Student Loans Can Be Discharged in Bankruptcy, But It’s No Easy Feat

The National Association of Student Financial Aid Administrators Offers Tips to Help Students Avoid Overborrowing, Repay Loans

While nearly unheard of just a few short years ago, a greater number of financially strapped student borrowers are now applying to have their student loans discharged in bankruptcy court – and the Department of Education (ED) has just published a 23-page Dear Colleague Letter (DCL) outlining the provisions to which loan holders must adhere when evaluating a borrower’s discharge request.

Nearly 40 percent of student borrowers in bankruptcy who filed for student-loan discharge were successful, according a 2012 paper published in the American Bankruptcy Law Journal. To secure a loan discharge, a student must prove that repaying the loan poses an “undue hardship.”

Per the new DCL, the loan holder must evaluate a borrower’s undue hardship claim against legal standards set by Federal courts.

The Bankruptcy Code does not define “undue hardship,” so the burden of proof falls primarily on the borrower. Generally speaking, courts use one of two legal tests to evaluate undue hardship: the Brunner Test – which, among other things, looks to see if the debtor is unable to maintain a “minimal” standard of living based on current income, expenses and loan debt – and the Totality of the Circumstances Test, which reviews a borrower's past, present, and anticipated future financial resources. While ED provides one-on-one assistance to loan holders to discuss bankruptcy applications and to help determine situations in which undue hardship is present, there is no guarantee that a loan holder will approve a student’s request for discharge.

"Despite recent guidance on student-loan discharge, the process and proof needed to receive a bankruptcy discharge remains very difficult,” said National Association of Student Financial Aid Administrators (NASFAA) President Justin Draeger. “That is why we urge students to be vigilant about the amount of debt they accumulate, and to avail themselves of the repayment options that can help them keep their loan in good standing, no matter their current or future income.”

Financial aid administrators at colleges and universities all over the nation are invaluable resources for students when it comes to managing debt and repayment. NASFAA members can offer advice on how to review and select repayment plans, where to find the total amount owed, how to avoid default, and what can be done if students are having trouble making payments.

To request an interview with a NASFAA spokesperson, please email or call (202) 785-6959.


The National Association of Student Financial Aid Administrators (NASFAA) is a nonprofit membership organization that represents more than 20,000 financial aid professionals at nearly 3,000 colleges, universities, and career schools across the country. NASFAA member institutions serve nine out of every ten undergraduates in the United States. Based in Washington, D.C., NASFAA is the only national association with a primary focus on student aid legislation, regulatory analysis, and training for financial aid administrators. For more information, visit

Publication Date: 8/3/2015

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