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November 30, 2022 Feature

Not So Black and White: The Shades of Gray of Relief for Student Loan Borrowers

By Judge Elizabeth L. Gunn and Joy D. Kleisinger

A core tenet of the bankruptcy system is the “fresh start” for those who file for relief under the U.S. Bankruptcy Code. However, a debtor’s fresh start becomes more complicated in the context of certain types of debt, including student loans. While it is often assumed by student loan borrowers that bankruptcy is not an option to discharge student loans, that historically was not and currently is not necessarily the case. Whether a borrower might be eligible to receive a partial or complete student loan discharge (or qualify for other non-bankruptcy forgiveness) is heavily dependent on a variety of factors. These factors include where the borrower lives, what kind of school the borrower attended, and the type of loan sought to be discharged. While the status of student loan relief options is undoubtedly complex, it is clear that unless there is additional congressional legislative action with respect to the intersection of student loans and bankruptcy, the situation for student loan borrowers will continue to be many shades of gray and neither black nor white.

Student Loan Dischargeability in Bankruptcy Historically

To understand the current state of student loans in bankruptcy, it is important to begin with the history of student loan dischargeability and the changes to such relief under the Bankruptcy Code over time. The Bankruptcy Act of 1898 made no distinction between student loans and any other unsecured debt. Legislative attempts to curb abuse of the bankruptcy system with regard to student loans began with the enactment of the modern Bankruptcy Code in the 1978 Bankruptcy Reform Act (the 1978 Act). Committee reports and early versions of the House bankruptcy bill illuminate the predominant concern with student loan discharge in bankruptcy: Students with government-backed student loans used to finance their education would, immediately upon graduation, declare bankruptcy and avoid ever having to repay the loan to the government regardless of their ability to pay. To address these concerns, in the 1978 Act, Congress adopted a five-year post-graduation waiting period for automatic government student loan discharge in bankruptcy and made the discharge available inside the five-year window only in instances of “undue hardship.” In other words, the 1978 Act retained the pre–Bankruptcy Code discharge of all student loans after the five-year waiting period but restricted the discharge of government student loans during the five-year period only to debtors who could show “undue hardship.” However, the statutory waiting period for student loan discharge applied only to federal government student loans, and private loans remained immediately dischargeable.

The five-year waiting period on government student loan discharge implemented in the 1978 Act was expanded to a seven-year period by the Federal Debt Collection Procedures Act of 1990 (FDCPA). The passage of the FDCPA highlighted concerns raised by various regulatory bodies that the five-year waiting period established by the 1978 Act curtailed enforcement efforts and the government’s ability to collect on the loans. Private loans remained immediately dischargeable. In the Higher Education Amendments of 1998, Congress completely eliminated any time reference and limited a borrower’s ability to discharge government student loan debt only upon a showing of undue hardship. However, there was no change to the treatment of private loans, which remained immediately dischargeable.

The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) represented a massive change in the ability of a borrower to discharge student loan debt, this time expanding the status as nondischargeable except for undue hardship to all private student loans. Unlike the previous legislative acts restricting borrowers’ ability to discharge student loans, the BAPCPA addition of private student loans has little legislative history for providing the preferred status and protection to private lenders, particularly concerning when the original restriction was based on the desire to protect the repayment of funds to the government. The scant legislative history only reflects a comment from the senator who offered the amendment, stating, “we are trying to give the private lender the same protection under bankruptcy.” Thus, in one amendment, an entire class of lenders who are not backed by any government program were taken from completely dischargeable in bankruptcy to the same level of protection as government loans under the expanded, no time limit “undue hardship” only standard.

The student loan section of the Bankruptcy Code (11 U.S.C. § 523(a)(8)) currently states that a debtor may discharge a debt:

[U]nless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—

(A) (i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual.

