While not impossible, it is extremely difficult to discharge federal student loans in bankruptcy. A bankruptcy discharge removes your legal requirement to pay any of the debts as ruled by the court. Both federal and private educational debt are some of the common types of debt that are extremely difficult to have discharged through bankruptcy. The reason for that, you have to demonstrate that the repayment of a “qualified education loan” would impose an undue hardship to you and your dependents, which requires an additional adversarial proceeding and isn’t a defined term in the US Bankruptcy Code. There has been some precedent set for discharging student loans in bankruptcy, however, borrowers still struggle with having their loans discharged.
Take an in-depth look at the History of the Non-Dischargeability of Student Loans
Options before Declaring Bankruptcy
Bankruptcy is meant to free you from crushing debt. Even though it seems like that may be liberating, you just need to be aware that bankruptcy may not be an effective tool when it comes to student loans. If you are feeling overwhelmed by your student loan payment, try exploring other options to help you stay current and maintain financial independence.
Repayment Plans
No matter if you have a federal or private student loan, there are repayment plans that may be available to you. You may have the option to choose a plan that best fits your financial needs and helps you to pay off your loan in an efficient manner. Repayment options are dependent upon if you are still in school or if you are in repayment. Not all private lenders offer multiple repayment plans. And if you’ve already defaulted on your student loan, your options may be more limited.
Learn More >>> Repayment Plans for Private Student Loans
When it comes to federal student loans, there are many flexible repayment options to help you successfully manage your student debt. Federal student loans also give you the option to change your repayment plan, so talk with your loan servicer to see what options are available for you.
Check out more information on Federal Student Loan Repayment Plans
Repayment plans offer different options based on what will be most advantageous for your life. Standard, traditional repayment options base your monthly payments off your outstanding debt as well as the repayment term of your loan. Income-driven repayment plans determine your monthly payment based on your income, family size, state of residence, and sometimes even the income of you and your spouse. Your repayment term may be drawn out to as long as 20 or 30 years.
Consolidate or Refinance
When you have multiple student loans, you have the option to combine the loans into a single loan and a single monthly payment which can make repayment more manageable. If you are holding multiple federal student loans, a Direct Consolidation Loan may be available to you. A Direct Consolidation Loan may also extend your repayment term to up to 30 years, which may help lower your monthly payments and make them more manageable, however, the longer repayment term will increase the cost of the loan overall.
Those looking to consolidate existing private student loans or a combination of private and federal student loans will need to explore refinancing with a private loan lender. Refinancing your loans with a private lender may not be an option for everyone, because a private student loan refinance will require you to qualify based on your credit. If you’ve been struggling to keep up and missed payments on your student loans and other debt, your credit may have taken a negative hit. Many private student loan refinance lenders require at least a FICO® credit score of 660, two years of employment history, and a review of your debt-to-income ratio. If you are unable to qualify on your own, you may want to consider applying with a creditworthy cosigner.
Refinancing allows you to compare lenders’ interest rates, origination fees, and borrowing limits. You can combine your federal and private loans into one monthly payment which may help you save money. It’s important to know, that refinancing federal loans with a private lender will forfeit your federal loan benefits.
Best Student Loan Refinance Lenders
College Ave Student Loans
- Variable rate range: 3.44% – 7.99% APR1
- Fixed rate range: 3.99% – 7.99% APR1
- No application or prepayment fees
- Apply in 3 minutes or less for instant credit decision
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2This informational repayment example uses typical loan terms for a refi borrower who selects the Full Principal & Interest Repayment Option with a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $250,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
Information advertised valid as of 8/11/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
ELFI Student Loan Refinance
- Customers are saving an average of $309 every month and an average of $20,936 in total savings after refinancing their student loans with Education Loan Finance1
- Variable and fixed rates starting from 2.48% APR and 4.29% APR2
- Prequalify in as little as two minutes
- Award winning customer service from your dedicated Student Loan Advisor who is matched to you from the moment you sign up
1Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.
2Rates accurate as of 9/23/22. The interest rate and monthly payment for variable rate loans may increase after closing. Your actual interest rate may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10 year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. To qualify for refinancing or student loan consolidation through Education Loan Finance, you must have at least $10,000 in qualified student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary Education Loan Finance institution. Education Loan Finance Parent Loans are limited to a maximum of the 10-year term.
SoFi Student Loans
- Rates as low as 3.24% variable and 3.99% fixed1
- No fees or prepayment penalties
- Unemployment protection
1Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 3.24% APR to 8.24% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
Splash Financial Refinance Loan
- Rates as low as 2.49%1 Variable APR and 3.29%1 Fixed APR
- No pre-payment penalties, origination, or application fees
- See rates in 3 minutes without affecting your credit score2
1The rates displayed may include a 0.25% autopay discount.
