Note that the situation for student loans has changed due to the impact of the coronavirus outbreak and relief efforts from the government, student loan lenders and others. Check out our Student Loan Hero Coronavirus Information Center for additional news and details.
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Can student loans be included in bankruptcy? Possibly.
Bankruptcy does not automatically discharge student loans, but there are instances where you could get your student loan debt wiped clean.
The simplest way to understand what happens to student loans in Chapter 7 and 13 bankruptcy is to examine these two types of proceedings, as well as some alternative routes:
- What happens to student loans in Chapter 7 bankruptcy?
- What happens to student loans in Chapter 13 bankruptcy?
- What are alternatives to bankruptcy for student loans?
- What do you need to consider before you file bankruptcy?
Chapter 7 bankruptcy usually results in a liquidation of your assets. To file for Chapter 7, your current monthly income must be below the state median. If it’s not, you need to pass a means test to determine whether you have disposable income to pay the debt under a Chapter 13 plan. Unlike Chapter 13, Chapter 7 has no repayment plan. Some debts are fully discharged, while others are not.
|Chapter 7 in the news|
|A January 2020 bankruptcy court decision discharged the $221,385.49 student loan debt of a U.S. Navy veteran, stemming from his Chapter 7 proceeding. However, the possible watershed ruling was ultimately appealed by the borrower’s loan servicer.|
Here’s what happens to student loans when you file Chapter 7:
Lenders stop hounding you for money. Upon filing your Chapter 7 bankruptcy petition, an automatic stay is granted like it is with a Chapter 13 filing.
There’s no automatic student loan debt discharge. Under Chapter 7 bankruptcy, your student loans are not automatically discharged. To have your student loans considered for discharge, you can file a complaint to determine dischargeability, which initiates what’s known as an adversary proceeding.
You (and an attorney) attempt to prove your case for financial hardship. It may not be as hard to discharge student loans as you have been led to believe. In the case of extreme financial hardship that results in having very little to contribute toward the repayment of your debts overall, the court may decide to discharge your student loans completely.
The process is quite difficult and rarely happens, but it is possible. According to a study published in 2011 that is still cited often, 40% of those who initiated the adversary proceeding were able to discharge all or part of their student loans.
However, only 0.1% of those who file Chapter 7 petitions filed the complaint to determine dischargeability — in other words, people are so convinced it’s a near-impossibility that they don’t even try.
The student loan holder may oppose your undue hardship claim. A July 2015 letter from the U.S. Department of Education advises loan holders on how this determination is made: “First, a holder must evaluate a borrower’s undue hardship claim and determine whether the holder believes that repayment would constitute an undue hardship according to the legal standards set by the federal courts.”
If the loan holder believes you’ve proven undue hardship, it may not oppose. However, if the loan holder doesn’t believe you’ve proven undue hardship, it may oppose, but not before running the numbers on just how much such an opposition will cost.
The court may use one of two tests to determine undue hardship. There’s the Brunner test and the Totality of the Circumstances test. The criteria for each test is outlined in the Education Department letter referenced above.
Under the Brunner test, you must show that:
- Paying back your student loans will make it impossible for you to maintain a minimal standard of living
- Your financial situation is not likely to change anytime soon
- You’ve made good-faith effort to pay back your student loans
Under the Totality of the Circumstances test, the court considers:
- Your past, present and likely future financial resources
- Reasonably necessary living expenses
- Other relevant facts and circumstances
While these are the two most common tests, some courts use others. A bankruptcy attorney should be able to tell you which test is used in your jurisdiction.
Ultimately, it boils down to proving you’re experiencing undue hardship. Undue hardship is living under circumstances that make it next to impossible to fulfill your financial duties. Maybe you’re living below the poverty line, you have a disability that makes you unable to work or you qualify for food stamps. These quality-of-living factors could help you prove you’re unable to repay your student loan debt.
The court makes a decision. If the court finds that you have, indeed, proven undue hardship, you may have all or part of your student loans discharged. If the court finds that you have not proven undue hardship, your student loans will not be discharged and you’ll be responsible for paying them back in full.
|Student loan account closed after Chapter 7?|
|● If your student loans are discharged completely via bankruptcy, you can expect your student loan account to close (though record of the bankruptcy itself may remain on your credit report for 10 years). Still, it’s wise to seek confirmation from your bankruptcy attorney.
● Keep in mind that if your loans are only partially discharged, your student loan account with your lender(s) will remain open, reflecting whatever balance you may still owe. To avoid delinquency and default on that remaining balance, consider the debt repayment strategies detailed in the table below.
Chapter 13 bankruptcy is a reorganization where you’re required to repay part of your debt, likely over three to five years. Some of your remaining debts may be discharged at the end, including student loans.
|Chapter 13 in the news|
|In August 2020, a bankruptcy court affirmed the cancellation of $200,000 in education debt for a Colorado couple. The potentially landmark ruling was the final result of a Chapter 13 filing.|
Here’s what happens to student loans under Chapter 13 bankruptcy:
Lenders stop hounding you. Upon filing your Chapter 13 bankruptcy petition, an automatic stay is granted. This prohibits most creditors — including student loan servicers — from trying to collect debts. This protection typically continues through your repayment period.
