Can You File Bankruptcy On Student Loans? Find Out How

Can You File Bankruptcy On Student Loans? Find Out How
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.

Did you know that it's possible to discharge student loans in bankruptcy? However, it can be quite challenging. To see if we can help you, please use the following calculator if the following conditions apply to you:

  1. Your income is below $75,000 per year if your household size is 2 or under, and your income is below $100,000 if your household size is 4 or under.
  2. You reside in Arizona, Nevada, Colorado, or Utah.
  3. You have made a good faith effort to pay off your student loan debt.
  4. You believe that your financial situation will not improve during the remainder of the student loan contract.

If you meet these criteria, please take the 1-2 minute calculator below.

 Estimate Qualification for Student Loan Bankruptcy Relief

If you don't meet these criteria but are interested in this option, please reach out to us online.

The United States is currently facing a student loan crisis with a total of $1.56 trillion in student loan debt and over 44.7 million Americans contributing to that number.

This national problem is partly due to people's lack of knowledge about their financial decisions while in college. According to a recent survey by Student Loan Hero, "More than one-half of our survey respondents, for instance, didn’t realize interest accrues on their federal unsubsidized loans while they’re in school" and "nearly 1 out of 10 borrowers are under the false impression that you don’t need to repay your loans if you can’t find a job after college."

This lack of knowledge about the lending process can lead to student loan hardship. This article will cover the basics of student loans, hardships, and solutions so that you can make an informed decision about which option is best for you. While it may seem like there's no way out, there is always hope.

Types of Student Loans

Let's face it, college is expensive and the cost of attendance is only increasing. That's where student loans come in. The purpose of a student loan is to provide funds for tuition, room and board, and books at a low-interest rate. But did you know that there are three main types of student loans? It's important to know the differences between them, especially when it comes to debt relief.

1) Federal Student Loans

When it comes to financing your education, federal student loans are a popular option. These loans are funded by the government and have fixed interest rates that are set by the government as well. To apply for a federal student loan, you'll need to fill out a FAFSA form. Once you receive your loan, you'll typically have up to 10 years to pay it back. The standard repayment plan involves paying a set amount of your debt plus interest each month. If you're curious about what your monthly payment might look like, you can use the US Department of Education's handy calculator.

One of the biggest benefits of federal student loans is that they come with certain protections that private loans may not offer. For example, if you're struggling to make your payments, you may be eligible for deferment or forbearance. Additionally, if you work in certain public service jobs, you could be eligible for loan forgiveness after a certain period of time. However, it's important to note that not all federal loans are created equal. Some may have higher interest rates or fees than others, so it's important to do your research before accepting any loan offer.

Subsidized vs. Unsubsidized Federal Loans

When it comes to federal loans, there are two types: subsidized and unsubsidized. Subsidized loans are given by the government to students who demonstrate financial need. On the other hand, unsubsidized loans are available to all students regardless of financial need, and are meant to supplement other forms of financial aid for college expenses. It's crucial to understand these distinctions because they determine the repayment plans and interest rates you'll be responsible for.

Knowing whether you have a subsidized or unsubsidized loan can impact your financial planning. Subsidized loans don't accrue interest while you're in school, which can be a huge relief for those who don't have the means to make payments while pursuing their education. Unsubsidized loans, however, start accruing interest as soon as they're disbursed. This means that by the time you graduate, you could be facing a much larger balance than you initially borrowed.

Regardless of which type of loan you have, it's important to keep track of your repayment options. Federal loans offer flexible repayment plans and forgiveness options that can help you manage your debt. Understanding the differences between subsidized and unsubsidized loans is the first step in making informed decisions about your financial future.

2) Federal Parent Loans

Don't worry if you're a little unsure about federal parent loans - they're actually pretty straightforward. PLUS loans, or federal parent loans, are loans offered by the government to parents of college students who are dependents, as well as to graduate students. To apply for these loans, you'll need to fill out an application, and you'll have the same repayment options as other types of loans. The only difference is that PLUS loans have a fixed interest rate of 7.9%, which means that the interest rate won't change over time.

