Can Student Loans Be Discharged in Bankruptcy?

For many borrowers, student loan debt can feel overwhelming and inescapable. Unlike credit cards or medical bills, student loans carry a reputation for being impossible to erase—even in bankruptcy. While that reputation is rooted in reality, it is not the full story. Student loans can be discharged in bankruptcy, but only under specific and often challenging circumstances. Understanding how this works, what standards apply, and what borrowers should realistically expect is essential for anyone struggling with student loan debt.

This article explains the legal framework, the hardship standard, how courts evaluate cases, and what borrowers should realistically expect.

The General Rule: Student Loans Are Not Automatically Discharged

In most bankruptcy cases, filing under Chapter 7 or Chapter 13 eliminates unsecured debts such as credit cards, personal loans, and medical bills. Student loans are treated differently.

Under U.S. bankruptcy law, federal and most private student loans are presumed to be nondischargeable. This means they survive bankruptcy unless the borrower takes an extra legal step and meets a strict standard known as “undue hardship.”

Simply completing a bankruptcy case does not wipe out student loans by default.

The Key Exception: Undue Hardship

To discharge student loans, a borrower must prove that repaying them would impose an undue hardship on the borrower and their dependents. This is not defined precisely in the Bankruptcy Code, so courts rely on judicial tests to interpret it.

The most widely used standard is the Brunner Test, named after a 1987 court case.

The Brunner Test Explained

Most federal courts apply the Brunner Test, which has three prongs. The borrower must prove all three:

1. Inability to Maintain a Minimal Standard of Living
   The borrower must show that, based on current income and expenses, repaying the student loans would prevent them from maintaining a basic standard of living. This does not require living in poverty, but it does mean there is no room in the budget for loan payments.

2. Persistence of Financial Hardship
   The borrower must demonstrate that their financial situation is likely to continue for a significant portion of the repayment period. Courts look for circumstances such as chronic illness, disability, advanced age, limited job prospects, or caretaking responsibilities.

3. Good-Faith Effort to Repay
   The borrower must show they made genuine efforts to repay the loans. This may include making payments when possible, seeking deferments or income-driven repayment plans, communicating with lenders, or attempting loan consolidation.

Failing any one of these prongs usually means the discharge will be denied.

How Bankruptcy Courts Evaluate Hardship

Courts do not rely on formulas alone. They examine the borrower’s full financial picture, including:

• Income and employment history

• Education and job training

• Health conditions and medical expenses

• Age and dependents

• Reasonableness of living expenses

• Total student loan balance and interest rate

Judges also look skeptically at borrowers who appear to be underemployed by choice or who have not explored available repayment options.

Federal vs. Private Student Loans

Both federal and private student loans generally fall under the same undue hardship standard, but there are practical differences.

• Federal loans often have income-driven repayment plans that can reduce payments to very low amounts. Courts may view these options as evidence that repayment is possible, even if forgiveness is decades away.

• Private loans may lack flexible repayment options. In some cases, borrowers have had more success discharging private loans, especially when loan terms are harsh or the lender’s practices are questionable.

However, neither type is easy to discharge.

The Adversary Proceeding: A Required Step

To seek discharge of student loans, a borrower must file an adversary proceeding within their bankruptcy case. This is essentially a lawsuit against the student loan lender.

Key points about adversary proceedings:

• They require additional legal filings and court hearings

• The lender can contest the discharge

• The borrower bears the burden of proof

• Legal representation is highly recommended

Because of this added complexity and cost, many borrowers never attempt it.

Partial Discharge and Loan Modification

Some courts allow partial discharge, meaning only a portion of the student loan debt is wiped out. Others may reduce interest rates or restructure repayment terms.

While not guaranteed, these outcomes can still provide meaningful relief, especially for borrowers with very large balances.

Recent Developments and Policy Shifts

In recent years, there has been increased scrutiny of how difficult it is to discharge student loans. Some government agencies have issued guidance encouraging a more reasonable approach when evaluating hardship claims, particularly for borrowers with disabilities or long-term financial distress.

While the law itself has not fundamentally changed, approval rates for discharges have improved modestly in certain jurisdictions when borrowers present strong evidence.

Common Myths About Student Loan Bankruptcy

Myth 1: Student loans can never be discharged.
False. They can be, but it is difficult.

Myth 2: Filing bankruptcy automatically ruins your chance.
False. Bankruptcy is the required starting point for seeking discharge.

Myth 3: Only total disability qualifies.
False. While disability helps, courts consider many forms of long-term hardship.

Myth 4: Trying is pointless.
False. Well-documented cases with legal support can succeed.

Alternatives to Bankruptcy

Before pursuing bankruptcy, borrowers should consider other options:

• Income-driven repayment plans

• Loan forgiveness programs (such as Public Service Loan Forgiveness)

• Forbearance or deferment

• Loan rehabilitation or consolidation

• Negotiation or settlement (more common with private loans)

Bankruptcy is typically a last resort, not a first step.

Is Bankruptcy the Right Choice?

Bankruptcy may make sense for borrowers who:

• Have overwhelming debt beyond student loans

• Face permanent or long-term financial hardship

• Have exhausted repayment and forgiveness options

• Are willing to pursue an adversary proceeding

It is less effective for borrowers who expect income growth or qualify for manageable repayment plans.

Final Thoughts

Student loans are among the hardest debts to discharge in bankruptcy, but they are not immune. The undue hardship standard sets a high bar, requiring careful preparation, strong evidence, and often legal assistance. While bankruptcy will not solve every student loan problem, it remains a critical legal tool for borrowers facing truly insurmountable financial hardship.

For those struggling under the weight of student debt, understanding these realities can help set realistic expectations—and, in some cases, open the door to meaningful relief.