What is a qualified education loan in bankruptcy?

Why does this definition matter so much?

Because it decides which case you have to make. For a protected loan, you must file a separate lawsuit inside your bankruptcy case and prove that repaying would be an undue hardship.2 3

The Consumer Financial Protection Bureau has said that some loans people think of as private student loans are not subject to that standard and can be discharged in a normal bankruptcy, like most other consumer debts.4

The student loan exception names specific kinds of education debt. For a loan that is not made or backed by a government body or a nonprofit institution, the category that usually matters is the last one: any other educational loan that is a qualified education loan.2

What does the tax code definition require?

The definition has several parts, and a loan has to meet all of them to be a qualified education loan.1

1. The debt was taken on solely to pay qualified higher education expenses.1
2. The expenses were for the borrower, the borrower's spouse, or someone who was the borrower's dependent when the debt was taken on.1
3. The expenses were paid or incurred within a reasonable period of time before or after the debt was taken on.1
4. The expenses were for education provided while the recipient was an eligible student.1

The definition also has an addition and a carve-out. A loan used to refinance a qualified education loan counts as one. A loan owed to a related person does not.1

What are qualified higher education expenses?

They are the cost of attendance at an eligible educational institution, reduced by certain scholarships and tax-free education benefits. The CFPB describes cost of attendance as costs such as tuition, books, room and board.1 4

Eligible institutions include those that run an internship or residency program leading to a degree or certificate.1

So living costs are not automatically outside the definition. What matters is whether the loan stayed within the school's cost of attendance, whether the school was an eligible one, and whether the student was an eligible student.1

Which facts about a loan can put it outside the definition?

The CFPB has listed kinds of loans that it says can be discharged like other consumer debts. Each one maps to a question you can ask about your own loan. Its list dates from April 12, 2022 and the page is now labeled archived, so use it as a checklist, not a verdict.4

Which loans are protected whatever the tax definition says?

The qualified education loan question matters only for loans that are not caught by another category. A loan 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, is protected on that ground alone.2

That is why the undue hardship requirement applies to nearly all federal student loans. It is also why who funded the program matters for a loan that looks private.5 2

Lenders have also argued that private loans are protected as obligations to repay an educational benefit. Three federal appeals courts have rejected that reading, which leaves the qualified education loan category as the one that decides most private loan disputes in those circuits.6 7 8

How do you find out which kind of loan you have?

Start with the paperwork. Your StudentAid.gov account lists federal loans only, so for a private loan you need the lender's records.9 10

• The promissory note and any letters from the lender or servicer.
• The name of the lender and the program the loan was made under.
• The school's cost of attendance for each year you borrowed, and any scholarships or other aid you received.
• Your enrollment status at the time, and whether the school took part in federal student aid.

Then take those documents to a lawyer. Whether a loan meets the definition is a legal judgment about your specific documents, and case law differs from circuit to circuit.5