How to Really Discharge Your Student Loans in Bankruptcy. Many Can. But Never Try.

For years we’ve all heard the same message that it’s near darn impossible to discharge student loans in bankruptcy. We’ve heard that the undue hardship standards make it so onerous that expecting a student loan discharge is all but an act of God. But what if that belief was actually more myth than fact?

Recently Jason Iuliano, (J.D. Harvard Law School; Ph.D. Student in Politics, Princeton University) took an emperical look at the reality of student loan discharges in bankruptcy and his results, are, well, shocking.

What Iuliano found was that the reality of student loan discharge in bankruptcy was that four out of ten that attempted to discharge their loans were successful. Granted, a 40 percent rate is not success for the majority, but it’s not inconsequential either. More disturbingly he found that in just the one study year, 69,000 debtors would have been good candidates to receive some or full relief from their student loan debt but they never even tried to discharge the loans. In fact few ever try to discharge their student loans in bankruptcy. “99.9 percent of student loan debtors in bankruptcy never attempt to get a discharge,” says Iuliano.

It is possible to discharge student loans in bankruptcy. – Click to Tweet

The research found that consumers that were able to successfully discharge their student loans in bankruptcy under the undue hardship standard had these three characteristics.

  1. Less likely to be employed.
  2. More likely to have a medical hardship.
  3. More likely to have lower annual incomes the year before they filed for bankruptcy.

After studying previous bankruptcy filings, Iuliano stated, “Incredibly, only [one-tenth of one percent] of student loan debtors who have filed for bankruptcy attempt to discharge their student loans.” – You can read full study here.

In order to pursue a successful claim to discharge the loans in bankruptcy a student loan holder should be able to show (1) a current inability to repay the loans, (2) a future inability to repay the loans, and (3) a good faith effort to repay the loans. Many can easily do that.

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A review of the results obtained by filers shows the majority of those approved for student loan discharge, received a full or partial discharge of their student loan debt.

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So Why Don’t More Even Try?

There are a number of factors which could explain why so few consumers attempt to discharge their student loans under bankruptcy. The first reason and probably the most prevailing is the apparent urban myth that student loans can’t be discharged under bankruptcy. The reality of the results Iuliano uncovered is quite different.

Second, it’s quite possible that student loan collectors and the media tell consumers that there is no sense pursuing bankruptcy since student loans can’t be discharged so they never attempt to.

Third, a wide number of bankruptcy attorneys are convinced that student loans can’t be discharged under bankruptcy and never even try to include them or pursue an adversary hearing to go for the discharge.

Admittedly, I’ve held this old assumption as well and have said for years that an undue hardship discharge is not possible for many. It wasn’t until reading this most recent research released in September of 2012 that proof has been shown otherwise.

See also  Single Mother Wins Discharge of Her Federal Student Loans in Bankruptcy. Government Appeals.

Attempts by a wider number of consumers to discharge their student loans may not be as successful as the sample studied since more people with higher incomes and less of a demonstrable hardship may now pursue a discharge of their student loans. But maybe more will attempt to discharge their student loans through this process and tens of thousands of people will be successful that would never have even attempted such relief.

The study author also postulated why so few try:

Nonetheless, an important question remains: why do so few people in bankruptcy attempt to discharge their student loans? A couple reasons likely account for this phenomenon. First, the view that student loan discharges are nearly impossible to obtain may be a self-fulfilling prophecy. As mentioned earlier, journalists and academics have long asserted that it is nearly impossible to meet the undue hardship standard. If debtors take these comments to heart and believe that their chances of success are trivial, they will be less likely to attempt to discharge their educational debt. Judges grant so few discharges simply because they hear so few student loan cases. Unfortunately, with judges granting so few discharges, commentators feel even more justified in arguing that the undue hardship requirement is too harsh. Thus, the cycle continues.

A second reason that people may choose not to pursue discharges is that they do not have money to pay an attorney. Because the adversary proceeding is essentially a trial, debtors may believe that they need an attorney in order to win. Quite reasonably, they do not think they will be able to represent themselves against a large company such as Sallie Mae or Wells Fargo. My study, however, shows that a debtor can be successful without an attorney. In fact, after controlling for other factors, I found that there was no statistical difference in outcome between pro se debtors and debtors represented by an attorney.