3) Private Student Loans

Let's talk about private student loans. Essentially, they're loans provided by banks or credit unions, and they're not affiliated with the federal government or colleges. Here's the thing: it's generally easier to obtain relief with federal student loans than with private student loans.

Each type of loan has its own repayment plans, but what happens if you miss a payment or can't keep up with your repayment plan? This is where things can get confusing for many people.

Student Loan Hardship

Student loan hardship is a fancy term for when you fall behind on your student loan payments. It's not a fun situation to be in, but it's important to know what can happen if you don't take action.

If you don't make a payment on your student loans for more than 270 days, it's considered a default. This can have serious consequences, like losing the ability to get any more federal student aid and even facing legal action.

But don't panic just yet! If you're experiencing hardship, there are options available to help you get back on track. You might be able to apply for some form of debt relief to ease the burden.

Contact Lender

If you're struggling to keep up with your loan payments, the best thing you can do is to reach out to your lender. Being honest and upfront about your situation is the first step towards finding a solution. By contacting your lender, you can explore the different options that are available to you.

It's important to remember that lenders want to help you. They don't want you to default on your loan any more than you do. In fact, most lenders have programs in place to help borrowers who are experiencing financial hardship.

Some of the options that your lender may offer include loan modification, forbearance, or deferment. Loan modification involves changing the terms of your loan to make it more affordable. Forbearance allows you to temporarily stop making payments, while deferment allows you to postpone payments altogether.

Keep in mind that each option has its own benefits and challenges. For example, loan modification may result in a longer repayment period or higher interest rates. Forbearance and deferment may result in increased interest charges or a lump sum payment at the end of the deferment period.

Ultimately, the key is to be proactive and communicate with your lender. Together, you can find a solution that works for you and helps you avoid defaulting on your loan.

Finding A Short Term Solution

After completing college, it can be challenging to make ends meet, especially when you're searching for a job. In such situations, it's crucial to find a short-term solution to keep up with your payments.

1) Deferment 

If you're struggling to make your monthly loan payments, deferment might be a helpful option for you. Essentially, deferment allows you to temporarily pause your payments for up to 5 years. This option is available for subsidized loans, which means that during the deferment period, you won't be responsible for paying the interest that would normally accrue.

There are a few different reasons why you might consider deferment. For example, if you're experiencing unemployment, maternity leave, medical leave, or disability, deferment could provide some relief from your loan payments. Keep in mind that while deferment can be a helpful tool, it's important to understand the potential drawbacks as well.

2) Forbearance

If you have unsubsidized loans, forbearance might be a helpful option for you. It's similar to deferment, but with one key difference: you're responsible for the interest that accrues during the forbearance period. Keep in mind that forbearance only lasts for up to three years, and the eligibility requirements are similar to those for deferment.

To learn more about whether you qualify for deferment or forbearance, check out this resource.

Finding a Long Term Solution

If you're worried about being unable to keep up with payments over the long term, don't fret - there are still options available to you.

1) Income-Driven Repayment Plan (IBR)

If you're struggling to keep up with your debt payments, switching to an income-driven repayment plan could be a smart move. This option calculates your monthly payments as a percentage of your income, typically over a 20-year period. Your payments can be adjusted monthly based on your income and family size. It's important to note that you must re-certify your plan every year to ensure it's still the best fit for you.

To determine if this is the best option for you right now, you can use the Department of Education's calculator. It factors in all federal student loan repayment plans to compare your options and suggest the best fit for your unique situation.

2) Student Loan Forgiveness

Have you ever heard of student loan forgiveness? It's a program that can wipe out part or all of your student debt! But, here's the catch: it's only granted in specific cases. Luckily, there are many professions that commonly qualify for this program. If you work in emergency response, federal jobs, education, social work, public health, military, or volunteer work, you may be eligible for student loan forgiveness.

Imagine the relief of having a portion of your student debt wiped away! It can be a huge financial burden off your shoulders. However, it's important to note that not all professions qualify for this program, and the process of applying can be complicated. Make sure you do your research and talk to a financial advisor to see if you qualify.

