Discharging Private Student Loans
in Bankruptcy

How Private Loans Became Protected

Before 2005, private student loans were treated like any other unsecured debt in bankruptcy -- fully dischargeable, no special showing required. Only government-backed loans had the undue hardship protection.

That changed with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005. Congress extended the Section 523(a)(8) exception to "qualified education loans" as defined in the Internal Revenue Code at Section 221(d)(1). This was a major victory for private lenders, who had lobbied heavily for the change.

But Congress did not say "all private student loans." It said "qualified education loans." That distinction matters enormously, because not every loan marketed as a "student loan" actually meets the tax code definition. This gap has created a litigation frontier that is producing real results for debtors.

What Is a "Qualified Education Loan"?

Under IRC Section 221(d)(1), a qualified education loan must satisfy all of the following requirements:

If a private loan fails any one of these requirements, it arguably falls outside Section 523(a)(8). That means it can be treated as ordinary unsecured debt -- dischargeable in bankruptcy without proving undue hardship.

Types of Private Loans That May Be Dischargeable

1. Loans Exceeding Cost of Attendance

Private lenders historically approved loan amounts without rigorous verification of the borrower's actual cost of attendance or other financial aid. If your private loan, combined with federal loans, grants, and scholarships, exceeded the school's published cost of attendance, the excess portion was not a qualified education loan.

This argument requires documentation: the school's cost of attendance for the relevant year, your total financial aid package, and the private loan amount. Financial aid offices keep these records, and schools are required to report cost of attendance data.

2. Bar Study and Professional Exam Loans

Loans to fund bar exam preparation courses, medical board review courses, CPA exam prep, and similar professional licensing preparation are a growing area of litigation. These loans share key characteristics:

• They are not for enrollment at an educational institution
• Bar review companies are not Title IV eligible institutions
• The expenses are not "qualified higher education expenses" under the tax code

Several courts have found that bar study loans fall outside Section 523(a)(8). The argument is straightforward: Barbri, Kaplan, and Themis are not colleges or universities. They are test preparation companies. Loans to pay them are consumer loans, not education loans within the meaning of the statute.

3. Loans for Non-Accredited Programs

Private loans taken to attend schools or programs that are not accredited by a recognized accrediting body -- or not eligible for Title IV federal financial aid -- may fall outside 523(a)(8). This includes:

• Coding bootcamps (most are not Title IV eligible)
• Trade schools that lost accreditation
• Online programs without proper accreditation
• Foreign institutions not recognized under Title IV
• Continuing education programs at non-eligible providers

The school's Title IV eligibility at the time the loan was disbursed is what matters. If the school was not Title IV eligible when you borrowed, the loan may not be a qualified education loan regardless of what the lender called it.

4. Loans to Non-Students (Parent/Cosigner Loans)

Some private lenders issue loans directly to parents or other family members, not to the student. There is an argument that these loans do not meet the "incurred by the debtor" requirement of the tax code definition. While this theory is less tested than the others, it is worth evaluating if you are a cosigner or parent borrower.

5. Direct-to-Consumer "Education" Loans

Some fintech lenders and online platforms issue "education loans" that are essentially personal loans marketed for education use. If the lender disbursed funds directly to the borrower (not the school), did not verify enrollment, and did not confirm the amount against cost of attendance, the loan may not qualify for 523(a)(8) protection.

Federal vs. Private: Key Differences in Bankruptcy

The Litigation Landscape

Private student loan discharge is an active and evolving area of bankruptcy law. Several trends favor debtors:

Lenders Settle More Often

Unlike the DOJ, which handles federal loan defense as part of its mission, private lenders face real litigation costs. Defending an adversary proceeding costs the lender $10,000-$50,000 or more in attorney fees. For smaller loan balances, lenders often find it more cost-effective to settle -- offering partial discharge, principal reduction, or modified terms -- than to litigate to a verdict.

Discovery Can Be Powerful

In an adversary proceeding against a private lender, you are entitled to discovery. This means you can request the lender's internal records, including:

• Underwriting documents -- did they verify cost of attendance?
• Disbursement records -- was money sent to the school or the borrower?
• School certification records -- did they confirm Title IV eligibility?
• Internal policies on loan amount caps relative to cost of attendance

Many private lenders, especially during the 2005-2015 era, approved loans with minimal verification. Their own records may prove that the loan did not meet the qualified education loan definition.

The Navient Factor

Navient (formerly Sallie Mae's servicing arm) has been the subject of extensive litigation, regulatory action, and a $1.85 billion settlement with state attorneys general in 2022. Courts have found Navient engaged in predatory lending practices, including approving loans it knew borrowers could not repay and lending amounts that exceeded cost of attendance. These findings can support discharge arguments in individual cases.

Strategy Considerations

Research Your Loan First

Before deciding on a strategy, gather as much information as possible about your specific loan:

1. Get your original loan documents. The promissory note, disclosure statement, and any correspondence at the time of borrowing.
2. Request your financial aid records from your school. You need the cost of attendance for the year(s) in question and your total aid package.
3. Verify the school's accreditation status at the time you borrowed. The Department of Education maintains historical records.
4. Calculate whether total borrowing exceeded cost of attendance. Add up all loans (federal and private) plus grants and scholarships. Compare to the school's published cost of attendance.
5. Determine what the loan funded. Was it for tuition? Living expenses beyond cost of attendance? Bar prep? A non-accredited program?

Two Potential Arguments

The strongest position is to argue both: the loan is not a qualified education loan (and therefore dischargeable outright), but even if it is, the debtor satisfies the undue hardship standard. Courts can address both arguments, and having a fallback strengthens your position.

Timing Matters

For private loans, there is no equivalent of the DOJ attestation process. You must file an adversary proceeding and litigate (or negotiate) directly with the lender. Key timing considerations:

• Statute of limitations: The adversary proceeding can be filed at any time during the bankruptcy case, but filing sooner gives more time for discovery and negotiation.
• Lender's response: Private lenders typically have 30 days to answer the complaint. Many hire outside counsel, which increases their costs and settlement motivation.
• Discovery period: Expect 3-6 months for discovery. This is where the qualified education loan argument is often won or lost.

Common Private Lenders and Discharge History

What to Expect: Cost and Timeline

An adversary proceeding against a private lender typically follows this timeline:

• Filing: $350 filing fee + attorney preparation of complaint
• Service and answer: 30-60 days
• Discovery: 3-6 months (document requests, depositions)
• Settlement discussions: Often concurrent with discovery
• Summary judgment: If the "not a QEL" argument is strong, you may win without trial
• Trial: If needed, typically a bench trial (no jury) lasting 1-3 days
• Total timeline: 6-18 months from filing to resolution

Attorney fees for private loan discharge cases range from $2,000 to $7,000, depending on complexity and whether the case goes to trial. Some attorneys work on contingency or reduced fees for strong cases. Legal aid organizations may handle these cases for qualifying debtors.

Frequently Asked Questions

Related Resources

• The Brunner Test -- the undue hardship standard if your loan is a qualified education loan
• How to File an Adversary Proceeding -- step-by-step guide to the discharge process
• Recent Changes -- DOJ guidance and congressional proposals
• Chapter 13 and Student Loans -- how Chapter 13 affects private loan strategy
• Section 523(a) Explained -- the full discharge exception framework