A recent Second Circuit decision is adding fuel to a growing momentum in the courts to allow borrowers to eliminate certain types of private lender-issued student loans in bankruptcy.

The U.S. Court of Appeals for the Second Circuit, siding with a student debtor, July 15 ruled that a private, direct-to-consumer loan fell outside the scope bankruptcy law’s definition of a student loan and can be wiped out in bankruptcy. The loan in question exceeded the cost of tuition and was issued directly to the borrower rather than going through the financial aid office.

Navient Corp., which purchased the Tuition Answer loan initially issued by Sallie Mae Inc., argued that it was an educational benefit“-one of three categories of student debt that cannot be discharged in bankruptcy without showing undue hardship.

Outstanding student loan debt totals about $1.7 trillion in the U.S. The type of private educational benefit loan the Second Circuit addressed is only a fraction of that total, but still could account for about $30 billion, https://worldpaydayloans.com/payday-loans-or/harbor/ said Jason Iuliano, an associate professor of law at the University of Utah. Other researchers estimate the total could top $50 billion, he said.Continue reading→