2To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Earnest Student Loan Refinancing
- Variable rates starting at 2.49% APR (including 0.25% Auto Pay discount)*
- Fixed rates starting at 3.74% APR (including 0.25% Auto Pay discount)*
- Choose your own monthly payment
- No fees of any kind and exceptional customer service for the life of your loan
- Check your rate in under 2 minutes
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.99% APR to 8.74% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.74% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.
*Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance. Not all borrowers will qualify for our lowest rates, and your rate will be based on creditworthiness at time of application.
The information provided on this page is updated as of 8/25/2022. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
Ask For a Deferment or Forbearance
If you encounter a metaphorical bump in your life, it may be appropriate to contact your loan servicer and ask for a deferment or forbearance. This will temporarily suspend your obligation to repay your loan for short periods of time. While this may seem like a useful answer, you should understand how the interest on your loan will continue to accrue and will be capitalized to the loan balance if unpaid.
Federal student loans have many types of deferments, each with their own sets of eligibility criteria. If you have a subsidized federal student loan in an eligible deferment, the federal government will pay the interest. The interest on unsubsidized loans, such as PLUS Loans and Direct Unsubsidized Loans, will remain your responsibility, even if your loan is in deferment. And if your loan is in a forbearance, it doesn’t matter what type of federal student loan you have, as your loan will continue to accrue interest—interest you will be responsible to repay.
Some private and federal loans, offer a six-month grace period t after graduation, when you leave school, or drop below half-time enrollment. (Older Stafford Loans may have a 9- to 12- month grace period—check your promissory note.) The grace period is allotted to the borrower to allow them time, 6 months before they are required to make payments – it is a waiting period. During this time, most loans will accrue interest. If you choose not to pay the accumulated interest, it will accrue (be added to the principal balance).
Discharging My Student Loans
If you have exhausted all available student loan repayment plans and the payments for your student loans are posing an undue hardship, you may want to explore if student loan bankruptcy is for you. While there is no surety if you will receive a full or partial student loan discharge, talk with a lawyer who has student loan experience to see if this step is right for you.
Discharging loans in bankruptcy may prove difficult, and the process it begins with filing the required bankruptcy forms, and also separately filing an adversary complaint. A separate bankruptcy trial or ‘adversary proceeding’ is required to discharge student loans in bankruptcy and is only initiated by filing the separate adversary compliant.
Filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy
Filing for bankruptcy is difficult and has repercussions that are long-lasting.
Chapter 7 Bankruptcy is more common and requires you to liquidate non-exempt assets. Exempt assets could include all or part of your home equity, cash value of life insurance policies, qualified retirement plans, some personal property, social security benefits, and professional tools used for work. Other non-exempt property and assets may be liquidated to satisfy what you owe. Chapter 7 bankruptcy can be included on your credit report for up to 10 years from the date you filed bankruptcy, which means you might have a difficult time receiving credit.
Chapter 13 bankruptcy ends with a court-structured payment plan that requires you to repay a portion of your debt. This type of bankruptcy stays on your credit report for seven years from your filing date, so you may not need to sell property to pay for debts.
Adversary Proceeding
After filing for bankruptcy, you will need to file a lawsuit known as an adversary proceeding. This requests the court to find that the repayment of your student loans would impose an undue hardship on you and your dependents. While the law is less favorable to borrowers in terms of discharging student loans, you may be able to successfully discharge a student loan by demonstrating an undue hardship in your adversary complaint. Depending on your jurisdiction, the court has the discretion of determining if you are able to prove undue hardship. This complaint is filed after you file for bankruptcy and while your case is open. You may also reopen your bankruptcy case at any time to file this proceeding.
Undue Hardship
As part of the adversary proceeding findings, you will need to demonstrate “undue hardship.” While there is no specific definition of what “undue hardship” is, the court may look at some or all the following factors as set out by the Brunner Test. The Brunner case established precedent of a three-prong test to demonstrate undue hardship:
- Being forced to repay their student loan debt will not allow to the borrower to maintain a “minimal” standard of living for themselves and their dependents based on your current expenses and income.
- Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.
- The borrower has made good faith efforts to repay the loans.
You as the student loan borrower must prove that you are unable to repay your student loans, both now and in the future. The judge will determine your outcome by either a full discharge, a partial discharge, or no discharge. According to one bankruptcy judge, to receive a discharge, it requires a “certainty of hopelessness, not simply a present inability to fulfill the financial commitment.”