Student Loans and Bankruptcy

A comprehensive guide to discharging student loan debt under 11 U.S.C. Section 523(a)(8) -- the undue hardship standard, court tests, recent DOJ changes, and alternatives to discharge.

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In This Guide

  1. Can Student Loans Be Discharged in Bankruptcy?
  2. The Undue Hardship Standard
  3. The Brunner Test
  4. The Totality of Circumstances Test
  5. How to File an Adversary Proceeding
  6. Recent Changes: DOJ Guidance (2022)
  7. Private vs. Federal Student Loans
  8. Income-Driven Repayment as an Alternative
  9. Public Service Loan Forgiveness (PSLF)
  10. When Bankruptcy Makes Sense for Student Loans
  11. Frequently Asked Questions

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1. Can Student Loans Be Discharged in Bankruptcy?

The short answer is yes -- but it is harder than discharging most other types of debt.

Unlike credit card balances, medical bills, or personal loans, student loans are not automatically discharged when you receive your bankruptcy discharge. Under 11 U.S.C. Section 523(a)(8), student loans are presumed nondischargeable unless you can prove that repaying them would impose an "undue hardship" on you and your dependents.

This does not mean discharge is impossible. Thousands of borrowers have successfully discharged student loans in bankruptcy. But it requires an extra step -- filing a separate adversary proceeding (essentially a lawsuit within your bankruptcy case) -- and meeting one of the legal tests that courts use to evaluate undue hardship.

The Statute -- 11 U.S.C. Section 523(a)(8):

"A discharge under [the Bankruptcy Code] does not discharge an individual debtor from any debt ... unless excepting such debt from discharge ... would impose an undue hardship on the debtor and the debtor's dependents, for an educational benefit overpayment or loan 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; or an obligation to repay funds received as an educational benefit, scholarship, or stipend."

The critical phrase is "undue hardship." Congress did not define what that means in the statute, so courts have developed their own tests over several decades. The two main tests -- the Brunner test and the totality of circumstances test -- are covered in the sections below.

For years, a widespread myth held that student loans could "never" be discharged in bankruptcy. This myth discouraged countless borrowers from even trying. In reality, studies have shown that borrowers who actually file adversary proceedings succeed at surprisingly high rates -- the problem is that very few borrowers attempt it in the first place. A widely cited 2012 study by Jason Iuliano found that only about 0.1% of bankruptcy filers with student loan debt filed adversary proceedings, but among those who did, roughly 40% received a full or partial discharge.

2. The Undue Hardship Standard (Section 523(a)(8))

The undue hardship standard is the legal threshold you must meet to discharge student loans in bankruptcy. It applies to both federal and private student loans, and it applies in both Chapter 7 and Chapter 13 cases.

"Undue hardship" is not defined in the Bankruptcy Code. Over the past four decades, federal courts have developed two primary frameworks for evaluating it:

The standard is intentionally high. The word "undue" means more than ordinary hardship -- it implies a level of difficulty that goes beyond what a typical debtor experiences. Having large loan balances alone is not enough. Having a low income alone is not enough. Courts look at the full picture of your financial situation, your future earning potential, and whether you have made genuine efforts to repay.

Important: The undue hardship determination is highly fact-specific. Two borrowers with identical loan balances and incomes can get different results depending on their age, health, employment history, family circumstances, and the jurisdiction where they file. What a court in New York considers undue hardship may differ from what a court in Missouri or California requires.

You bear the burden of proof. The debtor must demonstrate undue hardship by a preponderance of the evidence -- meaning it is more likely than not that repayment would cause undue hardship. The lender or loan servicer will typically oppose the request, though the 2022 DOJ guidance has changed the government's approach to federal loans (more on that below).

Courts can also grant partial discharge -- reducing the loan balance rather than eliminating it entirely. This is an important option that many borrowers overlook. If a court determines that you can repay some but not all of your student loan debt without undue hardship, it may discharge the interest while preserving the principal, or discharge a percentage of the total balance.

3. The Brunner Test

The Brunner test comes from Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). It is the most widely used test for student loan discharge and requires the debtor to satisfy all three prongs:

Prong 1: Poverty -- Minimal Standard of Living

You must show that, based on your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if forced to repay the student loans.

