Can Student Loans Be Discharged In Bankruptcy?

It's a common myth that student loans cannot be discharged in bankruptcy. However, the U.S. Department of Education has the legal authority to allow a borrower’s federal student loans to be discharged in bankruptcy, in certain circumstances. It has not, however, generally exercised this authority.

Instead, it often opposes undue hardship petitions. The general reasoning is that the availability of income-driven repayment plans provides sufficient financial relief for borrowers who face severe economic distress.

But is this reasonable, or should the Department of Education allow more student loan discharges in bankruptcy? Below, we discuss what we think, as well as a new bipartisan bill that could significantly change how students loans are handled in bankruptcy courts.