As bankruptcy attorney Gary Armstrong stated in a recent post on this subject, “The main lesson from the findings is the minimal participation by debtors. Surprisingly, less than one tenth of one percent of debtors who file for bankruptcy even attempt to have their student loans discharged.” – Source

Here is the bottom line, more consumers should pursue a student loan discharge in bankruptcy. While the majority may not receive a discharge, a large number that don’t even try would receive a substantial benefit or relief to allow them to move forward with their financial lives.

Reality Check: The reality is that the cost of fighting the student loan lender for a rightful elimination of student loan debt can be an expensive process that many who file bankruptcy can’t afford to pursue.

The bottom line here is that if you have student loans you should discuss this article and these issues with your bankruptcy attorney to clearly and specifically understand what it would take for you to fight for a discharge of your student loans.

Even a number of those that pursued a full discharge of their debt, that were not discharged by the court, were able to come to an agreement with their student loan lender to settle their loan balance instead. Either way, that’s a victory for consumers with unmanageable student loan debt.

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If you find a bankruptcy attorney that says it’s not possible to discharge your student loans, send them the link to this article and let’s help open their eyes to the research.

If you need help finding a local bankruptcy attorney, you can always use this free online bankruptcy attorney directory.

For more information on dealing with student loans in bankruptcy, see the articles below.


Another approach that has worked for discharging student loans in bankruptcy is for private student loans that are outside their statue of limitations and time barred. In this case the private student loans can be eliminated in a regular bankruptcy without any adversarial proceedings as needed with the approach outlined above.

Additionally many private student loans were bundled and sold, much like mortgages were. If pressed it might be very hard for the true ownership to be legally proven. That is a much more complicated course of action but I believe we will see this develop into a bigger issue.

A successful approach for those that are having a tough time with private student loan payments is to consider talking to bankruptcy attorney and explore a chapter 13 bankruptcy where the student loan payments are included.

In some areas the payments can be reduced. In general the bankruptcy will stop all collection activity and potentially fees for the five years you would be in a chapter 13 bankruptcy.

Hopefully the laws will change in the years ahead and private student loans will be dischargeable again as they were before 2005.

For government backed student loans, read The Ultimate Guide to Dealing With Student Loans You Can’t Afford.

Update July 7, 2013

A recent appeals court ruling supported discharge of student loans in bankruptcy. Read Big Case Proving Ability to Discharge Student Loans in Bankruptcy.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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39 thoughts on “How to Really Discharge Your Student Loans in Bankruptcy. Many Can. But Never Try.”

  1. Well, after reading this and doing some research, I think filing for bankruptcy will be the best option for me. I have 8 separate private student loans that I’ve been dealing with for almost the past two years. Five of those recently defaulted. I called my lender and the lowest they’re willing to go is 500/month on them. Or 100/loan. This is until “my financial situation improves”. I have no idea when that will be. It could be 6 months to a year from now. Maybe more.

    It’s honestly been a nightmare dealing with this. My lender will barely budge. I work part time making 10.50/hour and they know this. My co-signer has his own financial burdens. Sure we could scrape together enough for that monthly payment but I just can’t see us being able to afford that for a long amount of time.

    I feel as if I have no other options.

  2. Thank you for sharing your story. Mine is quite similar to yours, though I am lucky to have a job that allows me to pay my loans and work at chipping away at my debt much more slowly than I would like to. Most of my loans are private loans and they are not willing to work with me very much at all. I know many others who graduated around the Recession like I did who are struggling with the same issues.

    I admit, when I entered college, I had a very idealistic view of what would happen post-graduation. None of that has happened according to plan! I graduated with credit card debt (used CCs for living and medical expenses – my parent’s insurance only covered me during the school year and I have a chronic medical condition) in addition to WAY more student loans than I could handle. On top of that, at the time, it was very hard to find meaningful employment. I ended up doing a year of service through AmeriCorps and that was probably the best thing I ever did. I have many friends who are just now exiting jobs in the service industry and entering the workforce in their field of interest – I am lucky to have avoided some of that, though I have done A LOT of moonlighting for extra cash to live on, including babysitting, mystery shopping, and I also played in a local / regional band to scrape in some extra $$.