Courts often compare your income to the federal poverty guidelines or the IRS Collection Financial Standards (the same standards used in the Chapter 7 means test). If your income is at or below 150% of the poverty line, this prong is typically easier to satisfy. But courts also examine your expenses -- if you are spending on luxuries or non-essentials while claiming poverty, the court will notice.

"Minimal standard of living" does not mean destitution. It means basic necessities: housing, food, utilities, transportation, medical care, and modest clothing. You do not have to be living on the street to satisfy this prong, but you do need to show that your budget is genuinely tight and that student loan payments would push you below a reasonable floor.

Prong 2: Persistence -- Additional Circumstances

This is often the hardest prong to satisfy. You must show that "additional circumstances" exist indicating that your financial situation is likely to persist for a significant portion of the repayment period.

Courts are looking for evidence that your current financial difficulties are not temporary. Factors that support this prong include:

This prong is where many debtors fail. A young, healthy borrower with a degree and no dependents will have a hard time convincing a court that their financial difficulties will persist. Courts often reason that such borrowers have decades of earning potential ahead of them and that current hardship may be temporary.

Prong 3: Good Faith -- Efforts to Repay

You must show that you have made good faith efforts to repay the loans. This does not necessarily mean you have made consistent payments -- it means you have not ignored the loans entirely.

Evidence of good faith includes:

Courts look unfavorably on borrowers who never made a single payment, never contacted their servicer, and made no attempt to explore repayment options before seeking discharge. Even if you ultimately could not afford to pay, the court wants to see that you tried.

Criticism of the Brunner Test: Many bankruptcy judges, scholars, and practitioners have criticized the Brunner test as too rigid. The "persistence" prong, in particular, creates a catch-22: you must prove that your hardship will last essentially forever, which is nearly impossible to demonstrate with certainty. The First Circuit has explicitly declined to adopt Brunner, and the Eighth Circuit uses the more flexible totality of circumstances test. In 2023, the Second Circuit -- the circuit that created the Brunner test -- signaled openness to revisiting how strictly the test should be applied.

4. The Totality of Circumstances Test

The totality of circumstances test, primarily used in the Eighth Circuit (covering Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota), takes a more holistic approach to evaluating undue hardship. Rather than requiring the debtor to satisfy three rigid prongs, the court considers the full picture of the debtor's financial situation.

The test originates from Long v. Educational Credit Management Corp., 322 F.3d 549 (8th Cir. 2003), which rejected the Brunner test as too restrictive and adopted a broader standard.

Factors Courts Consider

Under the totality of circumstances test, courts typically examine:

Why It Matters

The totality of circumstances test is generally considered more favorable to debtors because it allows courts to weigh all relevant factors without the rigid three-prong structure of Brunner. A debtor who might fail one prong of Brunner but whose overall situation clearly demonstrates hardship has a better chance under this approach.

For example, a debtor who is 55 years old, has a modest income, has been making payments for 15 years but still owes more than the original balance due to interest capitalization, and has limited retirement savings might not clearly satisfy Brunner's "persistence" prong but could persuade a court under the totality test that repayment constitutes an undue hardship.

Growing Adoption: Several bankruptcy courts outside the Eighth Circuit have adopted or expressed support for the totality of circumstances test, recognizing that the Brunner test's rigidity can produce unjust results. The trend is moving -- slowly -- toward more holistic evaluation of student loan hardship claims. The First Circuit has never adopted Brunner and uses its own flexible standard. Some bankruptcy judges within Brunner circuits have applied the test more leniently, effectively creating a middle ground.

If you live in a state within the Eighth Circuit -- or if your circuit has not firmly committed to Brunner -- the totality of circumstances approach may give you a stronger path to discharge. Check your circuit's current standard before filing, as the law continues to evolve.

5. How to File an Adversary Proceeding

Student loans are not discharged automatically in bankruptcy. Even if you clearly qualify for discharge, nothing happens unless you affirmatively file an adversary proceeding -- a separate lawsuit filed within your bankruptcy case specifically asking the court to discharge your student loan debt.

