Discharge a Student Loan

Figure Dealing With Debt
  • Student loans are usually not discharged by a Chapter 7 or 13.
  • Student loans can be discharged under limited circumstances.
  • The "undue hardship" rule is in a state of change.

Learn When You Can Discharge a Student Loan In Bankruptcy

Due to bankruptcy reforms in 1998 and 2005, it is almost impossible for an average, non-disabled person to discharge federal or private student loans through bankruptcy. You may be able to get help with your payments through a bankruptcy filing, but there are better options for repaying your student loans.

The Student Loan Bankruptcy Exception

As with all rules there is one exception: you can discharge a student loan in bankruptcy due to undue hardship. Undue hardship is defined as the permanent physical inability to work. You must prove in bankruptcy court:

  • You are physically unable to work
  • You are likely to be unable to work for most of the loan term
  • You made a good-faith effort to repay the debt
  • Paying it would prevent you, your spouse, and your dependents from maintaining a "minimal" standard of living.

If you believe you qualify under these guidelines, see an experienced bankruptcy lawyer for help filing an adversary proceeding as part of your bankruptcy case. The undue hardship rules are in a state of change, so do not give up on bankruptcy if you have some type of hardship.

How Bankruptcy Can Help with Student Loans

Although your student loan can't be discharged in bankruptcy, a bankruptcy court may be able to ease an overwhelming debt burden. Some courts may discharge a portion of your student loans, but this is rare and varies by court.

Wise Advice The total outstanding balance of student loans was $1.03 trillion as of September 2013. The 90-day or more delinquency rate at that date was 12%. By comparison, the delinquency rate was 6% in 2003. (Source: Federal Reserve Bank of New York)

In most cases, the judge will incorporate your student loans into your debt repayment plan under Chapter 13 bankruptcy. Any balance remaining after the payment plan ends will still be due, but your other debts should be paid off by then.

What to Do if You Are Heading Toward Bankruptcy

If your total debts have reached an unsustainable level and you feel you must file for bankruptcy, don't simply stop paying your student loans. Not only are student loans not dischargeable in bankruptcy, but also the federal government has the right to assess stiff penalties, seize tax refunds and other government assistance money, and garnish your wages.

Lenders want to help you avoid default. Contact them for help applying for a deferral, forbearance, or extended repayment plan before the situation gets worse than it already is.

Solutions for Student Loans You Do Not Owe

If a lender is demanding payment for a student loan you don't think you owe, it's best to resolve the situation before you wind up in bankruptcy court.

Wise Advice In 2012, the average debt load for college graduates was $29,400 per student. About 7 out of 10 seniors carry student loan debt. (Source: College Access & Success Project on Student Debt)

The most typical situation is a miscalculation of the actual loan balance, especially if the loan has changed lenders multiple times. If you think the lender is requesting more than you owe or hasn’t properly credited payments, write to them with your evidence. If the issue is not resolved, then a court can intervene to determine the amount you actually owe. A bankruptcy judge may also do this as part of a bankruptcy proceeding.

Your debt may be canceled if one of three situations apply:

  • Situation 1: Your school closed before you completed your education and you couldn't complete it elsewhere. You don't qualify if you voluntarily withdrew before the school closed. You may be entitled to a loan reduction if you voluntarily withdrew and the school improperly withheld any remaining student loan funds.
  • Situation 2: Your school or another party signed the promissory note in your name without your approval or the school falsely certified you as eligible for a student loan when you were not.
  • Situation 3: You were forced to withdraw due to a disability that developed while you were in school, or that certifiably worsened after you accepted the loan.

For all three situations, it is best to contact the lender or the federal student loan program for assistance in resolving your un-owed debts. Although a bankruptcy court can sort it out for you, other solutions are simpler and better for your financial future.

Student Loan Cancellation Programs

More About Student Loans
Need a Student Loan? Start Here!
Student Loan Consolidation
Private Student Loan Default
How to Pay Off a Student Loan
Help with Your Student Loan Debt
Settle a Private Student Loan
Public Service Loan Forgiveness

Several federal and state agencies offer programs to help you cancel or reduce all or a portion of your student loan debt without filing for bankruptcy. Most programs involve teaching, nursing, or military service. To learn more about available programs and how you can apply, visit the Federal Student Aid Forgiveness, Cancellation, and Discharge Web page.

