Private student loans can be canceled in bankruptcy, court told Navient

A new court ruling says private student loans can be canceled in bankruptcy.

Here’s what you need to know – and what it means for your student loans.

Student loans

The United States Court of Appeals for the Second Circuit ruled in favor of a student loan borrower who requested the cancellation of their student loan for their private student loans. Here is what happened.

Student loan cancellation: bankruptcy

Plaintiff Hilal K. Homaidan borrowed student loans from Sallie Mae (Navient became the successor to these student loans) to attend Emerson College in Boston. Student loans were two tuition response loans, which totaled $ 12,567. The complainant said those student loans were not used to pay for Emerson’s tuition and went directly to his bank account. After graduating, Homaidan filed for Chapter 7 bankruptcy to pay off his student loans. The bankruptcy court granted the discharge but did not specify in its decision whether private student loans would also be canceled. Navient, the lender, collected the private student loan payment from Homaidan, the borrower. Homaidan agreed to repay the private student loan under the mistaken belief that these student loans were not included in the discharge order. However, after paying off private student loans in full, Homaidan reopened his bankruptcy case to claim that the private student loans he had paid in error had been released from bankruptcy.

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