Father May Be Able to Discharge $250K in Kids' Student Debt
Before he lost his job in 2002, Robert Murphy was making six figures as the president of a manufacturing company. So, when the Massachusetts father found himself unemployed, he assumed he would be able to find new work. In the meantime, he took on hundreds of thousands of dollars in Parent PLUS loans to pay for his three children's college educations.
Years later, Murphy hasn't been able to find regular employment. He's saddled with $246,000 in student loans, despite paying off $61,000 with money from his retirement fund. And, following years of legal wrangling, Murphy may finally be able to discharge those loans due in bankruptcy, after his debt holder agreed that repayment would be an undue hardship.
The (Nearly Insurmountable) Inescapability of Student Loans
Federal bankruptcy law makes it nearly impossible for borrowers to discharge their student loan debt. Unlike most debt, consumers can only be unshackled from their student loans if they can prove that repaying the loan would constitute an "undue hardship," a standard that is rarely met.
Robert Murphy has spent that last four years arguing, largely pro se, that courts should reconsider their definition of hardship, and let him escape his nearly quarter of a million dollars in student loan debt.
Since he lost his job as an executive, Murphy has struggled to find work. The decline for manufacturing has deprived him of opportunities, he told the Boston Globe, while he's considered overqualified for lower-skilled jobs.
Now 65, Murphy and his wife get by on her $13,200 salary as a teacher's aide and his social security income. Even if he finds a job making $50,000 a year and works until he's nearly 80, Murphy's debt burden will still double, he says. The couple is currently facing foreclosure and they'll never be able to pay back the loans they took out for their children, Murphy argues.
Yet, despite Murphy's dire straits, both bankruptcy court and federal district court ruled that Murphy hadn't shown that the loan repayments were an undue hardship.
A Last Minute Change of Heart
When Murphy's case made it to the First Circuit, it provided the most significant challenge to undue hardship rules in years. As Bloomberg wrote at the time:
Murphy's appeal seems to have pushed the First Circuit Court of Appeals to reconsider its definition of hardship. Judges have been tinkering with the criteria used to determine whether a borrower deserves relief in recent years, but their efforts have not broadly affected the law. Murphy's case could mark the first time a federal court weighs in on changing the standards in a decade.
That reconsideration may never happen, but Murphy may come out on top anyway.
After years of resisting Murphy's attempts to discharge the loans, the Educational Credit Management Corp., which assumed Murphy's loans from the U.S. Department of Education, agreed last week that the loans should be forgiven, as repaying them would pose an undue hardship.
"The following day, the appeals court sent the proposed settlement to the bankruptcy court," the Boston Globe writes.
If the bankruptcy court approves the settlement, Murphy will be freed from the burden of the loans. It will be a significant victory for the father, but largely a solitary one. If, however, the bankruptcy court refuses, Murphy's case could soon end up back in front of the First Circuit.
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- 1st Cir Sides With FDIC: Default on Your Loans, You Lose (FindLaw's U.S. First Circuit Blog)
- Debt Collection Letter Too Confusing for Unsophisticated Consumer (FindLaw's U.S. First Circuit Blog)
- Rhode Island Judge Streamlines Massive Foreclosure Mediation Docket (FindLaw's U.S. First Circuit Blog)