When the government reviews a request to discharge your federal student loans, it measures your living expenses against the IRS Collection Financial Standards, the same expense tables the IRS uses to decide what a person behind on taxes can afford. Those tables help answer the first question in the Department of Justice's analysis: after reasonable living expenses, is there money left over to pay your loans?
Where the standards come from
The IRS publishes the Collection Financial Standards to judge a taxpayer's ability to pay a tax debt. In November 2022, the Department of Justice issued guidance telling its attorneys to use them in student loan bankruptcy cases. The attestation form you complete asks for your expenses in categories that match the IRS tables.
The IRS revises the dollar amounts from time to time. That's why we look up the current figures when we prepare your attestation instead of relying on numbers you may find online.
The three groups of expenses
- National Standards: food, housekeeping supplies, apparel and services, personal care, and miscellaneous. These apply nationwide and depend on household size.
- Local Standards: housing and utilities, which depend on your county and household size, and transportation, which covers vehicle ownership and operating costs or public transportation.
- Other necessary expenses: items such as court-ordered child support or alimony you actually pay, and reasonable child care, as long as they are necessary and reasonable in amount.
How the comparison works
The two kinds of standards are treated differently.
For the National Standards, if you spend less than the allowance, you are credited with the full standard amount and no one asks for your actual figure. Say your household spends less on groceries than the IRS food allowance for your household size. You still get credit for the full allowance. If you spend more, a reasonable explanation is supposed to be considered carefully.
For the Local Standards, you are credited with what you actually pay, up to the standard for your county and household size. If your rent is above the standard, the government generally caps it at the standard amount. A higher figure can still be allowed if you give a reasonable explanation, after the Justice Department consults the Department of Education.
The government then compares your allowable expenses to your household's gross income. That includes wages, unemployment benefits, Social Security, and income from others in your household. If your expenses equal or exceed your income, the guidance treats you as unable to pay right now. If there is money left over, the government compares it to the payment due under a standard repayment plan.
When your life doesn't fit the tables
The tables are averages, and real households aren't. The guidance gives examples of costs that can justify going above a standard: specific health-related costs, special dietary needs, or an unusual commute.
It also recognizes that some people are going without things they need, like child care or health care, because they can't afford them. Your attestation can describe those needs and what they would reasonably cost. And if you live rent-free with a relative or in overcrowded housing, the guidance does not expect you to stay there forever.
Why this matters for your case
Knowing how the standards work helps you fill out the attestation accurately. Your numbers should match your bank statements, bills, and pay records. An expense above a standard isn't a problem by itself, but it needs a clear, honest reason. Inflated or unsupported figures can hurt your credibility, and good faith is one of the three questions the government asks.
The honest limits
The expense comparison is only one part of the review. The government also asks whether your situation is likely to continue and whether you have made good-faith efforts to repay. Even when the government agrees a discharge is appropriate, it is making a recommendation. The bankruptcy judge makes the final decision, and every case depends on its own facts.
Talk to us
If you're not sure how your budget would look under these standards, we can walk through it with you. Your first consultation is free, by phone or video. Call the Law Office of Brian D. Shapiro, LLC at 702-386-8600.