Bankruptcy can erase federal student loans when repaying them would leave you unable to afford basic living costs for years. Since 2022, government lawyers have used a standard form to decide when to support that relief for loans the Education Department holds. If your income barely covers essentials and that won’t change, ask a bankruptcy attorney whether you qualify.
Student loans have a reputation as the debt bankruptcy can’t touch. The real hurdle is proving undue hardship, meaning you couldn’t repay and still cover basic living costs.
You prove it in a separate lawsuit inside your bankruptcy case, called an adversary proceeding. For loans the Education Department holds, that lawsuit got easier in November 2022. Of the cases courts decided from then through March 2024, 98% ended in debt relief, the Justice Department reported. Its lawyers now recommend a full or partial discharge when a borrower’s sworn answers on the attestation form pass three tests.
First, after basic expenses, measured by IRS living-expense standards, your income can’t cover your full payment, not a lower income-based one. Second, that squeeze has to be likely to last. The Justice Department presumes it will if you’re 65 or older, have a disability that limits your earnings, were jobless five of the past 10 years, never finished your degree, or have been in repayment 10 years or more. Third, you must have tried in good faith, such as by making payments or applying for an income-based plan.
Take a 60-year-old borrower on disability who has paid for 20 years and still owes more than she borrowed. Two of those factors fit her, her payments show good faith, and if her income after basic expenses can’t cover her full payment, she has a strong case.
File Chapter 7 or Chapter 13, then have your attorney open the adversary proceeding and send your attestation to the Justice Department’s lawyer. The judge still makes the final call.
Private student loans get none of this. A private lender can contest your case, so you’d have to prove undue hardship under the strict standard courts have applied for decades.
Bankruptcy still costs attorney fees and stays on your credit report for years, so treat it as a last resort. If you’re totally and permanently disabled, apply for the Education Department’s disability discharge first, since it erases federal loans without a court case. Otherwise, bring your budget and payment history to a free consultation with a bankruptcy attorney.
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