Can You Discharge Student Loans in Bankruptcy?
If you have been told that student loans can never be discharged in bankruptcy, you were given bad information. Student loans can be discharged in bankruptcy. It is not easy, it is not automatic, and it requires extra steps that other debts do not — but it is possible, and since 2022 it has become significantly more accessible.
Here is what you actually need to know.
THE SHORT ANSWER
Yes. Both federal and private student loans can be discharged in bankruptcy under 11 U.S.C. § 523(a)(8). To do it, you must file a separate lawsuit inside your bankruptcy case called an adversary proceeding, and you must prove that repaying your loans would cause you “undue hardship.”
The process is not automatic. Filing bankruptcy alone does not discharge your student loans. You have to ask the court to discharge them, and you have to prove you qualify.
WHY PEOPLE THINK IT IS IMPOSSIBLE
For decades, the conventional wisdom was that discharging student loans in bankruptcy was virtually impossible. That reputation was earned — courts set an extremely high bar, and the vast majority of borrowers who tried, failed.
That started changing in November 2022, when the Department of Justice and the Department of Education issued joint guidance that fundamentally changed how the federal government evaluates student loan discharge cases. The DOJ instructed its attorneys to stop reflexively opposing every discharge request and instead evaluate each case on its actual merits. The new process was also designed to reduce the burden on borrowers — including those without attorneys — of pursuing these proceedings.
The results were significant. According to the DOJ’s own first-year report, 632 adversary proceedings were filed in the first ten months under the new process. In 99% of the cases where courts had entered orders or judgments, the government recommended — and the court agreed to — a full or partial discharge. (U.S. Department of Justice, Justice Department and Department of Education Announce Successful First Year of New Student-Loan Bankruptcy Discharge Process, November 2023.)
The myth that student loans are never dischargeable is outdated. The law has not changed. The way the government applies it has.
THE LEGAL STANDARD: UNDUE HARDSHIP
To discharge student loans in bankruptcy, you must prove that repaying them would cause you “undue hardship” under 11 U.S.C. § 523(a)(8). The Bankruptcy Code does not define undue hardship. Courts have developed their own tests to fill that gap.
Most federal courts apply the Brunner test, which originated in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). Under Brunner, you must prove three things:
— You cannot maintain a minimal standard of living for yourself and your dependents if forced to repay the loans, given your current income and expenses
— Your financial situation is likely to persist for a significant portion of the repayment period
— You have made good faith efforts to repay the loans
All three prongs must be satisfied. Failing any one of them means no discharge — unless the court applies a different standard.
A minority of circuits apply the totality of circumstances test instead, which considers the debtor’s past, present, and future financial resources along with all other relevant circumstances. This test is generally considered more flexible than Brunner because it does not require each prong to be satisfied independently.
WHAT THE 2022 DOJ GUIDANCE ACTUALLY CHANGED
The 2022 guidance did not change the law. It changed how the government litigates these cases.
Before 2022, DOJ attorneys routinely opposed discharge requests regardless of the borrower’s actual circumstances. That created a situation where even borrowers who clearly qualified had to fight the government in court to prove it — a process that was expensive, time-consuming, and frequently unsuccessful.
Under the new guidance, DOJ attorneys are directed to evaluate whether the borrower’s facts actually satisfy the Brunner test and, where they do, to stipulate to the facts and recommend discharge to the court rather than oppose it. (U.S. Department of Justice, Guidance for Department Attorneys Regarding Student Loan Bankruptcy Litigation, November 17, 2022.)
The guidance identifies specific circumstances that create a presumption that the borrower’s financial hardship will persist — a key factor under the second Brunner prong:
— The loan has been in repayment status for at least ten years
— The borrower is 65 or older
— The borrower has experienced unemployment for five of the last ten years
— The borrower has a permanent disability or chronic health condition affecting earning capacity
— The borrower’s income is below 225% of the federal poverty line
These are not automatic approvals. They are presumptions that shift the burden in the borrower’s favor. The government can still rebut them. And you still have to file the adversary proceeding and make your case — the court makes the final determination.