    All this to say, I certainly identify with your struggle! I want to be responsible and pay off the debt that I amassed of my own free will to obtain a quality education. However, it hurts that I work long, hard hours with little pay off. There are things I would like to do with my life that don’t involve giving away my hard-earned pennies to these loan companies (I have several lenders). I may check into this whole bankruptcy thing, or at least get a consult from an attorney to see if I might have a case. I really despise the fact that I had to choose financing my education over becoming a homeowner. Even having kids is on the back burner until we have plowed through some of this debt. Best of luck to you and I hope there is some glimmer of hope for us in the near future.

  3. $1.3 million dollars in student loan debt, which now exceeds credit card debt in the U.S. Now what? When I hear from consumers, many are unaware of their legal rights and options. Thanks for spreading the good word!

  4. Excellent article talks about recent favorable opinions discharging student loan debt in bankruptcy. Times are changing.

    “The two recently decided cases which question the Brunner test are Kreiger v. ECMC, No. 12-3592 (7th Cir. Apr. 10, 2013), and Roth v. ECMC, No. 11-1233 (9th Cir. BAP Apr. 16, 2013). In Kreiger, the appeals court stated that the Brunner test created a “judicial gloss” on the phrase “undue hardship” which could lead courts to allow Brunner to “supersede the statute itself.” The court held that the debtor lived in a rural area with little prospect of future employment allowing payments on her student loans. The debtor should not have been required by a lower court to enroll in a futile 25 year income-based repayment plan, where her future efforts to repay would be counted toward a showing of good faith under the third prong of the Brunner test, according to the appeals court.

    In Roth v. ECMC, another federal appeals court also questioned a lower court’s requirement that the 64 year old debtor should have been willing to enroll in a 25 year repayment plan for her $95,000 in student loans. The appeals court noted that upon forgiveness of the student loan debt by ECMC after the 25 year period, the debtor would owe income tax on the entire $95,000 forgiven debt, except to the extent she was insolvent under the tax code, 26 U.S.C. section 108(a). The “potentially disastrous tax consequences” tipped the scales for the appeals court, which held that the debtor did indeed meet the Brunner test’s good faith requirement.

    In each of these two cases, the appeals courts ruled that the student loans should be discharged.

    Even more noteworthy in Roth was the concurring opinion filed by Judge Pappas of the Ninth Circuit Bankruptcy Appellate Panel. Judge Pappas noted that Brunner was decided in 1987, at a time when the bankruptcy code allowed discharge of student loan debts on either of two grounds: first, if the student loans had been in repayment status for five years or more on the date the bankruptcy was filed, or second, if repayment of the student loans would constitute an undue hardship on the debtor. The bankruptcy code has since been amended to remove the five year discharge rule.

    Judge Pappas also observed that since 1987, the average balance owed on student loans has increased greatly. Brunner involved a $9,000 student loan, but today the average balance owed on student loans is $25,000, and twelve percent of borrowers now owe more than $50,000. “Astoundingly, today there is nearly $1 trillion in outstanding educational debt,” said Judge Pappas, and much of it is “owed by borrowers who never had the ability to make substantial payment on the balances.” The Brunner test was “truly a relic of times gone by.” Judge Pappas called for the Ninth Circuit to formally reject Brunner, and return to a more common sense understanding of the phrase undue hardship.” – http://www.bankruptcylawnetwork.com/student-loans-two-appeals-court-cases-question-the-brunner-test/

    • The rulings Craig Anderson found are good news for people in the second circuit, and senior citizens living in the ninth, but what about the other 10 circuits? Need more than two appellate rulings in favor of consumers to consider the times are changing, don’t you think?

      On a separate note, I notice you allow some of your anonymous readers to use curse words in their comments. That bothers me. Doesn’t it bother you to see such strong language on a Web site devoted to important personal finance matters? I mean, even the sports sights don’t allow cussing.

