The next step in the analysis for the Department of Education, after determining your present ability to pay your student loans is to evaluate your future ability to pay your student loans. The debtor is presumed to have an inability to repay their student loan debt in the following circumstances:  (1) debtor is age 65 or older; (2) debtor has a disability or chronic injury impacting their earning potential; (3) debtor has been unemployed for at least five of the last 10 years; (4) debtor has failed to obtain a degree for which the loan was procured; or  (5) the loan has been in a payment status other than “in school” for the last 10 years.  Where such factors are not present, the Department attorney will assess whether the debtor’s present inability to pay is likely to persist.  This is a rebuttable presumption.

For example, if the debtor has not finished a degree, but has job offers and is making more money than if they would have if they obtained their degree, then it would be rebutted that the debtor has the ability to pay their student loans since the lack of a degree is not affecting his/her earning potential.  If the borrower is married, the spouse’s income will not be counted in determining undue hardship eligibility, provided that the joint debtor is not a co-borrower on the student loans.  This is different than the requirement on the bankruptcy petition which requires the debtor to include their spouse’s income even if the spouse is not filing for bankruptcy.

There is no presumption of inability to pay if the debtor obtained their degree in a field with limited earning potential.  If debtor has $100,000 in student loans but doesn’t have earning potential of ever making $50,000 with their degree, the debt won’t get discharged.  Someone in that situation would need to do an income-based repayment.  Our next blog will examine the Department of Education’s standard of good faith efforts to repay your student loans to obtain a discharge.


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