Thus, as long as a private loan was received as “an educational benefit,” it is nondischargeable absent the showing of undue hardship by the borrower. Government loans continue to enjoy even broader protections. Despite the well-documented history of the various versions of the Bankruptcy Code, most of the terms contained in the subsections are not defined and left to the courts to interpret. The initial burden of proof for dischargeability is on the borrower/debtor to show undue hardship, not on the lender to show they are entitled to the protections of § 523(a)(8). As most borrowers who file bankruptcy are in serious financial hardship, the vast majority do not have the ability to pay counsel to represent them. As a result, many plaintiffs seeking to have their loans determined to be dischargeable proceed pro se and fail to meet their evidentiary burden.

As demonstrated by the legislative history, in a matter of 40 years, the dischargeability of student loans evolved from completely dischargeable as any other unsecured debt to an undue hardship standard applicable to substantially all educational loans, federal or private, regardless of age. This gradual shift toward increased nondischargeability of student loans coincides with the growing student debt crisis, with Americans owing over $1.7 trillion in student loans as of March 2022. Due to the crisis, the government has tried to alleviate some of the burden on borrowers through the creation of a number of variables outside of bankruptcy repayment and forgiveness programs. Borrowers may choose to attempt to find relief in the less onerous government programs before filing bankruptcy and seeking to prove undue hardship.

Non-bankruptcy Government Loan Relief Programs

Various factors impact the availability of a variety of non-bankruptcy government programs to borrowers. Importantly, unless a private lender voluntarily offers a program, these programs are only available to eligible government loans—and not all government loans are eligible for all types of relief. Wading through the various programs and eligibility requirements is difficult (at best) and seemingly impossible (at worst). In addition to the relief available to government loan borrowers, recent issues at for-profit institutions have resulted in further expanded potential forgiveness of a borrower’s student loans. Recently, the U.S. Department of Education has forgiven government student loans issued to borrowers attending certain for-profit institutions due to fraudulent misrepresentations concerning the schools’ graduation rates and job placement. But that relief may not be as wide-sweeping as it sounds because borrowers who attend for-profit educational institutions, in general, utilize more private student loans than those students who attend nonprofit schools, and those loans are not subject to government forgiveness programs.

Borrowers with federal loans have the option of applying for a variety of government-created modified loan terms and repayment plans, such as an income-based repayment plan (also referred to as an income-driven repayment plan). Government borrowers are protected by delayed default provisions, where a loan is not declared as “in default” until after 270 days without a payment, as opposed to many private loans, which have much shorter default provisions. Further, during the COVID-19 pandemic, government loan borrowers were provided with a student loan payment pause that was set to expire on August 31, 2022. Borrowers who were eligible for the pause will be considered “not in default” even if they made no loan payments during the pause period. Borrowers with eligible federal loans are also able to apply for their loans to be forgiven due to disability, if the school attended closes or made a false certification, and for applicable public service. Absent borrower eligibility in any of these programs for government loans and for borrowers who financed their education through private loans, their only option is to either attempt to negotiate with the lender or to file bankruptcy and attempt to have their loans found to be an undue hardship.

“Undue Hardship”—Differing Approaches Across Circuits

The undue hardship standard to determine the dischargeability of student loan debt is not defined in the Bankruptcy Code and, therefore, interpretation of this standard has been left to the courts. As a result, the circuit in which a borrower files for bankruptcy has the potential to determine whether or not they may receive a discharge of student loans. Two primary approaches exist among the circuits for determining whether a debtor has demonstrated “undue hardship” sufficient to discharge student loan debt: the “Brunner test” and the “totality of the circumstances test.” Despite originating from the same language in the Bankruptcy Code, the standards required to satisfy each test are unequivocally different.

The Brunner test originated from the 1987 case Brunner v. New York State Higher Education Services Corp., wherein the Second Circuit adopted the following factors to determine undue hardship:

(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

Eight other circuits have adopted the Brunner test, and the test has been expanded upon in subsequent case law. Interestingly, Brunner was decided under the 1978 version of the Bankruptcy Code, which did allow for discharge after a five-year period (i.e., if the discharge was not allowed immediately, the borrower could refile bankruptcy after the waiting period and obtain relief). However, the Brunner standard continues to be applied to all debtors in applicable jurisdictions even though a debtor can no longer wait out the five-year period. If the debtor in Brunner had simply waited the requisite period and refiled bankruptcy, her student loans could have been discharged. And yet the same “undue hardship” standard in that scenario now is applied to loans under the current Bankruptcy Code, no matter the age.

