Student Debtors Notch Win in Fight to Wipe Out Debt in Bankruptcy

A recent Second Circuit decision is adding fuel to a growing momentum in the courts to allow borrowers to eliminate certain types of private lender-issued student loans in bankruptcy.

The U.S. Court of Appeals for the Second Circuit, siding with a student debtor, July 15 ruled that a private, direct-to-consumer loan fell outside the scope bankruptcy law’s definition of a “student loan” and can be wiped out in bankruptcy. The loan in question exceeded the cost of tuition and was issued directly to the borrower rather than going through the financial aid office.

Navient Corp., which purchased the “Tuition Answer” ...