Yes, Borrowers Can Discharge Student Loan Debt in Bankruptcy

The numbers are staggering. Federal Reserve data shows that Americans are shouldering student loan debt totaling $1.66 trillion. According to the Education Data Initiative, the average federal student loan balance is $40,467. Meanwhile, the Bureau of Labor Statistics (BLS) estimates that a person with a bachelor’s degree earns a median annual salary of $80,236.

Financial experts suggest borrowers should pay off student loans within 10 years. However, it takes the average borrower 17.5 years to pay off a federal undergraduate loan and 23 years to pay off a federal graduate loan.

Easing the burden of student loan debt was a focus of the Biden administration. The Supreme Court struck down President Biden’s plan to cancel up to $20,000 in federal student loan debt for up to 40 million borrowers. However, the Biden administration also eased the way for borrowers to discharge student loan debt in bankruptcy. That path remains under the Trump administration, but new repayment plans create new considerations.

The Undue Hardship Test

Bankruptcy law makes it difficult to discharge student loan debt in bankruptcy. Under Section 523(a)(8) of the Bankruptcy Code, student loans may not be discharged unless the debtor shows undue hardship. Because Congress didn’t specify how a debtor makes this showing, judges developed the concept of an adversary proceeding under Federal Rule of Bankruptcy Procedure 7001. The debtor must file a separate lawsuit outside the bankruptcy proceeding.

Furthermore, the Bankruptcy Code does not define undue hardship. Courts use one of two tests to determine undue hardship:

• In Andrews v. South Dakota Student Loan Assistance Corp. (1980), the Eighth Circuit created the “totality of the circumstances” test. The court reasoned that Congress left it to bankruptcy judges to determine undue hardship on an individual basis. The court wanted a flexible tool rather than a one-size-fits-all test.
• In Brunner v. New York State Higher Education Services Corp. (1987), the Second Circuit found that Congress intended to make the discharge of student loan debt difficult. The court created a three-part test to establish undue hardship:

1. The debtor must be unable to maintain a minimal standard of living if required to repay the loans.

2. The debtor must show that, based on the entirety of the circumstances, the situation would persist for most of the repayment period.

3. The debtor must have made good faith efforts to repay the loans.

Why Undue Hardship Is a High Hurdle

While most courts adopted Brunner, the First and Eighth Circuits stuck with the “totality of the circumstances” test, which offers a better chance of proving undue hardship. However, it’s important to understand the legislative history surrounding the Brunner decision.

In 1985, borrowers only had to go through a Rule 7001(f) adversary proceeding if they were trying to wipe out their loans within 5 years after graduation. After 5 years, student loan debt could be discharged automatically in a bankruptcy proceeding.

However, in 1990, Congress extended the automatic discharge waiting period from 5 to 7 years. In 1998, Congress eliminated time-based automatic discharge for federal loans. In 2005, Congress expanded this restriction to include qualified private student loans as well.

For decades, student loan debtors seldom obtained a discharge. Few debtors filed an adversary proceeding due to ignorance, complexity, and high costs. Government lawyers used the Brunner test as a battering ram, aggressively litigating every case and forcing bankrupt debtors into expensive, multiyear trials. Bankruptcy attorneys saw government lawyers crush borrowers in court and determined that filing an adversary proceeding was a waste of time.

The Self-Attestation Process Streamlines Adversary Proceedings

That changed dramatically on November 17, 2022. The Department of Justice (DOJ) and the Department of Education rolled out a self-attestation process to address these issues.

The self-attestation process encourages Assistant U.S. Attorneys (AUSAs) to settle most cases. AUSAs evaluate the debtor’s circumstances using IRS Collection Financial Standards to create national uniformity. The process also established clear guidelines for presuming that hardship exists and will persist, removing the burden on the debtor to prove a “certainty of hopelessness.”

Initially, the streamlined process applied only to federal student loans held by the Department of Education. In October 2023, the agency extended the pathway to include older Federal Family Education Loans and Federal Perkins Loans held by the Department or a participating guaranty agency. In May 2025, the DOJ rolled out an updated Attestation Form that added more granular expense categories and clearer presumptions for long-term financial hardship.

When a borrower submits this self-attestation form and the DOJ recommends a discharge, bankruptcy courts grant full or partial debt relief in roughly 98% of cases. Research shows that the overall success rate for federal borrowers attempting a discharge has climbed to 87%.

The New Two-Tier Repayment System

Despite shifting policies under the Trump administration, the attestation process remains intact. However, the Trump administration has moved federal student aid policy away from President Biden’s income-driven relief models.

Backed by a March 2026 federal court order, the Trump administration terminated the Saving on a Valuable Education (SAVE) plan, which allowed 7 million lower-income borrowers to make $0 monthly payments. The administration is also wiping out dozens of legacy repayment options. All new and many existing borrowers will be restricted to just two options.

The Repayment Assistance Plan (RAP) is the new income-driven plan. It caps payments based on earnings, but it requires higher payments than the SAVE plan and forgives loans after 30 years. The Tiered Standard Plan is a fixed-payment structure stretching from 10 to 25 years based on the borrower’s total debt balance.

The structural mechanics of the two-plan system impact how bankruptcy courts and the DOJ evaluate an undue hardship claim. The new system makes it easier for debtors to satisfy the Brunner standard, but it also creates potential financial risk.

How the Two-Plan System Affects Bankruptcy

Many borrowers who had $0 payments under SAVE will see their required payments increase under RAP. Ironically, higher monthly payments make it easier to prove that the debtor can’t maintain a minimal standard of living.

Under RAP, the timeline for debt forgiveness has been locked in at 30 years for most balances. Proving that the debtor’s financial difficulties are likely to persist given a staggering 30-year repayment horizon can be a lower hurdle to clear.

Enrolling in and maintaining compliance with RAP or the traditional Income-Based Repayment (IBR) plan establishes the debtor’s good faith efforts to repay the debt. It shows the DOJ and the bankruptcy judge that the debtor exhausted all federal administrative remedies.

However, the federal tax exemption for most student loan forgiveness ended on December 31, 2025. In general, student loan forgiveness is treated as taxable income, which could trigger a massive federal tax bill. This reality is pushing bankruptcy attorneys to fight aggressively for discharge in lieu of forgiveness.

The Path Forward

Student loan borrowers enrolled in the SAVE plan have just 90 days after receiving notice of plan termination to enroll in RAP, IBR, or another standard, extended plan. Otherwise, they will be automatically moved into the Tiered Standard Plan. Borrowers currently enrolled in other plans have different grace periods.

StudentAid.gov provides tools to help borrowers compare payment options and calculate monthly costs. The Institute of Student Loan Advisors offers free advice on timelines, transitions, and plan rules. Borrowers nearing loan forgiveness, facing default, or contemplating bankruptcy should consult a bankruptcy attorney.

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