Library of Congress CRS Reports – Bankruptcy and Student Loans, July 1, 2019. “As overall student loan indebtedness in the United States has increased over the years, many borrowers have found themselves unable to repay their student loans. Ordinarily, declaring bankruptcy is a means by which a debtor may discharge—that is, obtain relief from—debts he is unable to repay. However, Congress, based upon its determination that allowing debtors to freely discharge student loans in bankruptcy could threaten the student loan program, has limited the circumstances in which a debtor may discharge a student loan. Under current law, a debtor may not discharge a student loan unless repaying the student loan would impose an “undue hardship” upon the debtor and his dependents. The Bankruptcy Code does not define “undue hardship,” and the legislative history of the relevant statutory provision does not precisely specify how courts should determine whether a debtor qualifies for an undue hardship discharge. The task of interpreting this statutory term has consequently fallen to the federal judiciary. Courts, however, have disagreed regarding exactly what a debtor must prove in order to discharge a student loan on undue hardship grounds. The vast majority of courts have interpreted “undue hardship” to require the debtor to prove three things: (1) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans; (2) additional circumstances exist indicating that the debtor’s inability to pay is likely to persist for a significant portion of the repayment period of the student loans; and (3) the debtor has made good faith efforts to repay the loans. The debtor must prove each of these elements by a preponderance of the evidence. This standard is commonly called the “Brunner” test, after the case in which the standard originated. The Brunner test is highly fact-intensive, and not all courts apply the Brunner standard the same way. Indeed, each factor has resulted in various subsidiary splits in the courts with respect to a host of issues.

Whereas the vast majority of courts apply the Brunner test to determine whether excepting a student loan from discharge would impose an undue hardship upon the debtor, two courts have explicitly declined to adopt the Brunner standard. Instead, these courts apply an alternative standard known as “the totality-of-the-circumstances test,” weighing numerous, nonexclusive factors when considering whether student loan debt should be discharged. In response to this split of authority, as well as calls to make student loans less difficult to discharge in bankruptcy, some Members of Congress and commentators have advanced various proposals to amend or repeal the Bankruptcy Code’s undue hardship provision. These proposals implicate a variety of legal issues that Congress may consider.