      • Times are changing. It would be hard to say they aren’t with the focus on the HIll on this and the CFPB initiatives.

        New changes out from the court are a positive change.

        And on the cussing, does it bother me, fuck no.

  5. I think the article’s author should concede the headline is misleading. The bankruptcy study that forms the basis of this story was flawed. The law is clear: the debtor must show a permanent disability that makes it unlikely he or she will ever earn an income. Consumers and lawyers can lament this all they want, but at the end of the day, people must lobby their representatives and Congress must act to change the law.

  6. 2 Billion you say? Wow.

    However, anyone that can open a mail box can settle debt, so why don’t you try and impress us all with something that actually matters?

    How about by telling us the huge number of all the debt that Freedom enrolled, collected hundreds of millions in fees on and then never did shit about? How about that number Daniel? That is certainly larger and more impressive than 2 Billion. You know, all the people that lined your bank account with thousands of dollars and got nothing but lawsuits, wage garnishments and bank levies.

    Come on, impress us.

    When you put down your cool aid, you should think about how many millions of dollars have been stolen from people as a direct result of YOU sending them to Freedom Debt like lambs to the slaughter?

    Does that ever cross your mind? Is the money really worth it in the grand scheme of things?

    • If anyone who can open a mailbox can settle debt, why does Steve Rhode have a button on this page that takes someone looking for debt settlement help to a page that recommends two professional companies that charge fees?

      I am happy to have a principled, reasoned debate or exchange with someone who demonstrates principles and reason.

      I stand by my professional record and the substantive comments I made. I don’t need to hurl unsubstantiated insults at someone, anonymously.

      I would like to know Steve’s thoughts on anonymous vituperation and insult, compared to reasoned argument.

      • Perhaps it is because most people would actually prefer to pay a professional to handle the situation for them. I have no problem with that. However, that shouldn’t give Freedom free reign to to take advantage of people the way that it does.

        The point which you artfully missed, was that 2 billion in settled debt doesn’t mean anything if you have 4 billion of enrolled debt that never got resolved. Yet people still paid the fees.

        You are calling for a principled debate right? Well you can start by answering simple questions that go directly to the heart of what your principles are.

        Is that acceptable? Are you ok with taking millions of dollars from people who were put into a worse financial situation as a direct result of listening to you?

        Yes or no?

        • You are raising red-herrings. This thread was about student loans and bankruptcy. You did not address any of the points I made about that, but wish to divert the discussion into one about me and Freedom Debt Relief.

          You still lack the grace or fortitude to identify yourself.

          For your information, Freedom Debt Relief does not charge advance fees. A fee is only taken after a debt is settled, and only for that account. Therefore, no client is paying any fee without a tangible result. I believe that this is the same approach that is taken by the firms recommended on the page to which Steve links.

          Lastly, I don’t have to answer your false “yes or no” question. It is akin to “have you stopped beating your wife?”

          • It certainly is. You made a comment that there is too much fluff and inaccurate information online. I checked out your profile, and found that to be an odd statement given what you do. And here we are.

            You are right Freedom does not charge advance fees anymore. Can you tell everyone why?

            My false question? Do you or do you not concede the fact that Freedom Debt Relief has made millions of dollars from people that did not have their debt settled as promised?

            You are having trouble answering these questions so you call it a “red herring” sounds like the phrase you were looking for was “oh shit”

          • I’ve failed to get into a dialogue with you, as you don’t address what I say, but just move to attack, while hiding behind an anonymous persona. You also never addressed the topic on the page, student loans and bankruptcy.

            I neither concede the point you asked me to concede, nor do I accept that you framed the question in an accurate or reasonable way.

            I think that Steve has an excellent post on his site that presents Freedom Debt Relief’s perspective. https://getoutofdebt.org//27846/the-wild-ride-in-debt-relief-andrew-houser

            I will let that speak for Freedom. As for Bills.com, I have no problem recommending that anyone who is considering debt settlement speak with Freedom Debt Relief.

          • Denial,
            You failed to get into a dialogue with me, because you
            can’t for fear of being exposed as either incompetent, or a Fraud.