3) Bankruptcy

Have you ever wondered if filing for bankruptcy can help discharge your student loan debts? It's a common question that I receive, and unfortunately, it's not easy to do so. Student loans are a massive financial burden for millions of Americans, with around 45 million people owing a total of $1.6 trillion in student loan debt as of 2020. This makes student loans the second-largest debt after mortgage loans. It's no surprise that one of the most frequently asked bankruptcy questions is whether student loan debt can be eliminated through bankruptcy. The answer is not straightforward, but let's take a closer look at what student loan bankruptcy entails.

I) Why is it Difficult for Student Loans to be Dischargeable in Bankruptcy?

Student loans can be a significant burden for many borrowers, and unfortunately, they are not typically eligible for bankruptcy discharge. This means that even if you file for bankruptcy, you will still be responsible for repaying your student loans. However, there are some exceptions to this rule. For instance, if you can demonstrate that repaying your student loans would cause undue hardship, you may be able to qualify for a hardship discharge. To do so, you would need to petition the court and meet specific requirements outlined in what's known as the Brunner Test.

While it can be challenging to qualify for a hardship discharge, it is not impossible. The Brunner Test evaluates your financial situation and determines whether repaying your loans would cause you to live below a minimal standard of living, whether your financial situation is likely to persist for a significant portion of the loan repayment period, and whether you have made a good faith effort to repay your loans. If you meet all of these criteria, you may be able to discharge your student loans through bankruptcy.

It's essential to note that discharging student loans through bankruptcy is a complex process that requires the guidance of an experienced attorney. Additionally, even if you do not qualify for a hardship discharge, there may be other options available to you, such as income-driven repayment plans or loan forgiveness programs. If you are struggling to repay your student loans, it's crucial to explore all of your options and seek guidance from a qualified professional.

II) How Can I Discharge Student Loans in Bankruptcy?

Have you heard of the Brunner Test? It's a set of three requirements that a debtor must meet to discharge their student loan debt in Chapter 7 bankruptcy. The test was established in a 1987 bankruptcy case, Brunner vs. New York State Higher Education Services, Corp., and has been adopted by other judges in similar cases. The three requirements are:

  • The debtor cannot maintain a minimal standard of living if they are forced to repay the loan.
  • The debtor's financial situation is unlikely to improve during the loan repayment period.
  • The debtor has made a good faith effort to repay the loan.

Meeting these requirements can be challenging, but if a debtor is successful, they may be able to discharge their student loan debt and gain financial relief.

1.  Minimal Standard of Living Test 

When considering whether a student loan debt can be discharged in bankruptcy, the court looks at two key elements. The first element considers whether the debtor can maintain a basic standard of living for themselves and their dependents while still repaying the loan. If they can, then the debt is not dischargeable. However, if they cannot, the court moves on to the second element. 

It's important to note that while discharging student loan debt in bankruptcy is difficult, it's not impossible. The process requires a thorough examination of the debtor's financial situation and a determination of whether the debt would cause undue hardship. This can be a challenge, but it's not impossible. 

2.  Continuation of Current Financial Situation

The second factor that is analyzed is whether the borrower's current financial situation is likely to continue for most of the remaining time of the student loan agreement. This means that if the borrower is currently disabled and unable to work, or if they are already earning close to the maximum income expected based on their age, career, education, skills, and other factors, then it may not be possible for them to get their student loan payments discharged. However, if the borrower's financial situation is expected to improve during the term of the loan, then the judge may consider granting a discharge of student loan payments.

3.  Good Faith Effort

So, you're probably wondering what happens if someone is struggling to repay their student loans. Well, there's a process that involves three tests. If the debtor passes the first two tests, the judge moves on to the third and final one. Here, the judge evaluates whether the debtor has made a reasonable effort to repay the loans. If they have, then the judge may grant a bankruptcy discharge for those student loans. It's not an easy process, but it can be a lifesaver for those who are struggling.

