is not part of the 10th Circuit, this case law could certainly be persuasive to other courts.

6. Restructure

Restructure – In some cases, payment plans, lump-sum settlements, and deferments may also be negotiated with the creditor and/or collection agency.


[1] KRS § 413.120(7), KRS 355.3-118(1) or KRS § 413.090(2).

[2] Brunner v. New York State Higher Education Services, 831 F.2d 395 (2d Cir. 1987). 

[3] For example, see In re Hornsby, 144 F.3d 433, 440 (6th Cir. 1998).

[4] Id.

[5] In re McDaniel, 973 F.3d 1083 (10th Cir. 2020).

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email info@dlgfirm.com or reach us on our contact page.

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