Student Loans and Bankruptcy: How Chapters 7 and 13 Affects A Borrower’s Educational Debt

College graduates can complete their programs of study with large amounts of debt, sometimes amounting to over $100,000 in just educational expenses. For those who take positions where loan forgiveness or large starting salaries are not available, the thought of large monthly student loan payments, in addition to other debts and living costs, can be alarming.

However, if the amount of debt becomes too much to handle, a borrower should reconsider filing bankruptcy in order to relieve the burden of educational debt. Almost all student loans are immune to bankruptcy filings as found in the borrower’s master promissory note.

Discharging Student Loans Through Bankruptcy

For many student loan borrowers, discharging all student loan debt by declaring chapter 7 bankruptcy is no longer possible. This is due to new rules and regulations passed in 2005 to curb unnecessary bankruptcies being declared by those who did not want to repay their educational debt.

According to Student Loan Borrower Assistance, courts often use the Brunner test to determine if student loan debt is creating an undue hardship for the borrower and to figure out if the debt should be discharged. In order to be considered an undue hardship, the amount of student loan debt must meet three criteria:

  1. A “minimal” standard of living cannot be maintained due to the amount of debt.
  2. Additional circumstances (such as medical expenses) will continue to exist for a large portion of the repayment period or extend beyond the term of repayment.
  3. The borrower has made good faith payments or an attempt to repay the debt.

However, even if the amount of debt and the borrower’s situation meets all three criteria, it is still the decision of a bankruptcy judge to discharge student loan debt under a chapter 7 bankruptcy, or to reorganize a student loan repayment plan under chapter 13 filings.


Student Loan Debt Cancellations and Forgiveness

For some professions, there are programs available to reduce the amount of principle that one owes in exchange for community service or taking a position in certain environments. For example, those graduating with degrees in education may be able to have a portion of their student loan debt forgiven if they teach in inner city or low income school districts for a minimum of five years.It is also possible to have educational debt forgiven for the following reasons:

  • community service
  • military service
  • qualify for public service loan forgiveness

It is extremely rare to have private student loans canceled or forgiven, but under certain circumstances it is possible to have federal student loans canceled. According to, there are very specific conditions under which the Department of Education will cancel student loan debt, many of which students will probably never qualify for:

  • The institution closed during the borrower’s enrollment or within 90 days after the student’s enrollment ended.
  • The school did not qualify your status prior to enrollment and disbursement of funds.
  • The student’s signature was forged on financial paperwork.
  • The school did not evaluate the student’s ability to benefit from the coursework before the program began.
  • The borrower becomes permanently and totally disabled.
  • The borrower dies.

If a borrower believes that they qualify for a student loan cancellation, he or she should contact the financial institution that holds the loan in question regarding a cancellation.

Student loan debt can quickly become a necessary but intimidating financial obligation. However, it is possible, while difficult, to have debt reduced or disposed of if a borrower meets the qualifications.