III) Defining Undue Hardship and Good Faith Effort

Did you know that less than 1% of people who file for student loan bankruptcy are actually discharged from their debt? That's because it's incredibly difficult to qualify for this type of bankruptcy. To be eligible, you need to prove that you are experiencing "undue hardship." This means that you won't be able to pay back your loans in the foreseeable future while still maintaining a healthy standard of living. However, it's not impossible to qualify for student loan bankruptcy. There are two main types of bankruptcy: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

Unfortunately, there isn't a standard definition of what constitutes "undue hardship" or a "good faith effort." Judges use various methods to determine whether student loan payments create undue hardship that prevents a minimum living standard. They also interpret the good faith effort in different ways.

If you're considering filing for student loan bankruptcy, working with a bankruptcy lawyer can be helpful. A local bankruptcy attorney is familiar with the bankruptcy judges and cases decided in that district. Therefore, the attorney understands the standards used by the bankruptcy judges to decide motions to discharge student loans. Additionally, a bankruptcy attorney can draft a motion and present a case that gives you the best possible chance of success based on your unique circumstances.

Overall, bankruptcy may be an option for you if you're struggling with student loan debt. However, it's important to keep in mind that there's a low chance that your loan will be discharged. Instead, you may have the debt put into a payment plan or have assets liquidated to pay off the loan. Regardless, bankruptcy can be helpful if you're unable to continue making payments.

IV) How to Pay Student Loan Debts?

Are you struggling to pay off your student loans? Don't worry, there are several options available to you that don't involve bankruptcy. Let's take a look at some of them:

  • Student Loan Consolidation: This option allows you to combine multiple federal student loans into one loan with a single monthly payment. This can simplify your repayment process and potentially lower your monthly payment.
  • Pay As You Earn Repayment Plan: This plan caps your monthly payments at 10% of your discretionary income and forgives any remaining balance after 20 years of payments.
  • Graduated Repayment Plan: This plan starts with lower monthly payments that gradually increase over time. It's a good option if you expect your income to increase in the future.
  • Refinancing Student Loans: Refinancing allows you to take out a new loan with a private lender to pay off your existing student loans. This can potentially lower your interest rate and monthly payment, but it's important to carefully consider the terms and conditions of the new loan.
  • Income Contingent Repayment Plans: These plans adjust your monthly payments based on your income, family size, and loan balance. Any remaining balance is forgiven after 25 years of payments.
  • Student Loan Forgiveness: This option forgives some or all of your student loan debt in exchange for working in certain public service jobs or for non-profit organizations.
  • Revised Pay As You Earn Repayment Plan: This plan is similar to the Pay As You Earn Repayment Plan, but it caps your monthly payments at 10% of your discretionary income and forgives any remaining balance after 25 years of payments.
  • Income-Based Repayment Plan: This plan adjusts your monthly payments based on your income and family size. Any remaining balance is forgiven after 25 years of payments.

If you're facing a short-term financial hardship, you may qualify for a student loan deferral or forbearance. These options can provide temporary relief from your student loans until you're back on your feet. Check out this resource to see if you qualify.

Chapter 13 Bankruptcy and Student Loans

If you're struggling to discharge your student loans through Chapter 7 bankruptcy, don't lose hope. Chapter 13 bankruptcy offers some relief by deferring your student loan payments until your case is completed. Although interest will continue to accrue, you won't be required to make payments during this time. Some debtors choose to continue paying their student loans in full or in part during the Chapter 13 case, while others wait until their bankruptcy plan is finished to resume payments. By discharging other unsecured debts through Chapter 13, debtors can improve their financial position and better repay their student loans after the Chapter 13 discharge.


When it comes to student loans, repayment can be a daunting task for many borrowers. While some are able to manage their payments, others may struggle to keep up. Fortunately, there are various options available to help you tackle your student loan debt. If you're feeling overwhelmed and unsure about what to do, don't worry - we can help. Our expert counselors can guide you through the available options and help you determine which ones may be the most suitable for your unique situation. Don't hesitate to reach out to us for assistance.

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