            You can dance like Michael Jackson, but you can’t answer a simple question.

            How did I frame the question?

            Has Freedom Debt Relief collected and kept millions of dollars in fees from people that never had their debt settled?

            Yes or no?

            If you still can’t understand the question, please frame it in a way that is suitable to you and answer it.

          • The post you point to was written by the head of Freedom Debt Relief!

            The head of Freedom thinks his company is great and wants consumers to sign up. News at 11.

            Denial, maybe you can send me a press release that you wrote that tells me how great your website is also so more people will trust you.

    • I agree with many of the statements in the April, 2013 NCLC response.

      For me, the greater underlying issue are not the hurdles they describe but the fact that consumers are not aware of the criteria which has led to discharge and bankruptcy attorneys are reluctant to try either out of assumptions or for some other reason.

      I think it was Wayne Gretzky that said, “You miss 100 percent of the shots you never take.” A swing and a miss with trying to discharge student loans in a narrow band of criteria is the same thing.

      My article and the underlying study never said every person would have a chance of a discharge. It said, the people that meet this criteria have an increased chance of a discharge.

      • Thanks, Steve. I think your article makes it sound easier than it is. The “Many Can” in the title, for instance. Also, a swing and a miss is not without costs, if one’s main benefit to filing for BK (and paying fees and attorney costs) is to discharge Student Loan debt.

        • Based on the data in the paper and conclusions reached, it seems to be a factual statement that those people that meet the criteria which others have had success discharging their loans will have a better chance of discharging the student loans.

          How many of those that don’t try will be able to?

          For those that don’t think it is possible, there are still benefits to bankruptcy to deal with the student loans as I lay out in https://getoutofdebt.org/51013/the-ultimate-guide-to-dealing-with-student-loans-you-cant-afford

          • Thanks again, Steve. I appreciate your dedication to providing consumers with helpful information. I still think that your article should updated based on the NCLC document, as it shows methodological errors and unsupported claims by Iuliano.

          • My basic objection is that your article gives great credence to Iuliano’s stats and conclusions, which the NCLC paper strongly disputes.

            I would be happy to speak with you about this, Steve. You can email me at falafelsryummy@yahoo.com, if you would like, and we can arrange a time to speak.

            Btw, I appreciate the fact that you care about what you do so strongly and also take the time to reply and engage with your readers.

          • I was actually talking about chatting publicly here.

            Another strategy that will grow is that 100% of unmanageable student loans can be addressed with a chapter 13 bankruptcy and those can hold off action against consumers while the chapter 13 is in force. It will buy consumers time to wait for Congress to take action.

            When the chapter 13 ends another can be started, a rolling 13.

            I’m hearing more about these now.

            So even though you might disagree with the results Iuliano published, it is true that one way or another student loans can be managed by bankruptcy.

            If a discharge is not possible then the collection pressured can be stopped or other debt can be cleared to make room for the payments.

            Would you dispute that?

          • Do you agree with Iuliano’s conclusions and methodology? I was prompted to comment on your article, after reading it when it was linked to by someone in a Google+ post. After reading what you wrote, I wanted to alert alerting you and your readers to what the NCLC said about Iuliano, as it is direct conflict with the tone and thrust of your article. The NCLC is much more knowledgeable than I am, though I do admit that I found their arguments compelling.

            I can’t say it better than the NCLC did.

            “The central point raised by the Iuliano study is not in dispute: few consumers who file for bankruptcy try to have a bankruptcy judge decide if their student loans can be discharged.
            However, the study’s conclusions beyond this point are not supported by the empirical data and ignore the plain realities facing student loan borrowers.
            In reality:
            • A consumer’s prospects of winning a student loan discharge case are slim and worse than in typical civil litigation.
            • Student loan holders and their agents, including the Educational Credit Management Company (ECMC), very aggressively fight discharge cases and are far less likely to settle out of court than in typical civil litigation.
            • Most consumer debtors need representation by an attorney to bring a hardship discharge adversary proceeding.
            The contrary conclusion in Iuliano’s article is derived from such a small sample size that no reliable conclusions can be reached as to outcomes.
            • Most consumer debtors, particularly those most in need of a discharge, cannot afford the litigation costs needed to bring a hardship discharge adversary proceeding.”

