Private student loans are treated the same as federal loans under the Bankruptcy Code, but the practical arguments for discharge can be stronger.
Why Private Loans May Be Easier to Discharge
Federal student loans come with numerous repayment alternatives: income-driven repayment (IDR), deferment, forbearance, Public Service Loan Forgiveness (PSLF), and disability discharge. Private loans offer few or none of these options. Courts have recognized that the lack of repayment flexibility supports a finding of undue hardship.
Additional Arguments for Private Loan Discharge
- Private loans often carry higher interest rates (8-15% vs. 5-7% for federal)
- Some private loans were made to students at schools that provided little value or later closed
- Co-signer disputes and aggressive collection practices may support bad-faith arguments against lenders
- Many private lenders lack proper documentation of the original loan terms
The Bar Program Exception
Some private educational loans may not actually qualify for the bankruptcy discharge exception under Section 523(a)(8). The statute requires that the loan be a "qualified education loan" under the Internal Revenue Code. Loans that exceed the cost of attendance, loans to non-accredited schools, or certain refinanced loans may not meet this definition -- making them dischargeable without proving undue hardship at all.
If you have private student loans and are considering bankruptcy, it is worth consulting an attorney who specializes in student loan discharge. The legal landscape has shifted significantly in borrowers' favor.