More Consumers Successfully Discharging Student Loan Debt in Bankruptcy

Not all forms of debt can be discharged through bankruptcy. Traditionally, non-dischargeable debts have included child support, spousal support, many court fines, and student loans.

A growing number of consumers are struggling with unaffordable student loans, particularly people aged 60 and older. The Consumer Financial Protection Bureau (CFPB) reported recently that over the last decade, the number of older Americans with student loan debt has quadrupled.

Many consumers are now being given an option for getting out from a mountain of student debt: bankruptcy. Since 2016, many bankruptcy courts have finally allowed borrowers to cancel private student loans using a legal argument that takes advantage of a vague definition of the legal definition of a student loan.

According to federal bankruptcy law, borrowers can’t discharge debts made for “educational benefit” without shoving extreme financial hardship. This vague language can allow consumers to discharge their student loan debt by arguing the loan falls outside of this specific category. This argument is often successful on loans to attend a school that is not accredited or to study for a state bar exam.

While this exception can help many student loan borrowers, it will only apply to a some private student loans, which account for less than 10% of the massive $1.3 trillion student loan market.