Debt wears attire for every occasion. Unfortunately, lenders and creditors – not unlike guests at a reception – find it most valuable when its least appealing. The federal government may extend another set of clothes to those with student-loan debt.
Modifications to debt from student loans have continued over the past year. Further action by the federal government could provide students with at least one new outfit.
Legal and political decisions will determine the extent of relief
The most recent stimulus bill excluded any student debt discharged between Dec. 31, 2020 and Jan. 1, 2026 as income. In March, the Department of Education expanded its pause on collections of defaulted student loans to include those in the Federal Family Education Loan Program. Pending legal review from the U.S. Department of Education and Justice Department, President Biden may have executive authority to cancel up to $50,000 in student loan debt.
New Jersey residents certainly could benefit. One in six adults in the Garden State have accumulated debt over $40 billion. Almost 900,000 borrowers statewide owe up to $40,000 on their loans. Any further modification may alter other benefits available, such as tax offsets.
Bankruptcy encompasses a comprehensive review of total debt
These policies remain subject to political and legal dynamics. Students certainly should not rely on them to as a fail-safe mechanism to eliminate student debt. Bankruptcy does permit the discharge of student debt, but the legal burden within the 3rd circuit remains difficult to satisfy. Yet, a bankruptcy can still help relieve financial pressures from other debts and provide an important lifeline for those struggling.
The rules and laws governing debt and bankruptcy continue to be updated as circumstances may require. For this reason, an attorney who understands the complexities of bankruptcy and how developments in student loan debt may help you add new clothes to your financial closet.