Student Loans & Bankruptcy: An Updated Look at How Student Loan Discharge is Evolving

For decades, borrowers struggling under the weight of student loan debt have heard the same message: that student loans are almost impossible to discharge in bankruptcy. This understanding has left many people feeling hopeless, trapped under tens or even hundreds of thousands of dollars in federal or private student loans, even while other debts can be eliminated.

But as legal perspectives evolve and court decisions change, the landscape around student loan discharge is beginning to shift. Here is an updated look at how student loan discharge in bankruptcy is evolving today, and what that might mean for you or your loved ones facing debt.

The Historical Challenge of Discharging Student Loans in Bankruptcy

In the past, student loans have been treated as a special category of debt. Under Section 523(a)(8) of the U.S. Bankruptcy Code, student loans could not be discharged unless the borrower could prove that repayment would cause “undue hardship.” This standard has been interpreted strictly in most jurisdictions, using what is called the Brunner test.

The Brunner test requires debtors to prove three difficult criteria: that they cannot maintain a minimal standard of living if forced to repay their student loans, that their financial situation is likely to persist, and that they have made good faith efforts to repay the loans. As you can imagine, this has meant very few people have succeeded in discharging student loans through bankruptcy. Judges have historically ruled narrowly, leaving borrowers to struggle with payments long after bankruptcy clears other consumer debts.

Recent Changes: New Guidance from the Department of Justice

However, in late 2022, the U.S. Department of Justice, in conjunction with the Department of Education, announced a new process designed to make it easier for federal student loan borrowers to pursue bankruptcy discharge. This revised guidance encourages a more flexible and fair approach when evaluating whether a borrower meets the undue hardship standard.

Under this new framework, borrowers submit an attestation form providing detailed financial information, employment status, and efforts they have made to repay their loans. The Department of Justice can then recommend to bankruptcy courts that loans be discharged in full or in part, without forcing borrowers through prolonged, costly litigation.

Early Results and Court Trends

Already, bankruptcy practitioners across the country are seeing positive outcomes for debtors using this new process. Some judges are approving discharges where previously they would not have, especially in cases where borrowers are elderly, disabled, or have minimal income potential despite diligent repayment efforts.

While it is too early to measure the full impact, these changes suggest a meaningful shift in how bankruptcy courts view student loans. It also highlights the importance of working with an experienced bankruptcy attorney who understands these new Department of Justice guidelines and can present your case effectively.

Private Student Loans and Bankruptcy: Recent Court Decisions

Another noteworthy development relates to private student loans. While federal loans have always been subject to the undue hardship standard, courts are beginning to interpret certain private student loans differently.

For example, some recent federal court decisions have held that loans made for expenses beyond qualified education costs, such as bar study loans or certain vocational school financing, may not fall under the “educational benefit” protections of Section 523(a)(8). This means that in some cases, private student loans may be dischargeable in bankruptcy like any other unsecured debt.

These decisions are highly fact-specific, depending on the loan structure, lender, and use of funds. However, they open the door to potential relief for borrowers holding private loans previously assumed to be non-dischargeable.

Chapter 7 vs. Chapter 13: Strategic Considerations

When facing student loan debt, understanding your bankruptcy options is critical. Chapter 7 bankruptcy, often called liquidation bankruptcy, can clear qualifying debts relatively quickly, but historically left student loans untouched unless undue hardship was proven. With the Department of Justice’s new guidance, Chapter 7 filers now have greater hope of obtaining relief.

Chapter 13 bankruptcy, on the other hand, is a structured repayment plan over three to five years. Even if student loans are not discharged in Chapter 13, the automatic stay can pause collection efforts, and the court-approved plan can provide needed breathing room to catch up on other debts and manage payments more strategically.

In some cases, Chapter 13 plans are used to manage arrears or to demonstrate good faith repayment efforts before seeking a student loan discharge later. An experienced bankruptcy attorney will analyze your income, assets, debts, and goals to determine which approach best protects your financial future.

Practical Tips for Borrowers Considering Bankruptcy for Student Loans

If you are considering bankruptcy due to overwhelming student loan debt, there are several key steps you can take to strengthen your potential for discharge.

First, document your income, expenses, and any medical or disability-related limitations that affect your earning capacity. Second, maintain clear records of your repayment efforts, deferments, forbearances, and communication with servicers. Third, consult with a bankruptcy attorney who understands the evolving legal landscape and can guide you through the attestation process now available for federal loans.

Remember that every bankruptcy case is unique. The courts consider your entire financial picture, and preparation can make the difference between success and denial in an undue hardship claim.

The Role of a Skilled Bankruptcy Attorney

Experiences with student loan discharge in bankruptcy can be complex, especially with rapidly changing policies and interpretations. Fortunately, at Sirody Bankruptcy Center, our attorneys have decades of experience helping clients in Maryland explore their best options for relief from student loan debt and other burdensome obligations.

We stay current with evolving Department of Justice guidelines and court decisions to ensure that you receive informed, strategic advice.

Whether you are considering Chapter 7 bankruptcy, Chapter 13 reorganization, or simply want to understand your legal rights regarding student loans, we are here to help. Our compassionate team will take the time to assess your situation, explain your options, and fight for the financial fresh start you deserve.

Take Charge of Your Student Loan Today!

The myth that student loans are impossible to discharge in bankruptcy is slowly eroding. New Department of Justice guidance and shifting court perspectives are creating real opportunities for borrowers to gain relief from crushing student debt. However, pursuing discharge requires thorough preparation, strategic presentation, and a deep understanding of bankruptcy law and emerging policies.

If student loan debt is keeping you from achieving financial stability, contact Sirody Bankruptcy Center today. Our experienced attorneys will evaluate your case, explain your options under the latest legal updates, and guide you toward a brighter financial future.