Some private student loans can be discharged in bankruptcy without proving undue hardship. Whether yours can turns on a single question: is the loan a “qualified education loan” that Congress protected under 11 U.S.C. § 523(a)(8)? If it is, discharge requires the same undue-hardship showing as a federal loan. If it is not, the loan can be wiped out like an ordinary credit card or personal loan. Many private loans are less protected than borrowers, and lenders, assume.
This is the most misunderstood corner of student loan bankruptcy. “You can never discharge student loans” is repeated so often that borrowers with dischargeable private debt never ask the question. Here is the actual rule, the recent federal appeals cases that have narrowed what counts as a protected student loan, and how we figure out which category your loan is in.
The three buckets of § 523(a)(8)
Section 523(a)(8) does not say “all student loans are non-dischargeable.” It protects three specific categories of educational debt from discharge unless the borrower proves undue hardship:
- § 523(a)(8)(A)(i): loans made, insured, or guaranteed by a governmental unit, or made under a program funded in whole or in part by a government or nonprofit institution. This is the federal-loan bucket (Direct, FFEL, Perkins).
- § 523(a)(8)(A)(ii): an obligation to repay funds received as an “educational benefit, scholarship, or stipend.” Think of a conditional scholarship or a service-obligation stipend, not an ordinary loan.
- § 523(a)(8)(B): any other “qualified education loan” as defined in 26 U.S.C. § 221(d)(1). This is the bucket most private student loans fall into, if they meet the definition.
A private loan is only protected from discharge if it fits one of these three buckets. If it fits none of them, it is dischargeable like any other unsecured debt, no undue-hardship adversary proceeding required.
What makes a private loan a “qualified education loan”
Most private student loans are tested under § 523(a)(8)(B), which borrows the definition of “qualified education loan” from the tax code, 26 U.S.C. § 221(d). To be a qualified education loan, the debt has to be incurred solely to pay qualified higher education expenses, which means the cost of attendance at an eligible institution (generally a school eligible for federal Title IV aid), for an eligible student, within a reasonable period of the enrollment.
Each of those requirements is a place a private loan can fall out of the definition, and out of § 523(a)(8) protection:
- Loans that exceed the cost of attendance. If a lender advanced more than the school’s certified cost of attendance, the excess was not “solely” for qualified expenses. Direct-to-consumer loans that were deposited into the borrower’s bank account, rather than paid to the school, are a common example.
- Loans for a non-eligible school or program. If the school was not Title IV eligible, or lost eligibility, a loan for attendance there may not qualify.
- Loans for a student enrolled less than half-time, or for non-degree programs that do not meet the eligible-student or eligible-expense requirements.
- Loans that are not for “higher education” expenses at all, such as bar-exam study loans and some career-training or bootcamp financing, which several courts have treated as ordinary consumer loans rather than qualified education loans.
The recent case law: courts are narrowing what counts
Over the last several years, federal appeals courts have pushed back on lenders’ broad claim that every private student loan is automatically non-dischargeable. Two decisions are the leading examples:
- Homaidan v. Sallie Mae, Inc., 3 F.4th 595 (2d Cir. 2021), held that § 523(a)(8)(A)(ii), the “educational benefit” bucket, does not sweep in ordinary private tuition loans. Lenders had argued that a private student loan was an “obligation to repay funds received as an educational benefit”; the Second Circuit rejected that reading, so a private loan that is not a qualified education loan under (B) is not saved by (A)(ii) either.
- Crocker v. Navient Solutions, L.L.C., 941 F.3d 206 (5th Cir. 2019), reached a similar conclusion, holding that the “educational benefit” language does not cover a private loan of that kind.
An honest, important caveat for Pennsylvania and New Jersey. Those decisions come from the Second and Fifth Circuits. They are not binding on the Third Circuit, which covers Pennsylvania and New Jersey, and the Third Circuit has not squarely decided the private-loan “educational benefit” question in a controlling published opinion. Bankruptcy judges here can find that reasoning persuasive, but it is not automatic law in our courts. That is exactly why this is a case-by-case argument built on your specific loan documents, and why we will give you a straight read rather than a promise.
If your private loan IS a qualified education loan
A private loan that does meet the § 221(d) definition sits inside § 523(a)(8) and is discharged only on the same undue-hardship showing that applies to federal loans. There is no DOJ attestation shortcut for private lenders, so that means proving all three prongs of the Third Circuit’s Brunner test the traditional way. See how the Brunner undue-hardship test works. Even then, a private-loan discharge is realistic for borrowers whose facts fit, and clearing the rest of your debt in the same bankruptcy can make an unaffordable private loan payment manageable regardless.
How we figure out which bucket your loan is in
Sorting a private loan is a documents question. We look at the promissory note and the loan’s marketing, how and to whom the money was disbursed, the school’s Title IV eligibility during your enrollment, the certified cost of attendance for that period, and your enrollment status. Those records decide whether the loan is a qualified education loan protected by § 523(a)(8) or an ordinary debt you can discharge. If the loan is dischargeable, we say so; if it is not, we tell you that too, and turn to the undue-hardship path or to what bankruptcy can still do for the rest of your debt.
A note on Philadelphia & South Jersey practice
Private-loan dischargeability disputes are litigated as adversary proceedings in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania (Philadelphia) or the District of New Jersey, Camden vicinage (South Jersey). The defendant is the private lender or its servicer, not the government, so the DOJ attestation framework does not apply. How a given judge reads the out-of-circuit case law can shape strategy, which is one more reason the analysis starts with your documents.
Talk to a bankruptcy lawyer who serves Philadelphia & South Jersey
The Law Office of Mike Assad helps individuals across Philadelphia and South Jersey read their private loans against § 523(a)(8) and, where the facts support it, pursue discharge. Mike is admitted in both Pennsylvania and New Jersey and handles cases through the U.S. Bankruptcy Court for the Eastern District of Pennsylvania and the District of New Jersey. Start with our overview of student loan discharge.
- A free, confidential consultation with no obligation, and a straight read on whether your private loans fall inside or outside § 523(a)(8).
- Affordable pricing where the case structure allows, with payment plans available. A $999 Chapter 7 program for qualifying filers.
- The same lawyer on your case from the first call through the discharge order, and a live person on the phone when you call.
- Fully virtual representation by phone and Zoom, so you never have to come to an office.
Book your free consultation online. The firm has offices in Cherry Hill, New Jersey, Egg Harbor Township, New Jersey, and Philadelphia, Pennsylvania. If it would help, you can share your debt picture before the call so the consultation starts from the facts.
Frequently asked questions
Sometimes, and without proving undue hardship. A private loan is only protected from discharge if it fits one of the three categories in 11 U.S.C. § 523(a)(8), most often the “qualified education loan” category defined in 26 U.S.C. § 221(d). A private loan that falls outside those categories can be discharged like ordinary unsecured debt.
Common examples include amounts lent beyond the school’s certified cost of attendance, loans disbursed directly to the borrower, loans for attendance at schools that were not eligible for federal aid, loans for students enrolled less than half-time, and loans that are not for higher-education expenses at all, such as bar-exam study loans and some career-training financing.
Not directly. Homaidan (Second Circuit) and Crocker (Fifth Circuit) are persuasive but not binding in the Third Circuit, which covers Pennsylvania and New Jersey, and the Third Circuit has not squarely decided the question in a controlling published opinion. A local court can find their reasoning persuasive, but the outcome depends on your specific loan documents.
It is a documents question. We review the promissory note, how and to whom the loan was disbursed, the school’s federal-aid eligibility during your enrollment, the certified cost of attendance for that period, and your enrollment status.