Which private student loans can be discharged in bankruptcy?

What does the law actually protect?

The Bankruptcy Code does not say that student loans cannot be discharged. It lists specific kinds of education debt that survive bankruptcy unless you prove undue hardship. A debt that fits none of them is not covered by the exception.1

Why would a private loan fall outside those categories?

Because the tax code definition is narrower than the marketing. A qualified education loan is debt taken on solely to pay qualified higher education expenses, for education provided while the student was an eligible student.4

Qualified higher education expenses means the cost of attendance at an eligible educational institution, reduced by certain scholarships and tax-free education benefits. So the amount borrowed, the school and the student's enrollment all matter.4

Which loans has the CFPB said may be dischargeable?

The Consumer Financial Protection Bureau has said that some loans people think of as private student loans are not subject to the undue hardship standard and can be discharged in a normal bankruptcy. Its examples:2

• Loans for more than the cost of attendance, which can happen when the money is paid directly to the borrower.2
• Loans for schools that are not eligible for federal Title IV aid, such as unaccredited colleges, schools in a foreign country, or unaccredited training and trade certificate programs.2
• Loans for fees and living expenses while studying for the bar exam or another professional exam.2
• Loans for fees, living expenses and moving costs tied to a medical or dental residency.2
• Loans to a student who was attending school less than half-time.2

The CFPB published this list on April 12, 2022, and its page is now labeled as archived content. Treat it as a list of questions to ask about your loan, not as a ruling on it.2

What have federal appeals courts said?

Lenders have argued that almost any private student loan is protected as an obligation to repay an educational benefit. Three federal appeals courts have rejected that reading.5 6 7

In October 2019 the Fifth Circuit ruled on a bar exam study loan and a loan for tuition and expenses at a technical school, from a for-profit lender whose loans were not part of any government program. It held that the educational benefit category is limited to conditional payments similar to scholarships and stipends, so those loans were dischargeable.5

The Tenth Circuit reached the same conclusion about that category in August 2020, and the Second Circuit did in July 2021, saying it covers a far narrower category of debt than the lender claimed.6 7

These rulings are about one category. They do not decide whether a particular loan is a qualified education loan, which is a separate question; in the Fifth Circuit case the lender conceded the loans were not. Case law also differs from circuit to circuit, so ask a lawyer how courts where you live read the statute.5 1 3

What if your private loan is a qualified education loan?

Then it is treated like a federal student loan in one important way: it can be discharged only if you prove undue hardship. That means filing a separate lawsuit inside your bankruptcy case, called an adversary proceeding.3 8

The result does not have to be all or nothing. Where the case law in your circuit allows it, a court can discharge part of a student loan and require payment of the rest, but only after you have proved every element of undue hardship.3

What if the lender says the loan survived your bankruptcy?

A discharge acts as a court order that bars creditors from trying to collect discharged debts from you personally. The CFPB says student loan companies cannot collect debts a consumer no longer owes, and that collecting a debt discharged in bankruptcy could violate the bankruptcy judge's order.9 2

When a lender and a borrower disagree about whether a loan was discharged, the bankruptcy court may have to decide. How and when to raise that depends on your case, so this is a point to take to a lawyer and not to guess at.2

What should you gather before you ask a lawyer?

The answer comes from documents, not from what the product was called. Your StudentAid.gov account does not show private loans, so you will need the lender's own records.10 11

1. The promissory note and any other communications from the lender or servicer.2
2. Who made the loan and under what program. A loan funded or guaranteed by a government body or a nonprofit institution can be protected even if it looks private.1
3. The school's cost of attendance for the year, to compare with what you borrowed.4 2
4. Whether the school was eligible for federal Title IV aid and whether you were enrolled at least half-time.2
5. If you have already been through bankruptcy: the papers listing the debt, the discharge order, and a record of the bills you received and what you paid afterward.2