In most cases, bankruptcy will not erase your student loans. Although bankruptcy is still a viable solution for desperate financial situations, it is best for your future financial well being to avoid it. Contact your loan servicers as soon as a problem develops to avoid worse financial repercussions.

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Comments (40)

Greg N.
Port Jefferson, OH  |  November 27, 2013
Interesting. I recently read an article by Darlene Holtz of RWH Financial that had similar things to say about this. She disagreed on one aspect but other than that most of your points were the same. Nice to see a couple experts actually agreeing as opposed to offering different views on the same subject.
Robin G.
Goose Creek, SC  |  August 03, 2012
My husband received a $2,500 FISL in March 1974 which was not repaid. He is now almost 63 and started receiving Social Security benefits this year. This debt has never shown up on his credit while we have obtained mortgages, etc. Now we get a letter from Dept of Education asking for payment, which is now over $8,500 with interest and they want to take from his Social Security, which is our only regular income. What are options? Also, I understand that student loan debt is usually not dischargeable in bankruptcy; however, what about a loan that originated in 1974?
August 03, 2012
See the Bills.com resource Garnish Social Security Benefits to learn more about the Dept. of Education's right of offset.

You asked about student loans and bankruptcy. Bankruptcy courts follow current rules, and not the rules that may have been in place when the debt was incurred. In other words, the fact the loan was from before the bankruptcy law changed in 1978 does not matter. Consult with a bankruptcy lawyer in your state to learn if the debt is considered a hardship under today's rules.

See the Dept. of Education's Federal Student Aid Forgiveness, Cancellation, and Discharge Web page to learn more about federal student loan cancellation programs.
Seth H.
Standish, MI  |  May 21, 2012
I live in Michigan, and some of my private student loans are starting to default. Sallie Mae says my out come is too close to my income and will no longer work with me with any options. They say their execs won't allow it for those reasons. Also, I had to stop going to school to have surgery due to Scoliosis and another spinal defect. Now ITT is no longer an accredited school. Is there any hope for me to get out of default or get my loans dissolved?
May 21, 2012
One way to discharge your debt is to meet the medical hardship rule, thought it is quite severe. You have to show that you can't work again. I can't tell if your medical condition meets that test.

I suggest that you take all of your medical records and meet with a bankruptcy attorney.
Matthew H.
Los Banos, CA  |  May 17, 2012
I went to ITT Technical Insitute and Grad in 2007 after that i worked in my field for about a year total 1/2 after that i was laid off because of the economy and the fact no one was buying houses or construction came to a stop. I was unemployeed for a while and now all I've been able to find part time work in various places, in 2011 I started making regular payments of 300.00 a month to a company who said they could help my loan was through salle mae my loans had gone into default and has been for while, so they company i worked with allowed me to make my 300.oo payments on a regular bases just last week I was told that the company had been let go from salle mae becaue they where allowing people to make payments that where not really haveing any effect to thier loans and i guess it was a breach to my contract with salle mae. a new company called me yesturday and told me salle mae wants all thier money now! or else they will take legal action on me or my co signers they will not let me make any payments because they said the loan has been in default to long and that I have not been making any payments i told them the company i was working with and they where the ones who told me that this company was let go from salle mae. I cant come up with 6,000 or 33,000 and my parents cant help me at this time is there anything I can do? they said there isnt much because Its a private loan not a Federal Loan. HELP!?!
May 17, 2012
Matthew, given the fact that you're being told that payments are not acceptable and you don't have the money to make a large lump-sum payment, I think your best course is to speak with an attorney.

