New Jersey Student Loans
WHAT IS AND WHAT IS NOT A STUDENT LOAN IN
When you are thinking about getting rid of, discharging, your student loans in bankruptcy, you first have to know if you in fact have a student loan. Not every loan taken out and used for education is a student loan and not every debt you take on for school is a student loan. “Student loan” has a very specific definition in the bankruptcy code, and if your debt does not “qualify” under that definition, it is not a student loan. It's probably just a regular old debt. The bankruptcy rule saying student loan are not discharged is an exception to the general rule, so the debt in question has to meet the definition.
A “student loan” is:
An educational benefit overpayment or loan that was made, insured, or guaranteed by a governmental unit ; or
An educational benefit overpayment or loan that was made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
An obligation to repay funds that you received as an educational benefit, scholarship, or stipend; or
Any other educational loan that is considered a qualified education loan under the federal tax laws.
An Educational Benefit Overpayment or Loan: You probably know what constitutes a loan – someone lends money to someone else. An educational benefit overpayment occurs when a student receives a government grant or federal student loan and withdraws from classes after the school’s “add/drop deadline.” Up through the 60% point in each semester, the school uses a schedule to determine the amount of federal funds the student has “earned” as of the time of withdrawal. After the 60% point, a student is considered to have earned 100% of the federal funds he or she was scheduled to receive. Because the federal funds are disbursed at the beginning of the semester or school year, the remainder is considered to be an educational benefit overpayment.
Made, Insured, or Guaranteed by a Governmental Unit: If the loan was issued by the federal or state government then it will not be automatically discharged. In addition, a loan issued or guaranteed by a foreign government will not be automatically discharged under the bankruptcy laws. But just because a lender says it is a government loan, does not make it so. A judge has to say that, just like if you named a business “New Jersey Car Wash” your car wash is not automatically government agency.
Funded by a Governmental Unit or Nonprofit Institution: A loan issued by your school won’t be discharged if the government guaranteed the loan; an example of this would be a Perkins Loan, which is issued by the school using federal funds.
Qualified Education Loan: The U.S. Tax Code defines a qualified education loan as a debt you take solely for qualified higher education expenses, for yourself, your spouse, or your dependent. Qualified education expenses are defined as the cost of attendance at a school eligible to receive federal student loan funds under Title IV of the Higher Education Act. What that means is if you borrowed more than was spent on school, whatever you did not spend on school is not a student loan.
Bankruptcy Courts Have Said These are NOT Student Loans
Money owed to your school for past due tuition.
A private student loan from a for-profit entity to:
Attend a school that is not eligible to receive federal student aid funding under Title IV.
Pay education expenses for someone who is not a dependent or your spouse at the time the loan was obtained.
Pay education expenses for your boyfriend or girlfriend, even if you later marry that person.
Home equity lines of credit and mortgage refinance to pay off student loans. A personal loan from a friend or family member, even if you use the money for education.
A loan given by your school in the form of a tuition credit or free tuition.
Credit card debts incurred to pay the costs of education.
Loans given to students to cover living expenses during an internship, study for exams or reasons other than paying for classes at a recognized school.
I am so grateful for Mr. Hanratty and his assistant Arely. I started an adversary proceeding in 2018 because I had over $300,000 in student loan debt. An amount that I would have never thought my one degree would eventually cost me 11 years after graduating. Read More...
Courtney M., Client