Discharging student loan debt through bankruptcy is not easy, but it may be possible in cases of undue hardship. To evaluate whether a borrower qualifies, courts and loan holders often look at specific financial and personal circumstances.
Recent guidance from the Department of Justice and Department of Education highlights a more consistent and transparent approach to assessing undue hardship. It encourages a review of a borrower’s past, present and projected financial situation to determine whether continued repayment is realistic.
1. Maintaining a minimal standard of living
One way to demonstrate undue hardship is by showing that repaying student loans would prevent the borrower from meeting basic living needs. This includes comparing income against essential expenses like food, housing, transportation and healthcare. If expenses are higher than income, or if certain needs are going unmet due to financial limits, this may support a claim of undue hardship.
2. Likelihood that financial hardship will continue
A borrower can also support their case by showing that their financial difficulties are likely to persist for a large portion of the loan repayment period. This may be due to ongoing disability, age, limited earning potential or other factors that make it unlikely they will be able to repay the loans in the foreseeable future.
3. Efforts made to repay the loans
Courts often consider whether the borrower has made a good faith effort to repay the loans. This does not mean perfect payment history. It includes actions such as applying for income driven repayment plans, seeking deferments or forbearance or attempting partial payments. Borrowers who avoided repayment entirely may still demonstrate good faith if they were misled or received inaccurate information about their options.
4. Any other relevant facts or personal hardships
Each case is different. Other circumstances, such as caring for a dependent, serious illness or wrongful denial of repayment plans, may also play a role in showing that repayment would cause undue hardship. These facts can help present a complete picture of the borrower’s situation.
Obtaining knowledgeable legal guidance can be helpful when presenting information and documentation to support a request for discharge based on undue hardship.
