Debts
Can private student loans be discharged in bankruptcy?
Sometimes. A private loan that meets the tax code's definition of a "qualified education loan" is discharged only if repaying it would be an undue hardship, the same standard that applies to federal loans. A private loan that falls outside the student loan rule is treated like other debts from before filing. Which kind you have depends on the loan papers and the school, so it is worth checking before you assume the debt survives.1 2
Start your student loan discharge journeyNot every private loan for school is protected by the student loan rule. This guide explains which private loans the rule covers, what happens to each kind in Chapter 7 and Chapter 13, and what to look for in your loan papers.
General information, not legal advice. Rules and amounts change; check with a lawyer or the court before you act.
In this guide
Which private loans does the student loan rule cover?
Student loans are generally not discharged unless that would impose an undue hardship on you and your dependents. The rule lists the kinds of education debt it protects, and a private loan is covered only if it fits one of them.1
- Loans made, insured or guaranteed by a governmental unit, or made under a program funded in whole or in part by a governmental unit or a nonprofit institution. A loan from a private lender can fall here if a nonprofit or government program stood behind it.1
- Obligations to repay money received as an educational benefit, scholarship or stipend.1
- Any other educational loan that is a "qualified education loan" as the Internal Revenue Code defines it. For a loan with no government or nonprofit program behind it, this is the category that matters.1
What is a qualified education loan?
The tax code defines it as debt taken on solely to pay qualified higher education expenses. Those expenses are the cost of attendance at an eligible educational institution, for education provided while the borrower was an eligible student. A loan that refinanced a qualified education loan counts too. Debt owed to a relative does not.3
Each part of that definition matters. In a post now marked as archived on its website, the CFPB said some private loans for education can be discharged in a normal bankruptcy like most other consumer debts. Its examples were loans for more than the cost of attendance, loans for schools that are not eligible for federal student aid such as unaccredited colleges, loans for bar exam or other professional exam costs, loans for medical or dental residency costs, and loans to students attending less than half-time.3 4
Treat those as examples of loans that may fall outside the rule, not as a promise about yours. A lender may dispute the point, and the answer comes from the documents.4
What happens to a private student loan in Chapter 7?
If the loan is covered by the rule, it survives the discharge unless you prove undue hardship. That takes a separate lawsuit inside the bankruptcy case, called an adversary proceeding. The Justice Department's attestation process was introduced for federal student loan cases.1 5
If the loan is not covered, it is discharged with your other debts that arose before filing.2
There is a practical catch. The discharge order does not say which particular debts are covered; it tells creditors in general terms that debts owed to them have been discharged. If a lender keeps collecting because it says the loan is protected, the disagreement may have to be decided by the bankruptcy court.6
| Kind of loan | Chapter 7 | Chapter 13 |
|---|---|---|
| Covered by the student loan rule1 5 7 | Not discharged unless you prove undue hardship in an adversary proceeding | Paid through the plan as an unsecured debt; what is left is not discharged at the end without undue hardship |
| Outside the student loan rule2 8 7 | Discharged with your other debts from before filing | Paid through the plan as an unsecured debt; what is left is discharged when the plan is completed |
What happens in Chapter 13?
Either kind of private loan is normally an unsecured debt in the plan, and a plan does not have to pay unsecured debts in full. Plans usually last three to five years, and creditors are paid through the trustee during that time.8
The difference shows at the end. The discharge granted when you complete the plan does not cover student loans protected by the undue hardship rule, so whatever the plan did not pay on a covered loan is still owed. A loan outside the rule is discharged like other debts the plan provided for.7 8
If your loan has a co-signer, the chapter matters to them too. In Chapter 13, a codebtor stay generally stops creditors from collecting a consumer debt from someone who owes it with you. A discharge, in either chapter, releases you and not the co-signer.8 9
How do you check which kind of loan you have?
Start with the promissory note and anything the lender or school sent you when the loan was made. These are the questions the legal definitions turn on.
- Who made or backed the loan? A loan made under a program funded by a government unit or a nonprofit institution is covered without having to meet the tax definition.1
- What was the money for? A qualified education loan is one taken on solely to pay the cost of attendance.3
- Was the school an eligible educational institution, and were you an eligible student at the time?3
- Was the loan larger than the cost of attendance, or paid straight to you? The CFPB gave loans above the cost of attendance as an example of loans that may be dischargeable like other consumer debt.4
For official information about federal student loans, go to studentaid.gov. For a private loan, a lawyer who handles student loan cases can read the documents with you.
Common questions
Are private student loans always protected from discharge?
No. A private loan is protected by the undue hardship rule only if it fits one of the categories the rule lists, such as a qualified education loan under the tax code or a loan made under a program funded by a government unit or nonprofit institution.1
Do I have to file a lawsuit to discharge a private student loan?
For a loan covered by the rule, yes: you must file an adversary proceeding and prove undue hardship. A loan outside the rule is discharged like other debts, but the discharge order does not name which debts are covered, so a dispute with the lender may still end up before the court.5 2 6
Does Chapter 13 get rid of private student loans?
Only if the loan is outside the student loan rule. The discharge at the end of a Chapter 13 plan does not cover student loans protected by the undue hardship rule.7
Sources
Official courts & government references- 11 U.S. Code § 523(a)(8) (Cornell LII)
- 11 U.S. Code § 727(b) (Cornell LII)
- 26 U.S. Code § 221(d) (Cornell LII)
- CFPB: Busting myths about bankruptcy and private student loans (archived content)
- DOJ: Student Loan Discharge Guidance: Fact Sheet (Nov. 17, 2022)
- Discharge in Bankruptcy - Bankruptcy Basics (uscourts.gov)
- 11 U.S. Code § 1328(a) (Cornell LII)
- Chapter 13 - Bankruptcy Basics (uscourts.gov)
- 11 U.S. Code § 524(e) (Cornell LII)