What Happens To Student Loans?

Under 11 U.S.C. § 523(a)(8), student loans — both federal and private — are exempt from discharge unless the debtor can demonstrate "undue hardship." Congress established this exception to prevent borrowers from immediately discharging student debt without making any attempt at repayment.

The standard most courts apply is the Brunner test, which requires demonstrating three things: (1) that repayment would prevent the debtor from maintaining a minimal standard of living based on current income and expenses; (2) that this situation is likely to persist for a significant portion of the repayment period; and (3) that the debtor has made good faith efforts to repay the loans. Meeting all three prongs is historically difficult.

While student loans are not discharged, the automatic stay still stops collection activity during your bankruptcy case. This includes wage garnishments from the Department of Education for defaulted federal loans. The stay provides a temporary pause — but the loans resume after the case closes.

For federal student loan borrowers, income-driven repayment (IDR) plans can reduce monthly payments to a percentage of discretionary income — sometimes as low as $0 per month for very low-income borrowers. Public Service Loan Forgiveness (PSLF) provides forgiveness after 120 qualifying payments while working for qualifying government or nonprofit employers.

These federal programs may provide relief that bankruptcy cannot. Private student loans do not qualify for these programs.