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Why Escaping Student Loans Through Bankruptcy Is So Hard

I value what my dad thinks about things like romance and politics, but I avoid talking to him about education. The university of his memory is generous and forgiving; the student-debt-financial complex of my current experience is not. Example: he could've discharged his education debt in bankruptcy if things didn't work out after he graduated in 1970. Should my career fail, student loans and I will continue to be quite monogamous.

Getting a bankruptcy court to erase student debt is an extremely difficult, expensive and time-consuming legal maneuver.

A debtor must sue their creditor, as did Michael Hedlund, who successfully expunged some of his law school debt this past May. For him, it meant taking Pennsylvania Higher Education Assistance Agency (PHEAA) to court. As you can imagine, these creditors often have legal teams you'd want to cross the street to avoid.

It took the Hedlund family and pro-bono attorneys ten years to get $50,000 in debt forgiven. Compare that to the 6 months it took Contec Holdings Ltd. to discharge $250 million in debt last year. Business loans can be discharged in bankruptcy but the court loses sympathy for people taking financial risks to educate themselves.

Beyond kicking a legal beehive like PHEAA, most courts require that debtors pass something called the "Brunner Test." It's supposed to divine whether or not a debtor leads a life of truly hopeless destitution despite trying their hardest to repay their debts, and whether or not this situation will persist into the foreseeable future.

It's brutal. Attorneys used the fact that Hedlund's wife leased a car and had a cell phone to argue the family hadn't scrimped hard enough to repay their loans.

Fifty five-year-old Royale Robinson sought relief from a $143,000 debt after attending Georgetown Law. She had no children, writes sociologist Allison Hurst, no spouse, and was unemployed at the time of her court appearance. In the past, Robinson had held only 

low paying jobs since receiving her degrees, including positions as an airport baggage screener and ramp operator at Dulles International Airport and as a bank teller. In addition, from 2003 to 2006, the debtor lived in various homeless shelters, and she [was] currently behind on her rent and [was] sued for unlawful detainer.

Robinson was undergoing cancer treatment at the time of her hearing, and "living on $1000 per month in disability payments." Her expenses "including healthcare were $1879 per month."

The court ruled that Robinson didn't meet the Brunner test's requirements.

Brunner's terms were established in 1987. I'd call them comically antiquated if they weren't causing very serious problems for indebted people. Between 1990 and 2010, tuition costs have gone up by 112%, outpacing the 2.1% increase in median household income during the same period of time; state funding appropriations for full-time students dropped by 26%, according to estimates from a Demos report.

The trick is figuring out how to at once make Brunner more humane toward contemporary student borrowers, but not so lenient as to scare lenders away from issuing education loans altogether.