I can't give you legal advice, but the fact that you were adhering to a payment plan worked out with a duly appointed debt collector may give you grounds to argue that the fact that the collector was let go does not mean that your agreement is voided.
Adam B.
Denver, CO  |  April 15, 2012
My student loan debt is now nearly $80,000 from years on non-payment due to limited income. I earn about $25,000 at my job and with unemployment benefits. I do have some medical issues, but unable to get disability due to not paying into social security. I don't see any way that I will ever be able to pay this back. Is there hope to get my loans dismissed?
April 15, 2012
Consult with a bankruptcy lawyer who has student loan experience to learn if the medical issues you mentioned qualify you for a discharge.
Josh S.
Houston, TX  |  March 31, 2012
I went to Everest and took an apprenticeship course. They approved me for a loan and everything i was very surprised. But then a few months later they kept asking me if i had a GED or HSD. I said, "No i didnt graduate," so they made me take this test later on i was told it was required for my loan. But i thought my loan was approved, and everything was ok. I had a hard time with this test I'm positive i didnt pass it because i didnt answer half of the questions in each section since it was timed. Then i learned it had to be administered by certain individual but the guy who gave me this exam was the counselor in charge of finding job leads. I think they altered the answers, and i wanted to know if this is enough to discharge my loan.
April 02, 2012
According to the Dept. of Education document Common Disputes Involving Defaulted Student Loans, "You may be eligible to have a loan discharged (forgiven):
  • "If you did not have a high school diploma or general equivalency diploma (G.E.D.) at the time you borrowed the loan, or
  • "If the school did not determine your ability to benefit in accordance with the federal requirements that were in effect at the time you were enrolled, or
  • "If you did not complete a remedial education course or obtain your G.E.D.

"Different standards may apply depending when you borrowed."

Download the Loan Discharge Application: False Certification (Ability To Benefit) (PDF) to start the process.

Pat A.
Burleson, TX  |  April 02, 2012
You student loans WILL be forgiven if you are totally disabled. Mine were.
Sergey Y.
Brooklyn, NY  |  April 06, 2012
were they private or government loans?
Pat A.
Burleson, TX  |  April 07, 2012
Federal Student loans, hence Government. I got the letter from the US Treasury Department and checked my credit report and they are all gone.
Atara A.
Hazel Crest, IL  |  January 30, 2012
I am a single mom with a two defaulted student loans I have an associates degree in special education. I cannot further my career at this point with defaulted student loans and obtain a decent salary because defaulted student loans make you unqualified under NCLB. Would this be considered an undue hardship?
January 30, 2012
As we mention in the original answer above, undue hardship is usually related to a disability that prevents the borrower from earning an income. However, each bankruptcy court sets its own standards for what "undue hardship" is, so I will not say your creative definition is outside the realm of possibility. Consult with a bankruptcy lawyer who has experience litigating bankruptcy student loan undue hardship cases for a better opinion than mine. Do not take the word of the first lawyer you find — you need a specialist within the bankruptcy specialty.
Laura W.
Decatur, GA  |  January 07, 2012
My mom co-signed on some of my loans; and she's pretty old so if she dies, will I be fully responsible for all of these loans or just mine??
January 07, 2012
Both the primary borrower and the co-signer have 100% liability for repaying a loan. If the co-signer dies, the primary borrower's liability does not change.

You ask your question on a student loan page. If a parent (or other relative) has a Parent Plus Direct Loan, and then dies, the loan is extinguished.
Angela R.
Hayward, CA  |  November 16, 2011
My aunt cosigned my student loan for me. Now she is very ill and having hardships. She wants her name off my loan. I can not pay the balance of the loan in full to remove her name. I do pay on the loan and can pay on the loan. Is there away to remove her name?
November 16, 2011
If Sallie Mae services your student loan, see the Bills.com resource Sallie Mae Debt to Income Ratio, which may be curiously titled, but addresses your question.

If Sallie Mae is not your student loan servicer, review your student loan contract to see if it offers a 24-payment clause similar to Sallie Mae's.
Annette K.
Hazlehurst, GA  |  November 14, 2011
while over seas i attended school. i dropped out before the semester ended. the school took out a student loan without my permission and i had no contact with the school. they took loans out for two semesters. i never sighned a promisary note. can i sue the school to pay the loan off
November 14, 2011
By all means, hire a local lawyer in the country where you attended school who has civil litigation experience to represent you.
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