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Can student loans be discharged in bankruptcy?

On Behalf of | Aug 1, 2023 | Bankruptcy, Blog

As of last year, 43.5 million Americans had at least some student loan debt, with an average of $37,787. Many need help to make payments and avoid falling behind.

Many others have chosen to ignore making payments altogether because they do not make enough money to pay for their student loans while maintaining a reasonable standard of living.

Discharge through bankruptcy

Unfortunately, it is difficult to discharge student loans through bankruptcy.

U.S. law considers student loans non-dischargeable, like taxes and child support, and they cannot be easily eliminated through bankruptcy proceedings.

However, it is not impossible to discharge student loan debt through bankruptcy. To have student loans discharged, the borrower must prove they would suffer “undue hardship” if they paid back their loans.

While the criteria for establishing undue hardship vary among jurisdictions, the standard is notoriously difficult to meet.

Brunner test

When evaluating whether an individual meets the standard of undue hardship, courts often use the Brunner test, which considers three factors:

  • The borrower’s current financial situation
  • The borrower’s good faith efforts to repay their loans
  • Whether repaying their loans would result in a minimal standard of living

While the undue hardship exception is difficult to prove, there have been cases where courts have allowed debtors to successfully discharge their student loan debt through bankruptcy. 

Successful cases usually involve severe hardships, such as borrowers with permanent disabilities or a lack of future earning potential. These rare instances make it difficult for other borrowers to convince courts that they meet the undue hardship standard.

Student loans allow millions of Americans to acquire an education and serve an essential purpose in our country’s educational system and economy.

However, student loans continue to be a problem for many Americans who need help making their monthly payments while maintaining a reasonable standard of living.