Student loans don’t take top priority. Student loans in Chapter 13 bankruptcy are considered nonpriority unsecured debt. This means you aren’t required to pay the full amount of your student loans through the Chapter 13 repayment plan.
Your monthly payment may change. The amount you end up paying toward your student loans in Chapter 13 bankruptcy depends on your repayment plan. Your student loans receive a pro rata share, which will likely represent a dollar amount less than your regular monthly student loan payment. In some cases, your student loan debt might be discharged (more on this below).
Making full monthly payments may not be possible. If you want to continue paying your student loans in full outside Chapter 13 bankruptcy, you need to check. Some jurisdictions deny this because the full payments reduce what certain unsecured creditors would be paid during bankruptcy.
Student loan interest can mount. Your student loans may continue to accrue interest over the three- to five-year term of your Chapter 13 repayment plan, since you’re most likely not making full payments.
Student loans can come back to haunt you. Once the repayment plan is over, you may be responsible for the remainder of your student loans because they may fall into the non-dischargeable debts category. This category can also include child support, unpaid taxes, debts for damages caused by you or debt from restitution orders. As you can see, not all debt disappears after a bankruptcy, so you should get advice from a professional before you file.
About 250,000 student loan borrowers file for bankruptcy annually, according to academic research from Villanova University — but perhaps you shouldn’t be among them.
Before filing for bankruptcy, find out if you’re eligible for these alternatives for your student loans:
|Income-driven repayment (IDR)||IDR plans may be available for those with federal student loans. These plans base your monthly payment on your discretionary income, so if you’re experiencing a period of unemployment or underemployment, your payments can be adjusted to make them manageable. After 20 to 25 years of making payments under an IDR plan, your loans may be forgiven.|
|Deferment or forbearance||Both deferment and forbearance put a pause on your federal student loan payments if you decide to go back to school or you’re having trouble making ends meet. While in deferment, you may not have to pay for the interest that accrues (depending on the type of loan), though while in forbearance, you’re required to pay interest on the loan. Private student loan companies may offer deferment or forbearance options as well.|
|Debt consolidation||A debt consolidation or management plan would allow you to group your loans, ideally at a lower interest rate or monthly payment. Consolidation could be out of reach if you have poor credit or no access to a cosigner. In that case, a debt management plan set up through a nonprofit credit counseling agency could put you on track to zero your balances within three to five years.|
|Discharge||In certain situations, your federal loans may be completely discharged. A total and permanent disability or the closing of your school could qualify you for a federal student loan discharge.|
Rather than filing for bankruptcy, getting an income-driven repayment plan or requesting a temporary stop to payments could help you get back on your feet.
Now that you know what happens to student loans in Chapter 7 and 13, you might be ready to move forward. But remember: Bankruptcy should be treated as a last resort under any circumstance.
If you’ve asked “can student loans be included in bankruptcy,” make sure you’ve exhausted every other possibility before pursuing this. By that point, you have already compared debt consolidation versus bankruptcy, for example.
The information we’ve provided on bankruptcy and student loans is not intended to replace legal advice. For recommendations specific to you, consult with a bankruptcy attorney. Finding a student loan lawyer might be easier than you’d think.
Andrew Pentis and Taylor Gordon contributed to this report.
Interested in refinancing student loans?Here are the top 9 lenders of 2022!
|Lender||Variable APR||Eligible Degrees|
|1.74% – 8.70%1||Undergrad & Graduate|
|1.74% – 7.99%2||Undergrad & Graduate|
|1.74% – 7.99%3||Undergrad & Graduate|
|1.89% – 5.90%4||Undergrad & Graduate|
|1.74% – 7.99%5||Undergrad & Graduate|
|2.05% – 5.25%6||Undergrad & Graduate|
|1.86% – 6.01%||Undergrad |
|N/A7||Undergrad & Graduate|
|1.99% – 8.38%8||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 4, 2022.
2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team.
3 Important Disclosures for SoFi.
Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
4 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of April 29, 2021. Information and rates are subject to change without notice.
5 Important Disclosures for Navient.
6 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.
7 Important Disclosures for PenFed.
Fixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
8 Important Disclosures for CitizensBank.
Education Refinance Loan Rate Disclosure: Variable interest rates range from 1.99%-8.38% (1.99%-8.38% APR). Fixed interest rates range from 2.99%-8.63% (2.99%-8.63% APR).
IS Variable Rate Disclosure: Variable Rates advertised are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of December 1, 2021, the one-month LIBOR rate is 0.09%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. Your final variable rate may be based upon the 30-day average SOFR index, as published by the Federal Reserve Bank of New York. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
ERL Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of May 1, 2022, the 30-day average SOFR index is 0.29%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.