Key Takeaways
- Student loans can be discharged in bankruptcy, but you must prove that repaying them would cause “undue hardship.”
- Since November 2022, new Department of Justice and Department of Education guidance has made discharge of federal student loans fairer and more accessible.
- Most courts decide undue hardship with the three-part Brunner test; a minority use a totality-of-the-circumstances test.
- Discharging student loans requires a separate lawsuit, called an adversary proceeding, filed inside your bankruptcy case.
For years, the advice was blunt: you cannot erase student loans in bankruptcy, so do not bother trying. That is no longer true. Since November 2022, a new federal process has given struggling borrowers a real path to discharge federal student loan debt that once seemed permanent.[1]
Student Loans and Bankruptcy
That shift came from new federal guidance. In November 2022, the U.S. Department of Justice and the U.S. Department of Education changed how they handle these cases, directing government lawyers to support discharge for borrowers who genuinely cannot repay.[1]
The aim was a fairer, more consistent process, one that no longer forces every honest borrower to fight the government in court.
In the past, it was very hard, almost impossible, for people to erase their education debt in a regular bankruptcy case.
As of 2026, student debt in the U.S. has climbed to about $1.86 trillion, spread across roughly 43 million borrowers. Around 8% of them owe more than $100,000 each, and that small group carries close to 40% of all the debt.[2]
The strain is showing. As of early 2026, more than 17% of borrowers have gone at least 90 days past due at least once since federal payments resumed, and about 3.6 million fell into default across the last two reported quarters.[3]
What Happens to Student Loans in Bankruptcy?
Under section 523(a)(8) of the Bankruptcy Code, student loans can be discharged if the debtor shows undue hardship. The term “undue hardship” isn’t defined in the Code, but most courts follow the Brunner test.
This test requires proving three things: (i) the debtor can’t maintain a minimal living standard if forced to repay the loans, (ii) this situation is likely to continue for a large part of the repayment period, and (iii) the debtor has made good faith efforts to repay the loans.
A few courts use the “totality-of-the-circumstances” test, which looks at the debtor’s past, present, and future finances, necessary living expenses, and other factors.[4][5]
Why Do Critics Say the Brunner Test Is Too Strict?
Critics note that when the Brunner test was created in 1987, student loans were only non-dischargeable for the first five years after they were due. This meant undue hardship had to be shown only if the debtor sought discharge within that period.
Congress then narrowed that window further. The five-year rule became seven years in 1990, then vanished entirely in 1998. Since then, student loans stay non-dischargeable no matter how old the debt is, unless the borrower proves undue hardship.[4]
The Brunner test was meant to prevent recent graduates with low incomes from abusing the system. Now, this test seems too strict for those still repaying loans years or decades later.
The good faith requirement, which often means consistent payments over time, can be hard to meet if the first two prongs of the test are met.[4][6]
Circumstances of the Student
Critiques are also made against the totality-of-the-circumstances test. Some say that a borrower’s past finances shouldn’t matter; only their current and future ability to pay should.
Regardless of the test used, proving undue hardship is tough. Many courts require near hopelessness for repayment, and cases that succeed often involve severe disabilities.[4]
Which Student Loans Can Be Discharged in Bankruptcy?
Section 221(d)(1) of the tax code says that dischargeable loans can only include the cost of going to school, such as tuition, at an approved school (which can be an unaccredited school or a trade program). Private loans for extra things, like living expenses, can be canceled as well if someone files for bankruptcy.[4][7]
How Are Private and Federal Student Loans Treated Differently?
There are other limits to what is considered a “qualified education loan” that can help borrowers. These limits also shift the burden onto private lenders to prove their loans fall under section 523(a)(8).
While a borrower must prove undue hardship to discharge a government loan, a private lender must take legal action to get the benefits of section 523(a)(8).[4][8]
Steps to File for Student Loan Bankruptcy
Filing for bankruptcy to get rid of student loans is tough and affects more than just your college debt. Here is what you need to do:
- Find a Lawyer: The first thing you need to do is find a lawyer who knows how to handle student loan bankruptcies. Not every lawyer does this, so you have to look for someone experienced.
- Seek a Consultation: Consult a lawyer. During this meeting, the lawyer can explain your options and tell you if bankruptcy is a good idea for you.
- Choose Chapter 7 or Chapter 13: You need to decide between Chapter 7 or Chapter 13 bankruptcy. These types have different rules about what you can keep and what you have to pay. Your lawyer will help you figure out which one fits your situation best.
- File an Adversary Proceeding: To discharge your student loans, you have to file something called an adversary proceeding. This is like a lawsuit but happens in bankruptcy court. You will need to prove that repaying your loans would cause you undue hardship, meaning that paying them back would make it really hard for you and your dependents to live. Your creditors might also come to the proceeding to argue against you.
- Wait for a Decision: There are a few possible outcomes. The court might agree to get rid of all your student loans, some of them, or none at all.
Few student loans are discharged in bankruptcy, partly because many borrowers don’t try.[4]
Free Consultation
Frego & Associates has decades of experience helping Michigan borrowers file for bankruptcy and pursue student loan discharge. If your loans have become impossible to repay, the first conversation costs nothing and will tell you honestly whether this path fits your situation.
Frequently Asked Questions
Can Private Student Loans Be Discharged in Bankruptcy?
Yes, private student loans can be discharged in bankruptcy, but it is hard. You have to show “undue hardship” to have them discharged.
What Is the “Undue Hardship” Standard for Discharging Student Loans?
The “undue hardship” standard means you must prove that you cannot keep up a basic living standard if you repay the loans, that this situation will last for a big part of the repayment period, and that you have tried hard to repay the loans.
What Tests Do Courts Use to Determine Undue Hardship?
Most courts apply the Brunner test, which weighs your current standard of living, whether the hardship is likely to persist, and your track record of trying to repay. A minority of courts instead use the totality-of-the-circumstances test, looking at your broader financial picture rather than a fixed set of prongs.
How Does Filing an Adversary Proceeding Help?
An adversary proceeding is a lawsuit within the bankruptcy case where you must prove that repaying your student loans would cause undue hardship. You need to present evidence and maybe face arguments from creditors.
What Are the Possible Outcomes of a Student Loan Bankruptcy Case?
The court may discharge all, some, or none of your student loans. The decision depends on whether you can show undue hardship and the specific details of your case.
Sources
- Justice Department and Department of Education Announce a Fairer and More Accessible Bankruptcy Discharge Process for Student Loan Borrowers (Nov. 17, 2022). U.S. Department of Justice. justice.gov
- Student Loan Debt Statistics (2026). Education Data Initiative. Retrieved Aug. 18, 2026, from educationdata.org
- Federal Student Loan Defaults Return After Pandemic Pause (May 2026). Liberty Street Economics, Federal Reserve Bank of New York. libertystreeteconomics.newyorkfed.org
- Bankruptcy and Student Loans (2019). CRS Reports. everycrsreport.com
- Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). Justia Law. law.justia.com
- Alfano, S. (2020). The High Burden of a “Minimal Standard of Living” under the First Prong of the Brunner Test. American Bankruptcy Institute Law Review, St. John’s School of Law (Vol. 12, Issue 2). stjohns.edu
- Limitations on Exception to Discharge of Private Student Loans. Student Aid Policy Analysis. studentaidpolicy.com
- Homaidan v. Sallie Mae, Inc., 3 F.4th 595 (2d Cir. 2021). Justia Law. law.justia.com
