Student Loan Bankruptcy in 2025: The Updated DOJ Guidelines Explained

Student loans are dischargeable in bankruptcy. That sentence still surprises many borrowers — and even some attorneys — because a decades-old myth convinced the legal community that it was essentially impossible. The truth is more nuanced: discharge has always been available, but it required clearing a high legal bar called "undue hardship." A November 2022 policy shift by the Department of Justice and Department of Education fundamentally changed how the federal government evaluates these cases, and courts across the country have responded by granting discharge in numbers not seen in a generation.

2022 DOJ policy shift expanded access to discharge $0 Remaining after full discharge — including interest and fees Required Adversary proceeding must be filed separately

The Old Myth: "Student Loans Can't Be Discharged"

The belief that student loans are immune to bankruptcy discharge traces back to the Brunner v. New York State Higher Education Services Corp. decision in 1987. The Second Circuit Court of Appeals established a three-part test for proving undue hardship — and courts applied it with extreme rigidity for decades. Borrowers had to show that they could not maintain a minimal standard of living while repaying, that their circumstances were unlikely to change, and that they had made good-faith efforts to repay. The third prong, "good faith," was applied so harshly that courts often denied discharge to borrowers who had never paid a single dollar simply because they hadn't enrolled in income-driven repayment plans.

The practical effect was that attorneys stopped filing adversary proceedings because the odds of success were so low they couldn't justify the cost. Borrowers stopped asking. The myth calcified into conventional wisdom. But the Brunner test never categorically barred discharge — courts simply applied it as if it did.

The 2022 DOJ/DOE Policy Guidance: What Changed

In November 2022, the Justice Department and Department of Education issued joint guidance that fundamentally reoriented how the government handles student loan bankruptcy cases. The guidance instructed DOJ attorneys — who represent the federal government and its loan servicers in adversary proceedings — to evaluate cases using a more borrower-sympathetic framework rather than reflexively opposing every discharge request.

The core change was the introduction of a standardized attestation form. Instead of building a full litigation record, borrowers and their attorneys now submit a detailed form documenting income, expenses, employment history, disability status, and hardship factors. DOJ attorneys review the attestation and make a recommendation. If the case clearly meets the undue hardship standard, the DOJ may agree to a consent judgment — a pre-trial agreement that the loans should be discharged — avoiding the need for a full trial.

The guidance also explicitly instructed DOJ attorneys to give more weight to factors like persistent low income, disability, age, and the ratio of loan balance to realistic earning capacity. It was the most significant policy shift in student loan bankruptcy in 35 years.

What the Attestation Process Looks Like

The attestation process applies specifically to federal student loans. Once a borrower files an adversary proceeding, their attorney prepares the attestation form, which is a standardized questionnaire covering:

• Current monthly income from all sources and monthly household expenses
• Employment history and current employment status
• Any disability, medical condition, or other factor limiting earning capacity
• Age and years remaining in the workforce
• Total loan balance and current monthly payment under standard repayment
• History of any payments made and any income-driven repayment enrollment

The DOJ attorney assigned to the case reviews the attestation and cross-references it against income verification. In clear cases — where the numbers show a borrower cannot possibly repay even a significant fraction of the debt — the DOJ will propose a consent judgment. The case resolves without trial. In less clear-cut cases, the DOJ may negotiate a partial discharge or proceed to a hearing before the bankruptcy judge. The attestation essentially creates a pre-litigation screening process that filters cases by their factual merits rather than by whether the borrower could afford to fight through trial.

What Courts Look For: The Undue Hardship Analysis

Even with the 2022 guidance, the legal standard is still "undue hardship" — a phrase Congress put in the Bankruptcy Code in 1978 but never defined. Most circuit courts still apply the Brunner test, requiring the borrower to prove all three prongs. The key shift is that courts and the DOJ are now interpreting those prongs with more realism than rigidity.

Under the current approach, a borrower who has spent years in income-driven repayment, whose balance has grown despite making every required payment, and who works in a low-wage field with no realistic path to income growth presents a compelling case. Courts are also showing more willingness to grant partial discharge — reducing the balance to a level the borrower can realistically manage while discharging the rest. A full discussion of the undue hardship standard appears in our companion article on this topic.

Both Federal and Private Loans: Different Rules

Federal student loans proceed through the attestation process described above. The DOJ represents the government's interest and may agree to a consent judgment. Private loans follow a different path. The borrower sues the private lender or its debt collector directly in the adversary proceeding. Private lenders do not have a DOJ attestation process — cases proceed through discovery and hearing before the bankruptcy judge, who applies the undue hardship standard (Brunner or totality of circumstances, depending on the circuit).

Private lenders vary enormously in how they respond to adversary proceedings. Some will negotiate settlement or partial discharge early in the process. Others contest aggressively. Courts have, in recent years, granted discharge of private student loans with increasing frequency, particularly where the loan balance has ballooned through capitalized interest and collection fees. Private loans taken for non-Title IV programs (certain vocational schools, coding bootcamps, and non-degree programs) may be discharged outside of bankruptcy altogether — your attorney can evaluate whether this applies to your loans.

What Discharge Actually Eliminates

A full student loan bankruptcy discharge eliminates the entire outstanding debt — principal, accrued interest, capitalized interest, and any collection fees or penalties that have been added to the balance. The servicer is legally prohibited from any further collection activity. A bankruptcy discharge of student loans is tax-free under federal law: the IRS does not treat the discharged amount as cancellation of debt income, unlike some other forgiveness programs.

Discharge also clears the debt from your credit report as a discharged debt, though the bankruptcy filing itself remains on your credit report for seven to ten years depending on the chapter filed. Importantly, discharge through bankruptcy does not trigger a tax reporting obligation with the IRS — a meaningful distinction from some administrative forgiveness programs that have historically generated 1099-C forms.

Building a Bankruptcy Discharge Case in 2025

Attorneys approaching student loan bankruptcy in 2025 evaluate several factors: which bankruptcy chapter is appropriate for the client's overall situation, whether federal or private loans (or both) are involved, which circuit the bankruptcy court sits in and what standard it applies, and whether the factual record clearly supports undue hardship. The attestation form is prepared carefully — vague or incomplete submissions result in DOJ denial. Medical records, tax returns, Social Security disability documentation, employment history, and evidence of income-driven repayment enrollment all become part of the record.

Courts that have granted discharge at high rates in 2023–2025 share a common thread: the borrowers had compelling, documented evidence that their financial situation was not temporary. Age, permanent disability, decades of low income, and balances that had grown dramatically through interest capitalization despite years of payments all weighed in favor of discharge. The attorneys who succeed in these cases are those who build a record that makes the hardship undeniable — not just legally sufficient on paper.