What Exactly is a Student Loan in Bankruptcy?

Student loans are not generally discharged (i.e. wiped out) in a bankruptcy proceeding. But what exactly is a student loan?

For bankruptcy purposes, the important aspect of a "student loan" is the exception to discharge absent a showing of undue hardship, a difficult standard to meet. Therefore, the definition in section 523(a)(8) of the bankruptcy code is the most important, defining a student loan as

(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;

The above referenced section of the IRC provides:

(1) Qualified education loan
The term "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses—
(A) which are incurred on behalf of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,
(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
(C) which are attributable to education furnished during a period during which the recipient was an eligible student.
Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term "qualified education loan" shall not include any indebtedness owed to a person who is related ... to the taxpayer or to any person by reason of a loan under any qualified employer plan ....

The effect of these sections is that "student loan" includes all of the common government educational loan programs (e.g. Stafford Loans, supplemental student loans (SLS), Federal Direct loans, Perkins loans, etc) as well as most private educational loans. However, a private loan in some cases may not fall within the definition, particularly if it was incurred to pay a mix of educational expenses defined within a school's cost of attendance as well as non-educational expenses beyond those official costs. If you have a private educational loan that you believe may have a disputed status in bankruptcy, you should consult an attorney who can analyze the particulars of the loan.

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Knightdale Attorney Erich Fabricius represents clients in bankruptcy, consumer debt litigation, and in small business matters. He is licensed to practice law in North Carolina. His blog posts consider matters related to debt, bankruptcy, litigation, and other legal issues in North Carolina.

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This blog post is made available for educational and informational purposes only and to promote a general understanding of the law, and not to provide specific legal advice. Use of this blog does not create an attorney-client relationship. Reading this post is not a substitute for obtaining legal advice based on the unique facts of your situation from an attorney licensed to practice law in your state. No representation is made regarding the currentness of the information contained in this post. Examples that may be provided in this post are merely for illustrative purposes; the results in your case may be different and no results are guaranteed.