Skip Navigation
Edvisors Star Logo
Edvisors Logo
  • Compare Lenders
      • Compare Lenders
      • Best Private Student Loans in February 2023
      • Student Loan Comparison: Federal Loans vs Private Loans
      • Parent PLUS Loans vs Private Student Loans
      • How Does Interest on Student Loans Work?
      • Private Student Loan Cosigner: Everything you Need to Know
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Compare Lenders
      • Best Student Loan Refinance Companies for February 2023
      • Federal Student Loan Repayment Plans
      • Student Loan Forgiveness: How to Get Student Loans Forgiven
      • Repayment Plans for Private Student Loans
      • Parent PLUS Loan Forgiveness
      • View All Articles >
      refinance student loans with college ave get started

      This is an advertisement.

    • Private Student Loans
    • Refinance Student Loans
  • Plan for College
      • Is College Education Worth the Cost?
      • Most and Least Lucrative College Academic Majors
      • College Comparisons
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Measuring Academic Fit: Reach, Match and Safety Schools
      • Need-Blind Admissions
      • How Long is a College Essay
      • When are College Applications Due
      • How to Write a Good College Essay
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Filing the FAFSA 2023-24: A Simple Guide for Students
      • FAFSA Deadlines for 2023-2024
      • FAFSA FAQ - Your FAFSA Questions Answered
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Most Popular Scholarships for College Students in 2023
      • Apply for Free Scholarships for College
      • College Scholarships for Kids
      • Most Prestigious Undergraduate Scholarships
      • Las mejores becas para estudiantes hispanos y latinos
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Pay for College
      • Tuition Payment Plans
      • Pros and Cons: Borrowing From My 401K to Pay for College
      • Paying College Tuition with a Credit Card
      • Best Ways to Pay for College Without Financial Aid
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Financial Aid Disbursement: When and How You Will Get It
      • Should I Pay Off My Student Loans Right Now
      • How to Minimize Student Loan Debt
      • View All Articles >
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

    • Benefits of College
    • College Admissions
    • FAFSA
    • Scholarships
    • Paying for College
    • Student LIFE Blog
  • Student Loans
      • Filing the FAFSA 2023-24: A Simple Guide for Students
      • FAFSA FAQ - Your FAFSA Questions Answered
      • FAFSA Deadlines for 2023-2024
      • FAFSA School Codes
      • FAFSA 2023-2024 Guide & Resources
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Best Private Student Loans in February 2023
      • Student Loan Comparison: Federal Loans vs Private Loans
      • Parent PLUS Loans vs Private Student Loans
      • How Does Interest on Student Loans Work?
      • Private Student Loan Cosigner: Everything you Need to Know
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Filing the FAFSA 2023-24: A Simple Guide for Students
      • FAFSA FAQ - Your FAFSA Questions Answered
      • The complete guide to federal undergraduate student loans
      • What are Federal Parent PLUS Loans and How to Apply?
      • Financial Aid for Graduate School
      • Compare Subsidized and Unsubsidized Student Loans
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

      • Best Student Loan Refinance Companies for February 2023
      • Federal Student Loan Repayment Plans
      • Student Loan Forgiveness: How to Get Student Loans Forgiven
      • Repayment Plans for Private Student Loans
      • Should You Refinance Federal Student Loans?
      • Parent PLUS Loan Forgiveness
      • View All Articles >
      • Sallie Mae Student Loan Review
      • College Ave Student Loan Review
      • SoFi Student Loan Review
      • Ascent Student Loan Review
      • View All Articles >
      College ave student loans apply now

      This is an advertisement.

    • FAFSA
    • Private Student Loans
    • Federal Student Loans
    • Repay Student Loans
    • Lender Reviews
  • Credit Cards
      • Petal® 2 Visa® Credit Card Review
      • SoFi Credit Card Review
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Best Credit Cards for 2023
      • Best Cash Back Credit Cards
      • Best 0% Introductory APR Credit Cards
      • Best Secured Credit Cards for 2023
      • Best Balance Transfer Credit Cards
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Build Credit?
      • What Age Can You Get a Credit Card?
      • What is a Secured Credit Card?
      • What is an Unsecured Credit Card?
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

    • Card Reviews
    • Best Credit Cards
    • Credit Card FAQs
  • Money Management
      • Best Budgeting Apps
      • Budgeting Tips
      • Budgeting for Beginners
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • Financial Goals
      • How to Save Money as a College Student
      • What is an Emergency Fund
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Pay Off Debt
      • Debt Relief
      • What is a Debt Management Plan
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • How to Check Your Credit Score
      • Best Credit Building Apps
      • What is Credit?
      Self Credit Builder: Build Credit. Build Savings. Build Dreams.

