Can Private Student Loans Be Discharged in Bankruptcy?

Student loans aren’t automatically discharged in bankruptcy. They’re treated differently from most other unsecured debt, so discharging them requires meeting strict requirements. 

Borrowers must show that repaying student loans would create an “undue hardship,” which generally means they cannot maintain a minimal standard of living, the hardship is likely to last most of the repayment period, and they made a good-faith effort to repay. Many borrowers are unable to meet that standard.

If you’re considering declaring bankruptcy and want to discharge your student loans, it’s a good idea to consult a lawyer first. This guide can help you determine whether bankruptcy discharge is a good option based on your loan type and overall financial situation. 

Compare student loan refinance rates

Does bankruptcy clear private student loans?

Private student loans can be cleared in bankruptcy, but it's much harder than discharging other types of debt. Since 2005, private student loans have been excluded from standard bankruptcy discharge rules. To eliminate them, you must go through an additional legal process and meet strict requirements.

After filing for bankruptcy, you'll need to start a separate case called an adversary proceeding. In this process, you must prove that repaying your loans would cause “undue hardship.” 

This typically means showing that:

• You made a good-faith effort to repay your loans before filing for bankruptcy.
• You would be unable to repay your loan while maintaining a reasonable standard of living. 
• The hardship you're experiencing is likely to persist for a significant portion of your repayment period. 

Many people cannot meet these requirements and therefore cannot discharge their student debt through bankruptcy. They have no way to wipe the slate clean and eliminate their debt other than repaying the loans. 

Bankruptcy rule exceptions for private student loans 

Some private student loans are exempt from the usual bankruptcy rules and can be discharged without meeting the strict undue hardship standard. 

These include:

• Loans distributed directly to you where the total amount you borrowed was higher than the school-certified cost of attendance.
• Loans used to pay for your education at unaccredited colleges, a degree in a foreign country, or other programs not eligible for Title IV funding.
• Loans, such as bar study loans, that went toward living expenses and fees you incurred while studying for professional exams. 
• Loans to cover living expenses, fees, or moving costs for residency programs, including medical and dental residencies.
• Loans issued to you when you were not attending school at least half time.

Any loans that fit these criteria are treated the same as other unsecured debt and aren’t subject to the additional challenge of meeting the undue hardship standard. 

How to discharge student loans in bankruptcy

To discharge your student loans, filing for bankruptcy is the first step. When your income is below your state median and your primary debts are unsecured, Chapter 7 is usually quicker. However, if you’re above the median, need to keep a home or car, or have tax debt, Chapter 13 is often the better fit.

Here’s how they compare:

After filing for bankruptcy, you’ll file a separate adversary proceeding to show that repaying your student loans would impose an undue hardship. 

While courts can use different processes to determine undue hardship, the Brunner test is the most common and requires you to meet the previously mentioned requirements.

Some states use a “totality of circumstances” test, which considers your past, present, and future financial resources, as well as your living expenses and other relevant facts and circumstances in your bankruptcy case. 

Student loan discharge eligibility

In 2022, the Department of Justice (DOJ) and the Department of Education (ED) issued guidance to streamline federal student loan discharge in bankruptcy. Borrowers can complete the DOJ Attestation Form, which asks about household members, loans in repayment, and current income and expenses. It helps clarify the factors that lead to a presumption of undue hardship. The DOJ reviews the form and can recommend discharge to the court.

Federal guidance directs the DOJ to use the IRS Collection Financial Standards to determine whether loan repayment is possible while maintaining a minimum standard of living. If a borrower’s income is below that standard, then the first step of the Brunner test is met.

The second step assumes a continued inability to pay under specific circumstances. If a borrower meets any of the following factors, then the second step is met:

• The debtor is 65 or older.
• The debtor didn’t obtain a degree after borrowing.
• The debtor has been unemployed for at least the past 5 years.
• The debtor has a disability or chronic injury that affects their earning potential.
• The loan has been in repayment other than ‘in-school’ for at least 10 years.

A good faith effort to pay is the third Brunner step and can include any of the following actions:

• Making a payment on your student loan.
• Applying for deferment or forbearance, an income-driven repayment (IDR) plan, or a federal consolidation loan.
• Responding to your loan servicer or debt collector.
• Engaging meaningfully with a third party, such as an attorney, who can help you manage your student loan debt.

Alternatives to student loan bankruptcy 

While bankruptcy may become more widely available for student loan discharge, that doesn't mean it's always the right option. Claiming bankruptcy can damage your credit and have long-term financial consequences. 

Before filing, you may want to consider other options, including the following:

• Refinancing student loans: If you have private student loans, you can refinance with another private loan lender. You may reduce your monthly payments to make them more affordable.
• Requesting loan deferment or forbearance: Private lenders and the ED offer deferment or forbearance, which temporarily pauses payments. Not every private lender offers these options, so ask your lender whether they’re available.
• Negotiating with private lenders: Many private student lenders may negotiate to help you reduce your payment or to make a lump-sum payment rather than filing for bankruptcy.
• Changing repayment plans: You can change repayment plans on federal student loans, but your loan type and disbursement date determine which plans you qualify for. Most Direct Loans disbursed on or after July 1, 2026, are limited to the Repayment Assistance Plan (RAP) or Tiered Standard Plan. Borrowers with loans taken out before July 1, 2026, can choose RAP or an older income-driven plan, such as the Income-Based Repayment (IBR) plan, while they remain available.

It’s important to get help if you’re worried about making student loan payments. You may find an alternative to bankruptcy. If you don’t think you can pay back what you owe under any circumstances, speaking with a bankruptcy lawyer about student loan discharge could help determine if this is an option for you.