Step-by-Step Process

  1. File your bankruptcy case first. The adversary proceeding is filed within an existing Chapter 7 or Chapter 13 case. You must have an active bankruptcy case before you can initiate the adversary proceeding.
  2. Prepare the complaint. Draft a complaint that names each student loan creditor (lender or servicer) as a defendant. The complaint must allege that repaying the student loans would cause undue hardship under Section 523(a)(8) and lay out the facts supporting your claim.
  3. File and pay the fee. File the complaint with the bankruptcy court clerk's office. The filing fee is $350 (as of 2024). If you cannot afford the fee, you may apply to have it waived using an in forma pauperis application, though courts vary in whether they grant fee waivers for adversary proceedings.
  4. Serve the defendants. You must formally serve the complaint on each defendant (lender/servicer) according to the Federal Rules of Bankruptcy Procedure, typically by certified mail or through a process server. The Department of Education and its servicers have specific service addresses.
  5. Defendants respond. Each defendant has 30 days to file an answer to the complaint. Under the 2022 DOJ guidance, the government may agree to discharge rather than contest it -- but this is not guaranteed.
  6. Discovery and litigation. If the case is contested, it proceeds like any other lawsuit: document requests, depositions, and potentially a trial. Many cases settle before trial, especially after the 2022 DOJ guidance.
  7. Trial or settlement. The bankruptcy judge holds a trial (typically a bench trial, not a jury trial) or the parties reach a settlement. The court can grant full discharge, partial discharge, or deny the request entirely.

Timing matters: You can file the adversary proceeding at any point during your bankruptcy case. In Chapter 7, most debtors file shortly after the case opens. In Chapter 13, you can file at the beginning, during the plan, or even near the end of the plan period. Some attorneys recommend waiting until near the end of a Chapter 13 plan because the years of plan payments demonstrate good faith effort to repay.

Filing Pro Se (Without an Attorney)

You can file an adversary proceeding without an attorney. Many bankruptcy courts provide form complaints or templates for pro se student loan discharge cases. Resources to help you find these forms include:

Pro se adversary proceedings are more common than you might expect. The process is simpler than a typical federal lawsuit because it takes place in bankruptcy court, which is generally more informal and accustomed to pro se litigants. That said, having legal representation improves your odds, particularly if the lender aggressively opposes discharge.

6. Recent Changes: DOJ Guidance (2022)

In November 2022, the U.S. Department of Justice and the Department of Education issued joint guidance that fundamentally changed how the federal government handles student loan discharge requests in bankruptcy. This was the single most significant development in student loan bankruptcy law in decades.

What Changed

Before the 2022 guidance, the DOJ's default position was to oppose virtually every student loan discharge request, regardless of the borrower's circumstances. Government attorneys would routinely fight discharge even in cases involving elderly, disabled, or impoverished borrowers with no realistic prospect of repayment. This "oppose everything" approach was widely criticized by bankruptcy judges, legal scholars, and consumer advocates.

The 2022 guidance directs DOJ attorneys to use a new process:

Early Results: In the first year after the guidance took effect, the DOJ agreed to discharge or partial discharge in hundreds of cases that previously would have been contested. The guidance has been particularly impactful for borrowers with disabilities, older borrowers, and those who have been in repayment (or default) for many years with no realistic prospect of paying off their loans.

Limitations

The 2022 guidance is not a statute or regulation -- it is an internal policy directive. This means:

Political Risk: Because the 2022 guidance is a policy directive rather than legislation, it could be reversed by a future administration. Borrowers considering an adversary proceeding for federal student loans should be aware that the current favorable posture may not be permanent. If you are considering filing, the current environment may represent a window of opportunity.

7. Private vs. Federal Student Loans

Not all student loans are created equal, and the distinction between federal and private loans matters significantly in bankruptcy.