      Sponsored Ad

      • Investing for Beginners
      • Best Investment Apps
      • Understanding the Stock Market
      Win Scholarships - Join ScholarshipPoints.com

      This is an advertisement.

      • What is Risk Management
      • How to Prevent Identity Theft
      • What is Insurance
      Info compromised in a breach? Don't compromise on identity theft protection.

      Sponsored Ad

    • Budgeting
    • Saving
    • Debt Management
    • Credit
    • Investing
    • Risk Management
Search Box Form
School Search Form
Advertisement Disclosure
Advertisement Disclosure
×

Edvisors (“Edvisors Network, Inc.”) provides independent advertising-supported platforms for consumers to search compare and apply for private student loans. Loan offers from participating lenders that appear on our websites are not affiliated with any college and/or universities, and there are no colleges and/or universities which endorse Edvisors’ products or services. Lender search results do not constitute an official college preferred lender list. Edvisors receives compensation from lenders that appear on this site. This compensation may impact the placement of where lenders appear on this site, for example, the order in which the lenders appear when included in a list. Not all lenders participate in our sites and lenders that do participate may not offer loans to every school.

Edvisors is not a lender and makes no representations or warranties about your eligibility for a particular loan or financial aid. Lenders are solely responsible for any and all credit decisions, loan approval and rates, terms and other costs of the loan offered and may vary based upon the lender you select. Please check with your school or lender directly for information related to your personal eligibility.

Edvisors has endeavored to provide accurate information. However, the results provided by lenders are for illustrative purposes only and accuracy is not guaranteed, as such, Edvisors assumes no responsibility for errors or omission in the information provided.

×
Get Your Free Guide to Filing the FAFSA Today!

Thank you for your interest in Edvisors' 2020-2021 Guide to Filing the FAFSA.

Please complete the form below to access your free copy.

Thank you! Click here to download your free FAFSA Guide.

I am a:

×
College knowledge starts here!

Enter your email below to receive your Student Loan Handbook from Edvisors.

Please check your email for the Student Loan Handbook.

After Navigation
Home Student Loans Student Loan Refinance Repayment Plans for Federal Student and Parent Loans Bankruptcy Discharge of Student Loans

Bankruptcy Discharge of Student Loans

edvisors star logo
By Edvisors Network
Email This Article
Fill out the form below to send a copy of this article to your email.
By clicking "Submit" I have read and agree to the Edvisors' Terms of Use and Privacy Policy. We strongly encourage you to read our Privacy Policy to understand how we use and share your information.
A copy of this article has been sent to your email.

History of the Non-Dischargeability of Student Loans

  • The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (P.L. 109-8) adds an exception to discharge for qualified education loans, effective October 17, 2005. This allowed private student loan programs to be excepted from discharge even if they were not associated with a nonprofit organization.
  • The Higher Education Amendments of 1998 (P.L. 105-244) repealed the provision that allowed education loans to be discharged after 7 years in repayment, effective October 7, 1998.
  • The Crime Control Act of 1990 (P.L. 101-647) increased the time before education loans could be discharged in bankruptcy from 5 years to 7 years, effective November 29, 1990.
  • The Bankruptcy Amendments and Federal Judgeship Act of 1984 (P.L. 98-353) struck the words “of higher education” from “nonprofit institution of higher education” effective July 10, 1984. This allowed private student loans to be excepted from discharge if they were somehow associated with a nonprofit organization. 
  • An unnamed bill to amend the U.S. Bankruptcy Code (P.L. 96-56) modified the 5-year period before an education loan could be discharged in bankruptcy to exclude deferment and forbearance periods, effective August 14, 1979. The legislation also clarified that the exception to discharge applied to loans insured or guaranteed by a governmental unit in addition to loans made by a governmental unit.
  • The Bankruptcy Reform Act of 1978 (P.L. 95-598) established an exception to discharge for education loans made by the government or nonprofit institutions of higher education during the first 5 years in repayment, effective November 6, 1978. This legislation encoded a regulation that had been in effect since 1976. Before then, there was no exception to discharge for education loans.

Borrowers who file for a Chapter 7 or Chapter 13 bankruptcy may not obtain a bankruptcy discharge of their qualified education loans unless the debt would “impose an undue hardship on the debtor and the debtor’s dependents,” per section 11 USC 523(a)(8) of the U.S. Bankruptcy Code. The U.S. Bankruptcy Code also excepts from discharge educational benefit overpayments and loans “made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution,” subject to the same undue hardship exclusion.

