The US Bankruptcy Code at 11 USC 523(a)(8) provides an exception to bankruptcy discharge for education loans. This page provides a history of the legislative language in this section of the US Bankruptcy Code.

Student loans were dischargeable in bankruptcy prior to 1976. With the introduction of the US Bankruptcy Code (11 USC 101 et seq) in 1978, the ability to discharge education loans was limited. Subsequent changes in the law have further narrowed the dischargeability of education debt.

The exception to discharge for private student loans evolved over time. Prior to 1984, only private student loans made by a "nonprofit institution of higher education" were excepted from discharge. This was intended to protect the National Defense Student Loan Program (NDSL), the predecessor to the Perkins Loan Program. Those loans were made by colleges using a revolving loan fund created using matching federal contributions. The Bankruptcy Amendments and Federal Judgeship Act of 1984 made private student loans from all nonprofit lenders excepted from discharge, not just colleges, by striking the words "of higher education". The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 expanded this to include all "qualified education loans", regardless of whether a nonprofit institution was involved in making the loans.

Timeline

The following timeline illustrates the date of major changes in the treatment of student loans under the US Bankruptcy Code:

• 2005: An amendment added an exception to discharge for qualified education loans, which includes most private student loans. Before this amendment only private student loans made under a "program funded in whole or in part by a governmental unit or nonprofit institution" were excepted from discharge. However, most private student loans included a nonprofit organization as the guarantor, and the courts have interpreted such loans as excepted from discharge.

• 1998: An amendment struck the requirement that allowed education loans to be discharged after 7 years in repayment (not counting deferment and forbearance periods in which the repayment obligation was suspended).

• 1990: An amendment changed the time period required before a loan could be discharged from 5 years to 7 years.

• 1984: An amendment changed the language excepting loans from a "nonprofit institution of higher education" by striking the words "of higher education". This opened the door for private student loans to be excepted from discharge.

• 1979: An amendment excluded periods during which the repayment obligation was suspended, such as deferments and forbearances, from the 5 year period before an education loan could be discharged. The amendment also clarified the "to a governmental unit, or a nonprofit institution of higher education" language to indicate that government loans included those insured or guaranteed by a governmental unit and not just those made by a governmental unit, and that loans to a nonprofit institution of higher education were loans "made under any program funded in whole or in part by a governmental unit or a nonprofit institution of higher education".

• 1978: Initial enactment of the exception to discharge for education loans. Prior to this legislation, education laons were dischargeable in bankruptcy without any exceptions.

Current Legislative Language

Here is the current legislative language, as amended by Section 220 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), P.L. 109-8, effective October 17, 2005:

523(a) Exceptions to discharge
...
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for --

1. 1. 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
   2. an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
2. 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;

Previous Legislative Language

Here is the legislative language as amended by the Higher Education Amendments of 1998 (P.L. 105-244):

for 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 for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents;

Here is the legislative language as amended by P.L. 101-647 (1990):

for 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 for an obligation to repay funds received as an educational benefit, scholarship or stipend unless --

1. such loan, benefit, scholarship, or stipend overpayment first became due more than 7 years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or
2. excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents;

Here is the legislative language as amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984, P.L. 98-353 (1984):

for an educational 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 a nonprofit institution, unless

1. such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or
2. excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents;

Here is the legislative language as amended by P.L. 96-56 (1979):

for an educational 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 a nonprofit institution of higher education, unless

1. such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or
2. excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents;

Here is the legislative language from before 1979 as enacted by the US Bankruptcy Code in 1978 (11 USC 101 et seq, P.L. 95-598, 1978). Prior to 1976 education loans were completely dischargeable in bankruptcy.

to a governmental unit, or a nonprofit institution of higher education, for an educational loan, unless

1. such loan first became due before five years before the date of the filing of the petition; or
2. excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents;