Why Can’t You File Bankruptcy On Student Loans?

Why can’t you file bankruptcy on student loans like you can with credit card debt or medical bills? The answer lies in special rules created by lawmakers to protect student loans. These laws, part of the Bankruptcy Code, make it much harder to discharge this type of debt—whether it’s federal or private.

But understanding these rules can help you explore your options, and yes, there are options available. For more information, check out our guide on How to File Student Loan Bankruptcy.

If you’re wondering why student loan borrowers face such a hard time getting a bankruptcy discharge, it all goes back to protecting the federal loan system. Over the years, Congress has passed laws that make it more difficult for borrowers to find relief through bankruptcy proceedings.

1976: The Start of Undue Hardship

In 1976, Congress introduced the “undue hardship” clause, making student loans non-dischargeable in bankruptcy unless borrowers could prove that repaying the loan would cause extreme financial distress.

Before this change, student loans were treated like other debts, such as personal loans, and could be discharged more easily.

Lawmakers were concerned that people might take out loans and quickly declare bankruptcy to avoid paying them back. So, they raised the bar with this new clause, making it harder for borrowers to wipe out their student loan debt.

1980s-1990s: Tougher Bankruptcy Laws

Through the 1980s and 1990s, lawmakers continued to tighten bankruptcy laws for student loans.

They extended the waiting period for loan discharge and included more types of student loans under the undue hardship requirement.

By the early 1990s, borrowers had to wait at least seven years after beginning repayment before they could attempt to discharge their loans through bankruptcy court.

2005: Private Loans Are Included

In 2005, things got even stricter. The Bankruptcy Abuse Prevention and Consumer Protection Act extended the non-dischargeability rule to private lenders.

This meant that even private student loans—often with higher interest rates—became as hard to discharge as federal loans.

Lawmakers wanted to prevent financial instability in the private loan market, but for borrowers, this meant fewer options for debt relief.

Related: Can Private Student Loans Be Discharged in Bankruptcy?

The main reason behind these stricter laws? Lawmakers feared borrowers could abuse the system by taking out large student loans and then declaring bankruptcy before making any good faith efforts to repay them.

Even though there wasn’t much evidence of widespread abuse, this concern led to some of the strictest bankruptcy rules.

Today, student loan payments are one of the few debts—alongside child support and taxes—that are nearly impossible to discharge in chapter 7 bankruptcy or chapter 13 bankruptcy.

Related: What Happens to Student Loans in Chapter 13?

The U.S. government, along with the Department of Education, has a lot riding on the stability of federal student loans. Unlike credit card debt or medical bills, student loans are tied to programs designed to make higher education more accessible. Because of this, lawmakers have put protections in place to safeguard these loans and ensure they’re available for future borrowers.

Fear of Abuse

One of the reasons student loans are so hard to discharge in bankruptcy cases is that lawmakers feared borrowers might misuse the system. They worried that debtors could take out big loans, declare bankruptcy right after finishing school, and avoid making any monthly payments or contributions to their debt. Even though there wasn’t much evidence of this happening, the concern led to stricter laws in the 1970s.

By making student loans non-dischargeable except in cases of “undue hardship,” the government aimed to prevent what it saw as a threat to the long-term stability of these loan programs.

Keeping the System Stable

For millions of Americans, federal student loans are essential for accessing higher education. ‘

Lawmakers believed that if too many borrowers discharged their loans through bankruptcy, it could weaken the system. This would reduce the funds available for future students and place more strain on taxpayers, who ultimately back these loans. It could also affect borrowers’ credit scores and put pressure on the repayment plans tied to federal programs.

While these protections are designed to keep the system stable for future students, they’ve also made it much harder for borrowers to find relief. As a result, many feel trapped by their student debt and unable to discharge their loans through bankruptcy.

For many borrowers, options like deferment, forbearance, or even income-driven repayment plans become the only ways to manage their debt and avoid default.

Related: Can You File Bankruptcy on Parent PLUS Loans?