            Part of the issue that your question to me does not address is the cost of the bankruptcy process. As the NCLC points out, the work required to pursue a discharge is costly and time-consuming.

            It is not clear to me exactly what you are suggesting. Are you suggesting that people consult with a bankruptcy attorney and get advice as to whether discharge is possible? If it is, then find out the costs involved to pursue that option, and, if not, find out what kind of payment would be mandated in a Chapter 13?

          • I’ve got no dog in this hunt.

            My report was based on the paper published and NCLC came out with their alternative point of view.

            One point the NCLC paper did not seem to address was the criteria of those most likely to get a discharge.

            Iuliano said:

            The research found that consumers that were able to successfully discharge their student loans in bankruptcy under the undue hardship standard had these three characteristics.

            1. Less likely to be employed.
            2. More likely to have a medical hardship.
            3. More likely to have lower annual incomes the year before they filed for bankruptcy.

            My personal point of view is that there are some better strategies for dealing with problematic student loans other than what people assume.

            While graduated payment plans exist for government backed loans they are not the most advantageous approach. The best approach for dealing with those student loans appears to be to discharge any other debt that is preventing someone from making the regular ten year payment and dispose of the loans that way.

            If there is no other debt then turn to the government programs but understand the risks.

            If the problem is private student loans and the bankruptcy discharge route is not sufficient to make the regular payment then a chapter 13 bankruptcy to stop collections and but time hoping Congress will change the law is the most logical approach.

            As far as a hardship discharge goes, that’s a conversation the individual has to have with their bankruptcy attorney based on the district they practice in.

          • I have read other posts on your site and you seem to want to be up-to-date. If you feel the NCLC’s assessment of Iuliano is accurate, why wouldn’t you update your article? Is it merely an alternative view or is it a more-accurate alternative view?

            There is so much fluff and incomplete information online, when it comes to consumer finance, that it seems imperative to aim for a full, accurate, and up-to-date article.

            The three criteria you cite are no guarantee of a successful discharge of SL debt. I still want to look into the Chap 13 idea you raised earlier and hope to add my two cents on this.

            Thank you for engaging in this discussion.

          • Interesting comment coming from you Daniel.
            When did you decide to care about all the fluff and incomplete information online?

            As the editor of Bills[dot]com, Don’t you recommend people contact Freedom Debt Relief for debt settlement help?

            Correct me if I am wrong, but I wouldn’t really say that Freedom is the poster child for honest and complete information. You know, these virtues that you seem to now hold so dear?

            Maybe this righteous clean up effort can start with your website? Just a thought.

            Second, why are you so interested in this article about using bankruptcy to address student loans?

            Could it be that you also send people to a student loan reduction program and prefer that people don’t consider bankruptcy as a possible alternative option to what you want them to buy?

            Hypocrite Much?

          • I am Managing Editor at Bills.com. I have my information on my profile and am proud of it. I endeavor to provide accurate and useful information to consumers.

            I am not acting hypocritically (nor am I hiding behind a faceless profile to make ad hominem attacks). I know that debt settlement is not the right approach for everyone. There is no one-sized-fits-all solution to debt problems, whether it is student loan debt, credit card debt, or other forms of debt. I advocate looking at the different options available and weighing the relative pros and cons.

            Based on Freedom Debt Relief’s record of having resolved over $2 Billion in consumer debt, I think that anyone considering debt settlement is well-served to consult with them.

            I do not have any stake in a person finding a particular solution to a student loan debt problem. My desire is for each person to find the best possible solution. I don’t accept the accusation that this desire is new-found.

            I also never stated that I am against anyone discharging student loan debt via BK. My concern is that the Iuliano study and Steve’s article did not lay out the potential problems with pursuing a discharge, which were nicely explained in the NCLC piece.

  7. This is really important information. Especially with the growing bubble in student loans. They are going to be the next (actually already are) huge financial problem for consumers.


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