Private student loans can be discharged in bankruptcy if you can prove either:
When Isn’t a Debt a Student Loan?
A debt is a student loan if:
It was made, insured, or guaranteed by the government.
It was made under any program the government or nonprofit funded.
It meets the IRS definition to be a qualified education loan.
All federal student loans meet at least one rule. But not all private student loans do. Some private loans don’t get government support and don’t meet the IRS’s ‘qualified education loan’ requirements. Two common ways they fail to meet these standards are:
The loans were more than the school’s cost of attendance. This means the money wasn’t just used for ‘qualified higher education expenses.’
The school you were attending when you got the loans wasn’t approved for federal financial aid, making it not an ‘eligible institution.’
When loans don’t meet these conditions, they can be discharged more easily. But you still need a bankruptcy court to approve getting rid of the debt.
When Does a Private Student Loan Cause Undue Hardship?
A private student loan causes you an undue hardship if you can’t make the student loan payments throughout the repayment period while maintaining a minimal standard of living.
To determine whether you meet the undue hardship standard, bankruptcy judges look at your income, living expenses, work experience, education, age, where you live, and good-faith efforts to repay the loans.
Depending on where you live, the judge will review those things using the Brunner Test or the totality-of-the-circumstances test. Judges developed these tests to create a uniform way to make fair decisions in different cases.
But how judges use these tests can vary a lot.
This variance can make it much easier to discharge private student loan debt in one location and harder in another, even with the same facts.