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Sort of. Depends on your circumstances. It used to be easier, especially before 2005. Congress has slowly amended the Bankruptcy Code to make student loan discharge less and less possible.
This began in 1976. There were news stories about doctors and lawyers graduating from their respective professional schools, then discharging their loans in bankruptcy. This whipped up a legislative panic that has stuck with us ever since. In 1976, Congress passed a law preventing students from discharging loans made by the government or a non-profit college or university within the first five years of repayment. In 1984, Congress passed the Bankruptcy Amendments and Federal Judgeship Act, which exempted all private student loans from bankruptcy. And in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act prevented students from discharging any student loan unless the borrower can prove repaying the loan would cause “undue hardship.”
Nowadays, borrowers can follow a few courses of attack to try to get their student loans discharged in bankruptcy. These theories include:
1. Repayment would cause an undue hardship (often under the Brunner test), which studies show works approximately 39 – 57% of the time
2. Student loans were not used for qualified educational expenses (i.e. helicopter school)
Last week, Elizabeth Warren called for Congress to roll back this timeline of restrictions and make bankruptcy debts easier to discharge.
Until then, your odds are somewhere between 39-57%.
For more:
- Brunner v. NY State Higher Education Services Corp., 831 F.2d 395
- Pardo, Rafael I. and Lacey, Michelle R., The Real Student-Loan Scandal: Undue Hardship Discharge Litigation (October 24, 2008). American Bankruptcy Law Journal, Vol. 83, No. 1, 2009; 3rd Annual Conference on Empirical Legal Studies Paper.
- Iuliano, Jason, An Empirical Assessment Of Student Loan Discharges And The Undue Hardship Standard (July 24, 2011). American Bankruptcy Law Journal, Forthcoming.
- Kayla Webley, TIME, Why Bankruptcy Won’t Erase Student Debt (Feb. 9, 2012)
- Tyler Kingkade, Huffington Post, Elizabeth Warren Calls for Big Changes to Student Loans (Sept. 29, 2013)
- Tyler Kingkade, Huffington Post, Private Student Loan Study By Consumer Financial Protection Bureau Finds Parallels To Housing Market (Jul. 19, 2012)
- Steve Rhode, Huffington Post, Some Private Student Loans can be Quickly Eliminated in Bankruptcy (Jul. 25, 2013)
- Steve Rhode, Get Out of Debt Guy, These Private Student Loans Can Be Easily Discharged in Bankruptcy, (Jul. 24, 2013)
- David Dayen, Salon.com, Your student loan isn’t really a loan (Jun. 5, 2013)
- Ron Lieber, NY Times, Last Chance to Shed Student Loans – Proving All is Hopeless (Aug. 31, 2012)
- U.S. Department of Education, Federal Student Aid, Forgiveness, Cancellation, and Discharge (listing the three-part test for undue hardship: repayment would mean you could not maintain a normal standard of living, there is evidence the hardship will continue for a significant portion of the repayment period, and you made good-faith efforts to repay the loan–usually that you have been in repayment for at least five years).
The Law in Life 