In assessing what courts call the “good faith” standard, the Department of Education will focus on objective criteria reflecting the debtor’s reasonable efforts to earn income and manage his/her expenses. A debtor will not be disqualified based on past non-payment if other evidence of good faith exists. They will review the debtor’s payment history.
The Department of Education will look to see if the debtor has contrived a hardship for the purpose of getting their student loans dismissed. Examples of good faith include: (1) making payments (2) applying for deferment or forbearance (3) applying for income based repayment options (4) applying for federal consolidation loans (5) responding to outreach from a servicer or collector (6) discussing payment options, forbearance and deferment options, or loan consolidation with the Department of Education; (7) engaging a third party they believed would assist them in managing their student loan debt and/or (8) Debtor’s efforts to obtain employment to maximize income and minimize their expenses.
Acceptable explanations, or evidence for not enrolling in an income-based repayment plan include: (1) the debtor was denied or discouraged from using income-based repayment and instead relied on an option like forbearance, or deferment; (2) the debtor was provided inaccurate or incomplete information about the merits of an income based repayment plan; (3) debtor believed that an income based repayment program would not have improved their financial situation; (4) debtor was unaware that an income based repayment was an option; or (5) debtor was concerned with the potential tax consequences of loan forgiveness at the conclusion of an income based repayment program. Our next blog will address how the debtor’s assets play a role in dischargeability of student loans.