Can Private Student Loans Be Discharged in Bankruptcy?
Updated: Sep 11
Many borrowers have heard the same statement:
“Student loans cannot be discharged in bankruptcy.”
That statement is not completely accurate.
Private student loans can sometimes be discharged in bankruptcy. The critical question is what type of education debt the borrower actually has.
Why the Type of Loan Matters
Bankruptcy Code § 523(a)(8) gives special protection to certain education-related debts.
If a particular debt falls within one of the protected categories, it generally will not be discharged automatically with ordinary unsecured debts.
A borrower seeking to discharge such a debt may need to establish that repayment would impose an “undue hardship.”
But there is another possibility that many borrowers never investigate:
The loan may not fall within § 523(a)(8) in the first place.
Not Every Education Loan Receives Special Protection
A private lender cannot make an ordinary consumer loan nondischargeable merely by calling it a “student loan.”
The debt must actually fit within one of the categories protected by Bankruptcy Code § 523(a)(8).
That means the analysis may require reviewing:
the original lender;
the promissory note;
the school attended;
the educational program;
the amount borrowed;
the school’s cost of attendance;
the borrower’s enrollment status; and
how the loan proceeds were structured.
Some Private Education Loans May Be Different
Depending on the circumstances, some private education loans may fall outside § 523(a)(8).
Examples can include certain loans involving:
borrowing above the school’s cost of attendance;
certain non-qualified schools or programs;
attendance below half-time;
some professional examination expenses; and
certain other educational expenses that do not satisfy the requirements for protected education debt.
The individual facts matter.
What If the Loan Is Covered by § 523(a)(8)?
That does not necessarily mean discharge is impossible.
A borrower may still seek a bankruptcy determination that repayment would impose an undue hardship.
That generally requires an adversary proceeding — a separate lawsuit filed within the bankruptcy case — to determine whether the debt can be discharged.
What If the Loan Is NOT Covered?
That can produce a very different result.
If the private education debt falls outside § 523(a)(8), the borrower may not have to establish undue hardship at all.
The debt may instead be subject to the ordinary bankruptcy discharge, like many other unsecured debts.
That is why some borrowers report that private student loans disappeared after Chapter 7 bankruptcy while other borrowers' loans survived.
The loans may not have been legally identical.
Already Filed Bankruptcy?
If you previously received a bankruptcy discharge and a private student-loan company is still attempting to collect, it may be worth determining whether the debt was actually excepted from discharge.
The lender's description of the debt as a “student loan” does not necessarily resolve that question.
The Bottom Line
Private student loans are not automatically nondischargeable.
The first question is:
Does this particular debt actually fall within Bankruptcy Code § 523(a)(8)?
Only after answering that question should the borrower determine whether an undue-hardship analysis is necessary.
For a broader overview of your options, see Private Student Loans: Your Legal Options When Payments Become a Problem.
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Need Help Reviewing a Private Student Loan?
Private student-loan bankruptcy issues can depend on the loan documents, school, program, amount borrowed, bankruptcy history, and individual financial circumstances.
This article provides general educational information and is not legal advice. Laws and individual circumstances vary. Reading this article does not create an attorney-client relationship.
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