(A Chapter 7 bankruptcy discharges most of a borrower’s debts, liquidating non-exempt assets to distribute to the borrower’s creditors. A Chapter 13 bankruptcy establishes a repayment plan to pay back all or part of a borrower’s debts over time, using the borrower’s income instead of the borrower’s non-exempt assets. Exempt assets include all or part of the borrower’s home equity, the cash value of life insurance policies, qualified retirement plans, some personal property, Social Security benefits and professional tools used in the borrower’s job.)

The term "qualified education loan" is defined in section 26 USC 221(d)(1) of the Internal Revenue Code of 1986 as including any debt incurred "solely to pay qualified higher education expenses" of the borrower, the borrower’s spouse or any dependent of the borrower at the time the debt was incurred. Qualified education loans include debt that was used to refinance qualified education loans. Qualified education loans include most federal and private student loans. Qualified education loans do not include retirement plan loans or any debt that is owed to a relative of the borrower. Qualified higher education expenses include the cost of attendance at a college or university that is eligible for Title IV federal student aid, minus scholarships, employer-paid tuition assistance and other education tax benefits. The regulations at 26 CFR 1.221-1 indicate that qualified education loans do not include mixed-use loans, such as credit card debt.

Undue hardship petitions must be brought in an adversarial proceeding, where the lender may challenge the bankruptcy discharge of the student loan debt. Many bankruptcy attorneys will not seek a bankruptcy discharge of student loans because it requires an adversarial proceeding.

Congress did not define the term “undue hardship” in the U.S. Bankruptcy Code. A common, but not necessarily universal, definition was introduced in a 1987 court case, Marie Brunner v. New York State Higher Education Services Corporation (Docket 87-5013, October 14, 1987, 831 F.2d 395). The Brunner case established a three-prong test for a borrower to demonstrate undue hardship:

  1. The debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans.
  2. 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.
  3. The debtor has made good faith efforts to repay the loans.

Similar tests include the Johnson Test (PHEAA v. Johnson, 5 Bankr. Ct. Dec. 532, Bankr. E.D.Pa. 1979) and the Totality of Circumstances Test (Andrews v. South Dakota Student Loan Assistance Corporation, 661 F.2d. 702, 8th Circuit, 1981).

The court provided some guidance concerning each of the three prongs of the Brunner test.

  • A minimal standard of living is often based on the poverty line, with an examination of the borrower's expenses to ensure that they are minimal and necessary.
  • Circumstances that demonstrate that the inability to repay the debt might include the borrower being disabled or elderly or a “total foreclosure of job prospects in her area of training,” according to the court. (Courts have also granted discharges when the borrower suffers from a severe chronic or terminal illness or the borrower is unable to work because of the need to care for a disabled dependent.)
  • The court also indicated that a good faith effort to repay the loans would include the use of deferments and other reasonable options for financial relief that are less drastic than bankruptcy discharge to repay the debt. The U.S. Department of Education often raises the availability of income-based repayment plans as an argument against the dischargeability of federal student loans.

Courts may sometimes grant a partial discharge of a borrower’s education loans if the borrower has the ability to repay some, but not all, of his or her education loans.

The undue hardship requirement, as interpreted by the courts, establishes a harsh standard for the discharge of student loan debt. In the words of one bankruptcy judge, it requires a “certainty of hopelessness, not simply a present inability to fulfill the financial commitment.” Only about 0.04% of federal education loan borrowers who filed for bankruptcy succeeded in obtaining a full or partial bankruptcy discharge in 2008, according to the Educational Credit Management Corporation, a federal education loan guarantee agency.

The most likely scenarios under which a borrower might be able to obtain a bankruptcy discharge of his or her student loans include:

