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Can I Bankrupt on my Student Loans?

Tricia Christensen
Updated May 16, 2024
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In most cases, bankruptcy cannot discharge student loans. Usually the only viable way in which these loans can be discharged is because of the permanent disability or death of the borrower, neither a good option. Another method of discharging or challenging federal student loans is if the educational institute closes before the borrower graduates. This occurs more commonly in business and trade schools.

Prior to 1998, some people could avoid repaying their student loans by declaring bankruptcy. Tougher laws in 1998 in the US made it virtually impossible to prove financial hardship great enough to have these loans forgiven in this way. Even permanent disability of a spouse or child is only reason enough for deferment, but not loan forgiveness.

It is important, therefore, not to ignore your student loans and to do all that you can to borrow as little as is needed. When you do not maintain your payment schedule, the loans can go into what is called default. Once a loan is officially considered in default, your options for repayment shrink dramatically.

If you remain current on your loans and do not go into default, there are a variety of ways to defer paying them. First, attending school part-time, taking a minimum of six units per semester, can defer loan repayment. Financial hardship may also allow you to defer payments until a later time. Temporary disability can also help you get a deferment for up to three years. All these methods usually require extra paperwork proving school attendance or a medical condition, for example. The extra paperwork can be well worth it to avoid having loans in default status.

When a loan is in default, the company that owns the loan has several options. Large fees can be assessed to the loan, which make the ultimate repayment price much higher. Student loan companies can also garnish wages or take income tax refunds to pay back a portion of the money. This does not count as an actual willful payment made by the person, however, and the loan remains in default status.

The normal seven-year limit in which creditors can collect a debt does not apply to student loans, even private ones. In fact, in 2005, US law changes meant that even private student loans are exempt from bankruptcy proceedings. This means that, until a private or a federal student loan is repaid in full, a lender can continue to demand payment.

The fact that these loans cannot be discharged through bankruptcy should give students pause when borrowing money. You may want to consider attending a less expensive school to help reduce your education debt or search for scholarships. Working while attending school, though difficult, may also help how much you need to borrow, since the debt will continue to follow you until it is completely repaid.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Tricia Christensen
By Tricia Christensen , Writer
With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia Christensen is based in Northern California and brings a wealth of knowledge and passion to her writing. Her wide-ranging interests include reading, writing, medicine, art, film, history, politics, ethics, and religion, all of which she incorporates into her informative articles. Tricia is currently working on her first novel.

Discussion Comments

By anon160257 — On Mar 15, 2011

It is not necessary to be rude because someone owes on student loans. Anon85164 and anon 149553 sound like people who have never experienced hardship in their lives. People need information. If the educational system was set up properly to begin with, people wouldn't wind up in these nasty situations.

How did you two pay for college or trade school and rent, food, transportation, books and fees all at the same time for at least a year?

By anon150801 — On Feb 08, 2011

I agree with the person who talked about the promises that business schools make about job placement and charge outstanding fees for htose promises and quick income. I am not able to get a good job in the field to which I graduated.

Now I'm in default on my loans and getting my Federal and State refunds taken for the rest of my freaking life. Today was "Laugh and Get Rich Day", looks like the student loan company is the one doing that!

By anon149553 — On Feb 04, 2011

Are you kidding me? Lower your bills, stop your IPhone and cancel the cable. I'm tired of people looking for help from someone besides themselves. The president has no clue who you are and he does not care about your problems.

I'll bet the student loan people need some help getting paid on the money they lent you. If you give someone a loan, do you expect to get paid back? Would you take their tax refund if they owed you cash. My guess is yes.

By anon148526 — On Feb 01, 2011

my husband is disabled totally. the loans were taken out for my son and we paid some interest only. then pioneer co. collectors tripled the loan from 32,000 to 64,000 -- their fees, they said. anyway we need to talk with a kind person who can help us. we are trying to see if we file for bankruptcy/or get the loans forgiven.

By anon85164 — On May 19, 2010

Yeah that's right --just ignore those debts like they don't exist. You made the loans and you agreed to pay them. You did not make any arrangements to forebear them or pay anything on them and you're whining because you're income tax refund's being taken? Get real and wake up!

I know a few like this are thinking because the economy's bad that the government won't bother them. Think again!

By anon73297 — On Mar 26, 2010

in response to the poster for item #1, you can amend your withholding so that you don't have much coming back to you at the end of each tax year which would not leave a refund for the irs to take towards your student loan debt.

By anon67987 — On Feb 28, 2010

business schools that promise students degrees in one instead of two years to gain the public interest of students trying to play catch up because life sometimes holds us back should not be allowed to break the the original contract agreements and leave the student holding the bag for loans paid to the schools that do not produce the education promised.

where do the students go for forgiveness when they got the money and the student did not get what was promised in the education? many business schools are set up to fool the public and are a big part of the recession today because they cause many people in the public to give up on education as away of life? they're supposed to be the second chance opportunity and when that fails us many of us never seek that route or even consider teaching our children that there's success in seeking education.

most of us who unfortunately ended up in unrepairable debt from fraudulent business schools venture never recover in society as a real working part of the world and never earn a credit worthiness and dwell through life not looking forward to any more bright ideas that will make life better, except that life is a failure. That's what happens to the failed business student and the educator of those students are not held responsible for repayment even if they fail to educate at all.

they closing for bankruptcy with the loan money in their pockets and the fallen student with the debt in his pockets.

legislation should hold both parties responsible for the repayment of those loans and they should be forced to return those funds with the same vengeance that they use on the student borrower. instead, the educators and ceos of the these schools open other schools in different names and continue to rob the public over and over.

congress needs to see matters more clearly that all the responsibility is not always on the student who is most likely never to recover.

By anon26770 — On Feb 18, 2009

I think that it should be illegal to take all of a person's income tax return to pay back school loans.. we work hard for that and it should go back to us with a percentage allocated to bad debt.

The president is working hard to get us some help. Why can't the student loan people do the same!!!! I need help and I make too much for assistant but I can't even make my bills each month. Yet... School loans take my *whole income tax check* and no notice was sent that they were doing it.......... Boo

Tricia Christensen

Tricia Christensen


With a Literature degree from Sonoma State University and years of experience as a SmartCapitalMind contributor, Tricia...
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