Discharging Student Loan Debt in Bankruptcy: Borrower and Creditor Perspectives

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Student loans weigh heavy on many. Borrowers owe nearly $30,000 on average, and Americans collectively owe $1.5 trillion in student loan debt. While some believe that student loans are not forgivable or dischargeable, some circumstances allow for relief, although difficult to obtain, in the form of an outright discharge or a modification.

For many years a debtor had to make an exceedingly compelling case to prevail. But a bankruptcy court in Colorado recently found that private loans that provide an educational benefit are not covered by Bankruptcy Code Section 523(a)(8). In other words, a debtor need not meet the high burden of proving undue hardship to discharge private student loans. Some debtors have successfully challenged whether a private loan conferred an educational benefit, e.g. a loan for living expenses while studying for the bar exam.

Another approach for debtors is to seek an undue hardship discharge on the student loan's interest. In a recent decision from a bankruptcy court in Kansas, which was subsequently affirmed by the district court, the debtor sought a discharge of student loans that she took to attend community college. The court concluded that requiring the debtor to pay the remaining interest on the loan would impose an undue hardship. In short, the court discharged the interest but not the principal.

Listen as our authoritative panel of bankruptcy practitioners provides practical guidance to counsel for both borrowers and creditors on the intricacies of student loan debt in bankruptcy. The panel will review the treatment of different types of educational loans, Bankruptcy Code provisions governing student loans, relevant cases and judicial precedent in all federal circuits, local practices and policies, partial discharge of student loan debt, and specialized treatment of student loan debt in Chapter 7 and Chapter 13.