Can You File Bankruptcy on Sallie Mae Student Loans?

• You can file bankruptcy on Sallie Mae private student loans in bankruptcy, but you’ll need to prove repayment will cause you undue hardship.

• Even if you can’t pass the Brunner Test, bankruptcy may give you leverage to negotiate lower payments or better terms

• But bankruptcy will lower your credit score, limit future loan options, and may even affect your cosigner, so talk to a lawyer before deciding.

If you’re buried under Sallie Mae’s student loan debt, you’re not alone. Rising interest rates, missed payments, and the fear of default can make it feel like there’s no way out. Bankruptcy might seem like a last resort, but can you actually get rid of your Sallie Mae loans through it?

The answer isn’t simple.

Sallie Mae loans are private student loans, which means different rules apply compared to federal loans. While discharging them is possible, you’ll need to prove “undue hardship”—a tough legal standard to meet.

Still, if your debt has become unmanageable, it’s worth exploring all your options, including bankruptcy, to find relief.

In this article, we’ll explain how Sallie Mae’s loans and bankruptcy work, outline your options and help you take the next steps toward financial freedom.

Related: Sallie Mae Financial Hardship Options

Sallie Mae loans are private student loans, which makes a big difference if you’re thinking about bankruptcy. Unlike federal student loans—which have recently become easier to discharge—private loans come with tougher rules. Borrowers often face more hurdles and fewer options when filing a bankruptcy case.

To discharge Sallie Mae loans, you must prove “undue hardship”—a challenging legal standard. Most courts use the Brunner Test, which is part of an adversary proceeding in bankruptcy court. This test examines three factors:

• Basic Living Standard: Can you maintain a minimal standard of living while making your student loan payments?

• Long-Term Financial Struggles: Is your financial situation unlikely to improve soon?

• Effort to Repay: Have you made good-faith efforts to repay your loans?

For many borrowers, meeting this undue hardship standard feels nearly impossible. But some have successfully argued that their loans don’t qualify as a “qualified education loan” under Section 523(a)(8)(B) of the Bankruptcy Code.

While this argument works better with other private lenders — especially if the loan exceeded the school’s cost of attendance — it’s worth discussing with a student loan bankruptcy lawyer to explore debt relief options.

Related: Can Private Student Loans Be Discharged in Bankruptcy?

Even if you can’t fully discharge your Sallie Mae loans, bankruptcy can still offer a way out. Many student loan borrowers have used bankruptcy as leverage to negotiate settlements with private lenders like Sallie Mae.

These settlements often result in lower loan repayment amounts spread over several years, with little to no interest. While the details of these deals are usually confidential, they can offer real relief if your student debt has spiraled out of control.

A quick consultation with a student loan lawyer can help you decide if bankruptcy, whether Chapter 7 or Chapter 13, might be a tool to negotiate better terms.

Even if a full bankruptcy discharge isn’t possible, exploring debt relief options through a settlement could provide a way forward.

Having a cosigner complicates things. Even if bankruptcy discharges your loan, Sallie Mae may still pursue your cosigner for the remaining balance, which can create stress, especially when family or friends are involved.

Sallie Mae offers hardship programs, but they are usually temporary fixes that don’t address long-term repayment problems.

If you’ve exhausted these options and feel trapped by rising payments, bankruptcy might provide the long-term relief you need. In some cases, a partial discharge could offer relief without wiping out the entire debt.

Before turning to bankruptcy, consider other ways to manage your Sallie Mae loans. Many borrowers look at bankruptcy only after trying these alternatives:

• Refinancing: Refinancing could lower your monthly payments or interest rates, but it’s hard to qualify. High loan balances, low credit scores, and insufficient income often stand in the way. If you’ve been denied, you’re not alone.

• Temporary Relief Programs: Sallie Mae offers forbearance, deferment, and interest-only payments. While these provide short-term relief, they are temporary. Most borrowers find that when the relief ends, their loan balance is higher due to added interest.

• Debt Settlement: If you’ve fallen behind, settling your Sallie Mae loans might be possible. But this typically requires you to default, missing six months of payments, which can damage your credit—and your cosigner’s credit, too. Private student loan settlements often require a lump-sum payment. Sallie Mae may settle for 35 to 70 cents on the dollar, but many borrowers struggle to find the cash for this.

Related:

• How Long Before Sallie Mae Defaults

• Sallie Mae Charge Off

If refinancing, forbearance, or settlement haven’t worked, you may wonder if bankruptcy is your last option. While bankruptcy can offer relief, you need to weigh the benefits and challenges.

Here are situations where filing for bankruptcy might make sense:

• You’ve Tried Everything: If refinancing, payment reductions, or settlements haven’t helped and your finances are worsening, bankruptcy could be an option.

• Your Debt Is Unmanageable: If repaying your Sallie Mae loans makes it impossible to maintain a basic standard of living and you’ve made sincere efforts to pay, bankruptcy might provide relief.

• You’re Facing Default: If you’re at risk of default or have missed payments, bankruptcy could protect you from aggressive collection actions and help restructure your debt.

While bankruptcy can offer relief, it comes with consequences that affect many parts of your financial life.

Here are key consequences to consider:

• Credit Score: Filing for bankruptcy will lower your credit score and make it harder to get new credit, loans, or mortgages. Bankruptcy stays on your credit report for up to 10 years.

• Cosigner Liability: If you have a cosigner, bankruptcy won’t protect them. Sallie Mae can still pursue them for the remaining balance, which could hurt their credit score and strain your relationship.

• Future Loans: Bankruptcy could limit your ability to qualify for new loans, especially large ones like mortgages. If you do get approved, expect higher interest rates and less favorable terms.

• Career Impact: Some employers, especially in finance or government, check credit reports when hiring. While this is less common, a bankruptcy filing could affect your job prospects in these fields.

• Emotional Stress: Bankruptcy can be emotionally draining. The process can be long and overwhelming, but it can also provide relief and a fresh start for those overwhelmed by debt.

Facing Sallie Mae loans and considering bankruptcy can be overwhelming, but you don’t have to go through it alone. We’ve helped borrowers find relief when bankruptcy seemed like the only choice.

Whether it’s exploring alternatives, using bankruptcy to negotiate, or guiding you through the process, we’re here to help you regain control of your finances.

Ready to explore your options? Schedule a consultation today and take the first step toward a solution.