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Can a Private Student Loan be Discharged in a Bankruptcy – New Homaidan case! nail was pounded into the private student loan coffin last week when a new case came out against Sallie Mae.

A private student loan is not a conditional grant and therefore does fall within the meaning of section 523(a)(8)(A)(ii) which excepts from discharge an “educational benefit, scholarship, or stipend.” Homaidan v. Sallie Mae, Inc., No. 20-1981 (2d Cir. July 15, 2021).

So, this puts a duty on us attorneys to determine if the private loan can be discharged whenever a bankruptcy is filed.  Factors to consider:

  • Was the loan paid directly to the school or to the debtor? (If paid directly to the debtor it may be dischargeable since it could have been used for any purpose.)
  • Did a nonprofit agency guarantee the loan?
  • Was the loan for attendance at a school which was ineligible for federal funds?
  • Become familiar with the beyond the cost of attendance argument.

We’ve been making these arguments for several years now — and for lots of clients.  If your bankruptcy attorney doesn’t address student loans, that’s ok as it’s a relatively narrow and often misunderstood field, but please make sure somebody like us addresses them!  Now is the chance to get rid of your private student loans – don’t waste it and keep paying what is often the equivalent of a second mortgage payment on these high interest loans!

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