Can You Discharge Student Loans in Bankruptcy
Student loans can be discharged in bankruptcy, but the process requires proving undue hardship through a separate adversary proceeding. New Department of Justice guidelines issued in November 2022 made discharge easier for federal loan borrowers meeting specific criteria. Success rates have improved significantly since these policy changes.
| Student Loan Type | Discharge Difficulty | Recent Changes |
|---|---|---|
| Federal Direct Loans | Moderate with new guidelines | DOJ consent policy 2022 |
| Federal FFEL Loans | Moderate with new guidelines | DOJ consent policy 2022 |
| Private Student Loans | Difficult | No policy changes |
| Parent PLUS Loans | Moderate with new guidelines | DOJ consent policy 2022 |
The Undue Hardship Standard
Section 523(a)(8) of the Bankruptcy Code excepts student loans from discharge unless paying them would impose undue hardship on the debtor and dependents. Congress never defined undue hardship, leaving courts to develop tests through case law.
Most courts apply either the Brunner test or the totality of circumstances test. The Brunner test dominates in most federal circuits. Understanding which test applies in your jurisdiction matters enormously for case strategy.
The Brunner Test Explained
The Brunner test requires proving three elements. First, you cannot maintain a minimal standard of living for yourself and dependents if forced to repay the loans. Second, additional circumstances exist indicating this situation will persist for a significant portion of the repayment period. Third, you made good faith efforts to repay the loans.
The second prong historically created the highest barrier. Courts demanded proof of permanent disability, chronic illness, or other circumstances showing no possibility of improvement. Age, education level, and job market conditions factor into this analysis.
Good faith requires more than just making minimum payments. Courts look at whether you maximized income, minimized expenses, and explored income-driven repayment options before seeking discharge.
New DOJ Guidelines for Federal Loans
The Department of Justice and Department of Education issued joint guidance in November 2022 fundamentally changing how the government handles student loan adversary proceedings. Government attorneys now complete an attestation form analyzing hardship factors.
When borrowers meet the criteria on the attestation form, DOJ attorneys recommend that the government consent to discharge rather than litigate. This policy shift dramatically increased discharge success rates for federal loan borrowers.
The new guidelines consider factors including income below 225% of the federal poverty level, age over 65, disability, prolonged repayment history, and failure to obtain a degree from the program funded by the loans.
Filing an Adversary Proceeding
Student loan discharge requires filing a separate lawsuit called an adversary proceeding within your bankruptcy case. The proceeding has its own docket number, discovery process, and potentially trial. This is not automatic and must be specifically requested.
Attorney fees for adversary proceedings range from $2,000 to $10,000 depending on case complexity and whether settlement occurs or trial becomes necessary. Some attorneys offer contingency arrangements where they collect fees only if discharge succeeds.
Private vs Federal Student Loans
Private student loans face the same undue hardship standard as federal loans but the analysis differs in practice. Private lenders cannot offer income-driven repayment plans, which affects the good faith analysis. They also cannot access the DOJ consent policy.
Private lenders may be more willing to settle adversary proceedings rather than litigate. Settlement might involve partial discharge, reduced principal, or modified terms. The cost-benefit analysis for private lenders sometimes favors settlement over extended litigation.
"The landscape for student loan discharge has changed dramatically since 2022. Cases that would have failed five years ago now succeed regularly under the new DOJ guidelines." — Jeffy Goetz, Bankruptcy Attorney
FAQ
Are student loans automatically discharged in bankruptcy?
No, student loans require a separate adversary proceeding to discharge. You must prove undue hardship through litigation. The loans survive unless you specifically pursue and win the adversary case.
What is the Brunner test for student loans?
The Brunner test requires proving three elements: you cannot maintain minimal living standard while repaying, circumstances will persist for significant repayment period, and you made good faith efforts to repay.
Can private student loans be discharged in bankruptcy?
Private student loans face the same undue hardship standard as federal loans. However, private lenders may be more willing to settle rather than litigate adversary proceedings.
How much does it cost to file adversary proceeding for student loans?
Adversary proceeding attorney fees range from $2,000 to $10,000 depending on complexity and whether the case goes to trial. Some attorneys offer contingency arrangements.
What are the new Biden administration student loan guidelines?
November 2022 DOJ guidelines direct government attorneys to consent to discharge when borrowers meet certain hardship criteria on an attestation form.
Can I discharge student loans if I am disabled?
Disability significantly strengthens undue hardship claims. Total and permanent disability may qualify for administrative discharge outside bankruptcy through the TPD program.
Updated 2026-01-28