FEDERAL LOANS VS. PRIVATE LOANS
The 2022 DOJ guidance applies only to federal student loans held by the Department of Education, including Direct Loans and certain FFELP and Perkins loans held by the government. If you have federal Direct Loans, the guidance applies to your case.
Private student loans are a different matter. Private lenders are not bound by the DOJ guidance, and they can and do oppose discharge requests. That said, private loans are not automatically harder to discharge than federal loans — and in some cases they may be easier.
Some private loans may not qualify as “student loans” under § 523(a)(8) at all. The Second Circuit addressed this directly in Homaidan v. Sallie Mae, Inc., 3 F.4th 595 (2d Cir. 2021), holding that certain private loans — including loans that exceeded the cost of attendance — are not protected by § 523(a)(8) and can be discharged as ordinary unsecured debt in a standard Chapter 7 case, without proving undue hardship.
If your private loan was made to attend an unaccredited school, was not used for qualified educational expenses, or exceeded the cost of attendance, it may fall outside the statutory protection entirely. That analysis requires a careful review of your loan documents and how the funds were actually used.
CHAPTER 7 VS. CHAPTER 13
Not everyone qualifies to file bankruptcy — eligibility for Chapter 7 depends on passing the means test under 11 U.S.C. § 707(b), which limits access based on your income.
You can file an adversary proceeding to discharge student loans in either Chapter 7 or Chapter 13 bankruptcy.
In Chapter 7, if the adversary proceeding succeeds, the debt is discharged. The process is more direct, and for borrowers whose primary goal is eliminating student loan debt, Chapter 7 is typically the more efficient path — provided you qualify under the means test.
In Chapter 13, full discharge through an adversary proceeding is also available, but the more common approach is to use the repayment plan to manage or pause student loan payments while discharging other unsecured debt, and then pursue the student loan balance separately. Chapter 13 may also provide more flexibility if you have non-exempt assets you need to protect.
CAN YOU DO THIS WITHOUT AN ATTORNEY?
The 2022 DOJ guidance was explicitly designed in part to reduce the burden on borrowers pursuing these proceedings, including those without legal representation. The process was made more accessible for self-represented borrowers with straightforward cases involving federal loans.
That said, this is still federal court litigation. Adversary proceedings are governed by the Federal Rules of Bankruptcy Procedure and the local rules of each bankruptcy district. Procedural mistakes can be costly. If your case involves private loans, a lender likely to oppose the proceeding, or facts that do not clearly satisfy Brunner, the stakes of proceeding without counsel are higher.
Whether you are considering handling this yourself or working with a bankruptcy attorney, understanding how the process works is the necessary first step. The articles that follow in this series walk through each stage in detail.
THE BOTTOM LINE
Student loan discharge in bankruptcy is real, it is legally available, and the process became significantly more accessible after the November 2022 DOJ guidance. It is not automatic — you have to file an adversary proceeding, prove undue hardship under 11 U.S.C. § 523(a)(8), and satisfy the Brunner test or its equivalent in your circuit. But for borrowers who qualify, it is one of the most powerful forms of debt relief available under federal law.
The next question most people ask is whether they actually qualify. That starts with understanding the Brunner test and how courts apply it to real financial situations.
SOURCES
11 U.S.C. § 523(a)(8)
11 U.S.C. § 707(b)
Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987)
Homaidan v. Sallie Mae, Inc., 3 F.4th 595 (2d Cir. 2021)
U.S. Department of Justice, Guidance for Department Attorneys Regarding Student Loan Bankruptcy Litigation (November 17, 2022)
U.S. Department of Justice, Justice Department and Department of Education Announce Successful First Year of New Student-Loan Bankruptcy Discharge Process (November 2023)
Federal Rule of Bankruptcy Procedure 4007(b)