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Discharge a Student Loan

Discharge a Student Loan

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Mark Cappel
UpdatedJun 19, 2024
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    4 min read
Key Takeaways:
  • 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.

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.

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

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.

Dealing with debt

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Housing debt totaled $12.82 trillion and non-housing debt was $4.88 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Indiana, 28% have any kind of debt in collections and the median debt in collections is $1721. Medical debt is common and 16% have that in collections. The median medical debt in collections is $748.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.



GGreg, Nov, 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.
RRobin, Aug, 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?
BBill, Aug, 2012
See the 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.
SSeth, May, 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?
BBill, May, 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.
MMatthew, May, 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!?!
BBill, May, 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.
AAdam, Apr, 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?
BBill, Apr, 2012
Consult with a bankruptcy lawyer who has student loan experience to learn if the medical issues you mentioned qualify you for a discharge.