Student Loan Bankruptcy and the Meaning of Educational Benefit

Abstract

Unlike any other consumer debt, student loans are not dischargeable through the normal bankruptcy process. Instead, for any student loan that satisfies one of three statutory criteria, borrowers may only obtain a discharge if they prove that repayment would impose an “undue hardship.” This Article argues that courts have misinterpreted the scope of these statutory criteria. Specifically, by adopting a reading of the term “educational benefit” that conflicts with the statutory text, the legislative history, and the policy rationales underlying the Bankruptcy Code, courts have misclassified billions of dollars of student loan debt and prevented many borrowers from obtaining the financial relief to which they are entitled.

Keywords: Student Loans, Bankruptcy