A Texas bankruptcy judge has denied a request by student loan giant, Navient, to dismiss a class-action lawsuit accusing the firm of illegally collecting on loans that were discharged in bankruptcy. The decision means the case can move forward and allow the opportunity for an appellate court to consider whether loans historically viewed as exempt from bankruptcy can be discharged.
The ruling is an important one, as the Department of Education is currently reviewing the high standard student loan borrowers must meet to have their student loan debt discharged in bankruptcy. The case in question focuses on a specific type of private loan debt (i.e. – money loaned to borrowers to pay for unaccredited programs, such as bar exam study courses and K-12 educational expenses). However, if the appellate court rules in favor of the plaintiffs, it could mean that borrowers with similar student loans from other companies could qualify for the same relief.
Before this ruling, bankruptcy courts have determined that the types of loans in question in this case cannot be discharged because they were received as an “educational benefit.” Recently however, lawyers and judges have started to challenge whether loans to help borrowers study for the bar exam and other similar debts truly fit into the category.
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