Federal Student Loans

Federal student loans -- including Direct Loans, Stafford Loans, Perkins Loans, PLUS Loans, and Federal Consolidation Loans -- are issued or guaranteed by the federal government. Key characteristics in bankruptcy:

Private Student Loans

Private student loans are issued by banks, credit unions, and online lenders (such as Sallie Mae, Discover, SoFi, Earnest, and others). Their treatment in bankruptcy is more nuanced:

The "Qualified Education Loan" Question

Section 523(a)(8) applies to loans "made, insured, or guaranteed by a governmental unit" and to "obligations to repay funds received as an educational benefit." Some courts have questioned whether certain private student loans -- particularly those used for non-accredited programs, vocational training that did not qualify for federal aid, or expenses beyond the cost of attendance -- actually fall within the statute's scope.

If a private loan does not qualify as a protected "educational benefit" under Section 523(a)(8), it would be treated like any other unsecured debt -- and would be discharged automatically without any need to prove undue hardship. This argument has succeeded in some courts, particularly for loans from institutions that were not Title IV eligible or for loans used for expenses that did not qualify as legitimate educational costs.

Practical Tip: If you have private student loans, examine the loan documents carefully. Look at what school the loan was for, whether the school was accredited, what expenses the loan covered, and how the lender characterized the loan. If the loan does not fit neatly into Section 523(a)(8)'s categories, you may have an argument that it should be treated as ordinary dischargeable debt. Consult with a bankruptcy attorney who has experience with student loan adversary proceedings.

The Navient Settlement

In 2022, Navient (formerly Sallie Mae) agreed to a $1.85 billion settlement with 39 state attorneys general over allegations that it engaged in predatory lending practices, steered borrowers into costly forbearances instead of income-driven repayment plans, and made subprime private loans to students at schools with high default rates. The settlement included $1.7 billion in private student loan cancellation for approximately 66,000 borrowers.

While the Navient settlement is separate from bankruptcy, it illustrates an important point: private student lenders are not immune from legal challenge. Borrowers with private loans should investigate whether their lender has been subject to state or federal enforcement actions, as these may strengthen arguments in bankruptcy proceedings.

8. Income-Driven Repayment as an Alternative

Before pursuing student loan discharge through bankruptcy, it is worth understanding the income-driven repayment (IDR) plans available for federal student loans. For some borrowers, these plans provide adequate relief without the cost and uncertainty of an adversary proceeding.

Available Plans

As of 2024, the main income-driven repayment plans for federal student loans include:

SAVE Plan Legal Challenges: The SAVE plan has faced ongoing legal challenges. Courts have issued injunctions affecting enrollment in some periods. Check the Department of Education's website (studentaid.gov) for the current status before applying. If the SAVE plan is unavailable, other IDR plans remain accessible.

How IDR Interacts with Bankruptcy

Income-driven repayment and bankruptcy are not mutually exclusive strategies. In fact, enrollment in IDR can help your bankruptcy case in several ways:

However, IDR has significant drawbacks. The forgiveness timeline is 20-25 years -- meaning you carry the debt for decades. Under current law, forgiven balances may be treated as taxable income (though a temporary provision exempts forgiveness from taxes through 2025). And IDR does not help with private student loans at all.

For borrowers with very large loan balances, low income, and limited prospects for income growth, bankruptcy discharge may provide faster and more complete relief than waiting 20-25 years for IDR forgiveness.

9. Public Service Loan Forgiveness (PSLF)

Public Service Loan Forgiveness under 20 U.S.C. Section 1087e(m) offers complete loan forgiveness after 120 qualifying monthly payments (10 years) while working full-time for a qualifying employer. If you work in public service, this may be a better path than bankruptcy for your federal student loans.

Qualifying Employers

For-profit employers do not qualify, regardless of the nature of the work.

Requirements

PSLF vs. Bankruptcy Discharge

If you are already several years into public service employment and have been making qualifying payments, PSLF may be the better path -- 10 years is shorter than the 20-25 year IDR forgiveness timeline, and the forgiveness is tax-free. However, if you are not in public service, have just started, or have private loans that PSLF does not cover, bankruptcy discharge may be more appropriate.

Temporary Expanded PSLF (TEPSLF): The Department of Education has periodically offered temporary waivers that counted previously ineligible payments toward PSLF. The most significant was the Limited PSLF Waiver that ran from October 2021 through October 2022. While that specific waiver has expired, it resulted in loan forgiveness for hundreds of thousands of borrowers. Check studentaid.gov for any current waiver programs.