The standard set forth in Brunner and its progeny requires that a borrower establish an inability to pay any part of the student loan debt both now and into the future for reasons not within the debtor’s control, resulting in a high bar to any potential discharge. The elements of Brunner are conjunctive, and the failure of a borrower to meet even one element is sufficient to have all student loans determined nondischargeable. Indeed, “debtors face an uphill battle for relief from their student loans through the difficult-to-meet Brunner test to determine ‘undue hardship.’”

However, in recent cases, courts in circuits that have adopted Brunner have begun to parse portions of the language contained in the code and have found that not all debts described as “student loans” should be rendered 100 percent nondischargeable. For example, certain private loans issued to students for living expenses have been found to be dischargeable in bankruptcy because the loans were not for an “educational purpose.” Courts applying the Brunner standard have also found support for a partial discharge of student loan debt where requiring full repayment of the loan would result in undue hardship due to the debtor’s inability to make 100 percent of future payments. Instead, the courts discharge the portions of the loan that are found to be an undue hardship, leaving the borrower with what they are able to pay.

The First and Eighth Circuits have not adopted Brunner and instead apply the similar but less onerous totality of the circumstances test, which weighs “(1) the debtor’s past, present, and reasonably reliable future financial resources; (2) the debtor’s reasonable and necessary living expenses; and (3) any other relevant circumstances.” The first two prongs of the totality of the circumstances test are similar to the Brunner test, but the third prong results in a less harsh approach, allowing the court to consider additional factors. In addition, unlike Brunner, the totality of the circumstances does not have any required elements, instead allowing for a more holistic evaluation of the borrower’s alleged undue hardship. As a result, borrowers residing in the totality of the circumstances jurisdictions have a higher likelihood of meeting the standard of “undue hardship” for discharge of their student loans. Despite the clear and continuing circuit split on the issue, the Supreme Court has yet to grant a petition for cert. on the issue.


The student loan debt crisis is not new. However, increasing protections for student loan lenders in bankruptcy—both government and private—have paralleled the highest amounts of outstanding debt in history. Perhaps it is because lenders have little to no risk of the (eventual) collectability of the loan—so more loans are made to those who otherwise might not qualify for debt. Perhaps it’s the rising costs of education. But, likely, it is a combination of both.

The distressed student loan borrower may have options, but few are clearcut, and the process(es) by which relief is afforded is complex and nuanced. When this situation is coupled with the fact that most distressed borrowers are unable to pay for legal assistance to seek relief—either through a bankruptcy discharge or otherwise—the reality is very few individuals receive the relief they may desperately need. While courts may be able to, in certain circumstances, provide some relief through partial or complete discharge, the burden of proof is on the borrower, and pro se litigants are rarely skilled enough to meet that burden. Government programs do provide alternative forms of possible relief for government borrowers, but—as is evidenced by the rate at which outstanding debt is growing—such relief is not keeping pace with the growing debt problem. Without clear congressional action, this state of perpetual shades of gray for borrowers is not likely to improve.

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    By Judge Elizabeth L. Gunn and Joy D. Kleisinger

    Judge Elizabeth L. Gunn was appointed to the bench of the U.S. Bankruptcy Court for the District of Columbia on September 4, 2020. Before her appointment, Judge Gunn served as an Assistant Attorney General for the Commonwealth of Virginia as the bankruptcy specialist for the Division of Child Support Enforcement. Joy D. Kleisinger serves as term clerk to the Hon. Elizabeth L. Gunn of the U.S. Bankruptcy Court for the District of Columbia. She serves on the Diversity, Inclusion & Belonging Committee of the International Women’s Insolvency and Restructuring Confederation and is a member of the American Bankruptcy Institute.