Discharging Student Loans in Bankruptcy — Not Easy, but Possible

New guidance gives troubled borrowers some hope

Photo by Vasily Koloda on Unsplash

One of the key challenges around student loan debt is the difficult of discharging this debt in bankruptcy. In many cases, it’s not possible. This means even if you’re in a bad financial situation and bankruptcy is the remedy you seek, you’re still left with student loan debt to pay.

New guidance (effective in December of 2022) from the U.S. Department of Education and the U.S. Justice Department offers some hope — streamlining and simplifying the process for establishing “undue hardship” and possibly discharging that debt.

The National Consumer Law Center (NCLC) has more in this pretty dense piece on the topic aimed at attorneys.

New Process to Discharge Student Loans in Bankruptcy | NCLC Digital Library

Here are a few key takeaways if you hold student debt and are wondering about your options in bankruptcy:

1. The previous process was cumbersome and intrusive and made it difficult to meet the hardship standard
2. The new process streamlines information gathering and applies a uniform standard to hardship determinations
3. Private student loans are NOT included in this guidance