10. When Bankruptcy Makes Sense for Student Loans

Bankruptcy is not the right tool for every borrower with student loan debt. But for some, it is the best -- or only -- realistic path to relief. Here are the scenarios where pursuing discharge through an adversary proceeding is most likely to succeed and provide meaningful benefit.

Strong Candidates for Discharge

Weaker Candidates

Timing Considerations

There is no waiting period for filing a student loan adversary proceeding. You can file it immediately upon opening your bankruptcy case. However, strategic timing matters:

Cost-Benefit Analysis: The adversary proceeding filing fee is $350. If you handle it pro se, your out-of-pocket cost is minimal. Even with an attorney, fees of $2,000-$5,000 are modest compared to the potential discharge of tens or hundreds of thousands of dollars in student loan debt. For many borrowers, the expected value of filing -- even accounting for the possibility of losing -- is strongly positive.

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11. Frequently Asked Questions

Can student loans be discharged in bankruptcy?

Yes, but it requires proving "undue hardship" under 11 U.S.C. Section 523(a)(8). You must file a separate adversary proceeding -- a lawsuit within your bankruptcy case -- specifically requesting that the court discharge your student loan debt. Most courts apply either the Brunner test (three prongs: poverty, persistence, good faith) or the totality of circumstances test (a holistic evaluation of your financial situation). The 2022 DOJ guidance has made discharge of federal student loans significantly more accessible by changing the government's litigation posture from automatic opposition to case-by-case evaluation.

What is the Brunner test for student loan discharge?

The Brunner test, from Brunner v. New York State Higher Education Services Corp. (2d Cir. 1987), requires you to prove three things: (1) you cannot maintain a minimal standard of living if forced to repay the loans; (2) additional circumstances exist showing your situation is likely to persist for a significant portion of the repayment period; and (3) you have made good faith efforts to repay. All three prongs must be satisfied. The test is used by the majority of federal circuits but has been widely criticized as too rigid.

What is the difference between federal and private student loans in bankruptcy?

Both types are subject to the undue hardship standard under Section 523(a)(8). The key differences are practical: the 2022 DOJ guidance only applies to federal loans, meaning the government may agree to discharge rather than fight it. Private lenders have no such policy and typically oppose discharge aggressively. However, some courts have questioned whether certain private loans qualify as "educational benefits" under the statute -- if they do not, they may be dischargeable like ordinary unsecured debt without proving undue hardship. Federal loans also have alternatives like income-driven repayment and PSLF that private loans lack.

How much does it cost to file an adversary proceeding for student loans?

The court filing fee for an adversary proceeding is $350. If you file pro se (without an attorney), that is your only hard cost. Attorney fees typically range from $2,000 to $5,000 for a straightforward case, though complex cases involving trial can cost more. Some legal aid organizations and law school bankruptcy clinics handle student loan adversary proceedings at no cost. Given that the potential discharge can be worth tens or hundreds of thousands of dollars, the cost-benefit calculation often favors filing.

Do I have to file Chapter 7 to discharge student loans?

No. You can pursue student loan discharge through an adversary proceeding in either Chapter 7 or Chapter 13 bankruptcy. Chapter 13 has some tactical advantages: the 3-to-5-year plan period allows you to demonstrate good faith repayment efforts, and if the court grants a partial discharge, the remaining balance can be structured into the plan. Some bankruptcy attorneys recommend filing the adversary proceeding toward the end of a Chapter 13 plan, after years of payments have been documented.

Has the 2022 DOJ guidance actually made it easier to discharge student loans?

Yes. The November 2022 joint guidance from the Department of Justice and Department of Education directed government attorneys to use a standardized attestation form to evaluate discharge requests rather than automatically opposing every case. In the first year, the DOJ agreed to discharge or partial discharge in hundreds of cases that previously would have been contested. The guidance is particularly favorable for borrowers with disabilities, older borrowers, long-term defaulters, and those with income-driven repayment payments of $0. However, the guidance is an internal policy -- not a law -- and could be reversed by a future administration.

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