One of the biggest hurdles for student loan borrowers seeking a bankruptcy discharge is proving “undue hardship.” Courts require borrowers to show that repaying their loans would cause an undue financial burden, making it nearly impossible to maintain a minimal standard of living.

This standard is meant to protect the student loan system, but it creates a high bar that many borrowers struggle to meet. The most common way courts measure undue hardship is through the Brunner Test, a rigid and often difficult standard to prove.

Beyond meeting the undue hardship requirement, borrowers must also file a separate lawsuit, called an adversary proceeding, to begin the process of discharging their loans. This extra step adds complexity to the process, making bankruptcy for student loans much more challenging than for other types of debt.

Related: How to File an Adversary Proceeding For Federal Student Loans

Filing for bankruptcy on student loans is tough, but it’s not impossible. Many student loan borrowers think they’re stuck with no way out, but with the right approach—especially for private loans—you could find some relief.

Common Misconceptions

A big obstacle is understanding what’s truly possible. Many people believe student loans can’t be touched in bankruptcy, but that’s not the whole story. While it’s harder with federal loans, private loans may offer more room for negotiation and relief.

Private vs. Federal Loans

Federal student loans offer protections like income-driven repayment plans, loan forgiveness programs, and Biden’s SAVE plan, so they’re not always the best candidates for bankruptcy. These options can reduce your monthly payments or extend your repayment period, giving you other ways to manage the debt.

Private loans, though, don’t come with those benefits. Higher interest rates and fewer protections can leave borrowers feeling trapped. Bankruptcy might not completely erase your student debt, but it can open the door to negotiations—whether that’s lowering your balance or reducing your interest rate.

Related: Can Private Student Loans Be Discharged In Bankruptcy?

What’s Changed?

Recent changes in policy, like the Department of Justice’s updated guidelines, have made things a little easier for some borrowers. If you have dependents, health issues, or went to a predatory school, you might find more options for relief. Still, the process is tough and depends a lot on factors like your living expenses and whether you meet the court’s circumstances test.

The Role of Bankruptcy

When it comes to private loans, bankruptcy can be a powerful tool. It’s difficult to prove undue hardship, but going through the process can often lead to better terms—whether that’s cutting your debt or getting a lower interest rate. Even if you don’t get a full discharge, reducing your debt by half or lowering the interest rate can make a huge difference.

For more on how bankruptcy can help and the reforms that could be on the horizon, take a look at our detailed guide on Student Loan Bankruptcy Law.

Yes, student loan debt should be eligible for bankruptcy under certain conditions, but with some limitations.

The federal student loan system isn’t based on creditworthiness, which makes sense—student loans are meant to be accessible to everyone, regardless of their financial background.

If borrowers were able to take out federal student loans and immediately file for bankruptcy, it could undermine the system’s stability. In that case, why not just make education free from the start?

That said, there are situations where borrowers don’t see a return on their investment.

Maybe they attended a for-profit or predatory school that didn’t deliver on its promises, or they faced a personal hardship—like illness or job loss—that prevented them from repaying their loans.

For these individuals, it may make sense to have an earlier option for loan forgiveness through bankruptcy, rather than forcing them to wait 20 to 25 years under an income-driven repayment plan.

When it comes to private student loans, the argument for allowing them to be discharged in bankruptcy is even stronger. Private loans are often based on creditworthiness, and borrowers typically have assets or credit scores that make defaulting less common.

If private loans were more easily dischargeable, interest rates might increase, but that cost could be factored into the loan terms. Not everyone who takes out a private loan will be willing to go into bankruptcy, but those who genuinely cannot pay back the loan should have that option.

There’s a strong case for treating federal and private student loans differently in bankruptcy law, with greater dischargeability for private loans and more flexibility for borrowers facing significant hardship with federal loans.

If you’re feeling weighed down by student loan debt, especially with private loans, know that while discharging loans in bankruptcy is tough, it’s not impossible. There are options available—whether that’s exploring bankruptcy, adjusting your repayment plan, or considering loan forgiveness programs.

The key is to take the first step.

Book a call with one of our student loan experts to find out if bankruptcy is right for you.