Class-action lawsuit against student loan giant brings hope to borrowers in bankruptcy

A recent court ruling may offer hope for thousands of struggling borrowers looking to escape education-related debts.

A Texas bankruptcy judge denied a request by student loan company, Navient, last month to dismiss a class-action lawsuit accusing the firm of illegally collecting on loans that were discharged in bankruptcy. Navient NAVI, -0.60%   is appealing.

Patricia Christel, a spokeswoman for the Navient, declined to comment on pending litigation, but noted in an email that the company supports reform “that would allow federal and private student loans to be dischargeable in bankruptcy for those who have made a good-faith effort to repay their student loans over a five-to-seven year period and who still experience financial difficulty.”

The decision last month means the case can move forward and it also offers the opportunity for an appellate court to weigh in on whether loans historically viewed as exempt from bankruptcy discharge can actually be wiped away in the process.

“This is one to watch for potential,” said John Rao, an attorney at the National Consumer Law Center and expert on consumer bankruptcies.

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