Bad trade schools can take advantage of students with student loans.
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You've seen those vocational school ads on television where students talk about the great opportunities that resulted from attending a special program. I won’t name names – but these programs range widely from cosmetology to skilled trades or computer education. They talk about how much they make and all the doors it has opened for them. There are some great vocational schools out there that do offer legitimate benefits to their students. And then there are others…
Some schools don’t deliver what they promise yet still charge top dollar. They encourage students to take out high dollar student loans to finance their educations but in the end they can’t find a job, obtain a required certification or aren’t qualified to do the job. This is made worse when the vocational school goes out of business. This leaves graduates with student debt they can’t pay and with little to show for their “education.”
Even if you can’t find a job or you feel shortchanged on the promised benefits, the loan payments will still come due. One bright spot is that you may be able to discharge these loans in bankruptcy. Normally, student loans aren't so easy to discharge but under the right circumstances – and particularly with student loans for vocational school – forgiveness may be more likely.
Step One - Brunner Test
Student loan debtors at for-profit schools (which most vocational schools are) are much more likely to default on student loans. This may lead an inordinate number of vocational school grads looking for relief. One place to get this is the bankruptcy court. The court requires that debtors prove that paying student loans will cause undue hardship. To substantiate this, you must first pass what’s known as the Brunner test which has three prongs:
- Based on your current financial circumstances, being forced to repay this loan would render you unable to maintain the minimal standard of living, thus pushing you into poverty.
- Your current financial situation is expected to continue for the duration of the repayment period (typically the remainder of the loan payoff period or 10 years).
- Your attempts to pay were made in good faith.
Student loan default rate by school type comparison.
Image source: Harkin.Senate.gov
Step Two – Taking the School to Task
If the school you borrowed to attend can be shown to be an “ineligible educational institution” you stand a greater chance of being approved for loan discharge. Accredited vocational institutions have to meet a separate set of criteria and are then entered into a special database. If your vocational institute is not found in this database, chances are they may be considered eligible for discharge.
The first step is to do the search in the Department of Education database to see if your school is there. It may have been at one time but has since been deemed ineligible. The next step is to determine if the school assessed you under the “ability to benefit” test – also known as the ATB. To receive a loan discharge for ATB falsification, you must demonstrate that:
- The school knew you did not have a GED or high school diploma when you applied to the program
- The school approved and pushed through your student loan even though you were not likely to benefit from the program
- Your loans were taken out after January 1, 1986.
Cancellation versus Discharge
If your school was guilty of ABT falsification, you may be able to get your loans cancelled through the Department of Education by completing a false certification discharge application form and submitting it to the DOE. But if you are deep in debt on more than one front and have other unsecured debt accumulated including credit cards, medical bills and/or a second mortgage or home equity line of credit, bankruptcy may be the preferable route.
Contact a reputable North Carolina bankruptcy attorney like John T Orcutt for advice on whether you may be eligible for student loan discharge or cancellation. Your consultation is free and the financial fresh start can change your life.