  1. The student loan was borrowed to pay for college costs at a school that is not eligible for Title IV federal student aid. Such a loan is not considered a qualified education loan and, as such, is not excepted from discharge.
  2. The student loan program does not include a disability discharge provision but the borrower’s disability or medical condition affects the borrower’s ability to work or to repay the debt.
  3. Ongoing medical and disability-related expenses may make even the low federal student loan payments available under income-based repayment and pay-as-you-earn repayment unaffordable for a borrower with a serious disability or medical condition that falls short of the requirements for a total and permanent disability discharge, such as a borrower whose income exceeds the poverty line.
  4. Low-income federal Parent PLUS loan borrowers may be able to qualify for a bankruptcy discharge because they are ineligible for the income-based and pay-as-you-earn repayment plans.
  5. A borrower who is not disabled but who has a special needs child or disabled dependent with high medical and disability-related expenses will not qualify for a disability discharge, but nevertheless have an undue hardship because of the combination of these expenses and the student loan payments.
  6. The total amount of debt is so extreme that the borrower cannot repay the debt even with the alternate repayment plans and other forms of financial relief offered by the lender.
  7. The student loan program was designed to cover costs not included in the college’s cost of attendance. Most student loan promissory notes include a clause that requires the borrower to use the proceeds to cover qualified educational costs. If the loan promissory note lacks such a statement of educational purpose and the borrower can prove that the lender designed the loan program to cover non-qualified expenses, the loan might be eligible for bankruptcy discharge as a non-qualified education loan. However, a student loan does not become a non-qualified education loan merely because of a lack of school certification and loan limits or disbursements that exceed the cost of attendance in combination with other aid.
Could student loan refinancing save you money?
Learn More
Get this article in your inbox.
Email This Article

Related Content

  • Repayment Plans for Private Student Loans
  • Repayment Strategy After CARES Act Student Loan Forbearance
  • Repayment
  • Federal Student Loan Repayment Plans
  • How long is the repayment term for a private student refinance loan?
  • Repayment Plans for Private Student Loans
  • How to Pay Off Student Loans Fast
  • Student Loan APR: Calculating the Real Costs
Could You Be Saving More?
Subscribe to Edvisors' Student LIFE Newsletter to receive up-to-date financial aid information and advice, explore scholarship opportunities, loan repayment options, and learn expert strategies on how to plan and pay for college.
Newsletter Form
By clicking "Subscribe" I have read and agree to the Edvisors' Terms of Use and Privacy Policy. We strongly encourage you to read our Privacy Policy to understand how we use and share your information.
Thank you for subscribing to our newsletter.
We care about your privacy

This website uses cookies to offer you the most relevant marketing and targeted advertisements.  These cookies can collect information to personalize your experience and in some states are considered a sale of your personal information. You may exercise your right to opt out by clicking on deny cookies.  If you opt out, we or our partners will not be able to provide you with personalized ads and we will not provide your personal information to any third parties.   Please accept cookies for the optimal experience.  You can withdraw or modify your consent for non-essential cookies at any time by visiting Cookie Preference page.

Ask the Edvisor
Blog
Contact Us
Edvisors in the News
Link to Us
Newsletter
Partners
Press
Student Aid FAQ
Testimonials
Tools and Calculators
About Edvisors
Video Resources
Financial Terms Glossary
Accessibility Statement
Sitemap
Disclaimer
Notice of Collection
Interest-Based Ads
Cookie Settings
Privacy
Terms of Use
Your Opt-out Rights
Your Privacy Choices Privacy Options

Better Business Bureau logo

Edvisors provides expert advice on planning and paying for college. On Edvisors.com easily compare student loan lenders, learn how to apply for financial aid, and discover scholarships. Learn about federal and private student loans for students and parents, how and when to apply to college, and more!

Edvisors (“Edvisors Network, Inc.”) provides independent advertising-supported platforms for consumers to search compare and apply for private student loans. Loan offers from participating lenders that appear on our websites are not affiliated with any college and/or universities, and there are no colleges and/or universities which endorse Edvisors’ products or services. Lender search results do not constitute an official college preferred lender list. Edvisors receives compensation from lenders that appear on this site. This compensation may impact the placement of where lenders appear on this site, for example, the order in which the lenders appear when included in a list. Not all lenders participate in our sites and lenders that do participate may not offer loans to every school.

Edvisors is not a lender and makes no representations or warranties about your eligibility for a particular loan or financial aid. Lenders are solely responsible for any and all credit decisions, loan approval and rates, terms and other costs of the loan offered and may vary based upon the lender you select. Please check with your school or lender directly for information related to your personal eligibility.

Edvisors has endeavored to provide accurate information. However, the results provided by lenders are for illustrative purposes only and accuracy is not guaranteed, as such, Edvisors assumes no responsibility for errors or omission in the information provided.

Copyright © 1998-2023 by Edvisors Network, Inc. All rights reserved.

All other trademarks and service marks displayed on Edvisors Network, Inc. websites are the property of their respective owners.

Edvisors Network, Inc. 350 S. Rampart Blvd, Suite 200, Las Vegas, NV 89145

Copyright © 2023 by Edvisors.com. All rights reserved.