As we have discussed in prior blog posts, The Battle of the Student Loan Discharge, The Eternal Pursuit to Collect: Due Process Rights and Actions to Collect on a Debtor’s Defaulted Student Loans, Are You Ready for Some (Fantasy) Football? Or, Why Fantasy Football May Help You to Discharge Your Student Debt, and Being In Love Means Never Being Able To Get Your Student Loans Discharged, Or Why Stedman Graham Should Have To Pay His Student Loans, student loans are treated differently from other types of debt in bankruptcy—to discharge a student loan, a debtor bears the extra burden of demonstrating that the loan constitutes an “undue hardship.” The judicial tests for finding an undue hardship are often applied narrowly, and there is a common perception that student loans are effectively nondischargeable in bankruptcy.

A recent decision from the United States Bankruptcy Court for the Northern District of Iowa, however, may give student debtors some hope. In Fern v. Fedloan Servicing, U.S. Department of Education, and Pennsylvania Higher Education Assistance Agency (In re Fern), the bankruptcy court found that a $27,000 student loan debt imposed an undue hardship, and was thus dischargeable, even though the debtor could have enrolled in repayment plans where she would have paid $0 per month. Interestingly, the bankruptcy court cited to the emotional burden caused by the debt as one of the justifications for its holding.


The debtor, a single mother of three dependent children, was owed, but unable to collect child support. She provided for herself and her children by working at a call center that paid $1,506.78 per month, and by utilizing certain government assistance programs. Still, she relied upon additional loans from her mother to make ends meet.

On top of her day-to-day expenses, the debtor had student loan debt, which she accumulated through two separate attempts to secure an education. First, she accrued $15,000 of debt when she attended school to become an accounting clerk in 2002, but was ultimately unable to complete the program. In 2007, she accrued an additional $5,300 of debt when she successfully earned her esthetician license. The debtor’s esthetician license eventually expired though, and she lacked the time and resources to pursue its renewal. By the time of the hearing, the aggregate principal on the debtor’s student loans had grown to $27,000, on which she had never made a payment because the loans had always been in deferment or forbearance.

The Law

Although the Bankruptcy Code requires a showing of “undue hardship” to discharge student loan debt, there is no statutory definition of the term. A majority of courts have adopted the Brunner test, which requires the debtor to establish (1) an inability to maintain a minimal standard of living if forced to repay the loans; (2) additional circumstances indicating that the state of affairs are likely to persist for a significant portion of the repayment period; and (3) evidence that the debtor has made good faith efforts to repay the loan.

Alternatively, as relevant here, certain courts, including those in the Eighth Circuit, apply a “totality-of-the-circumstances” test, which is intended to be less restrictive. Under this test, courts consider:

  • the debtor’s past, present, and reasonably reliable future financial resources;
  • the debtor’s reasonable and necessary living expenses; and
  • any other relevant facts and circumstances.

The bankruptcy court found the first two prongs of the totality-of-the-circumstances test easily met. The debtor sufficiently demonstrated that she searched for, yet was unable to secure a higher paying job, and a quick accounting also revealed that the debtor’s monthly expenses were reasonable and necessary. The main dispute in the case revolved around the existence and weight of other relevant facts and circumstances.

The Intangible Costs of Student Loan Debt

The U.S. Department of Education’s main argument against a finding of undue hardship was that the debtor was not necessarily required to make any monthly payments on account of her student loans. Specifically, the U.S. Department of Education argued that the student loan debt could not impose an undue hardship because the debtor was eligible for certain repayment plans under which she would be responsible for $0 monthly payments.

The bankruptcy court rejected this argument by identifying other costs of the repayment plans beyond monthly payments. This included the continued accrual of interest during the repayment period, the effect of the debt on a debtor’s access to credit, employment, and housing, and the tax burden that would result from the eventual cancellation of the debt.

The most interesting “cost” cited by the bankruptcy court, however, was the emotional toll that the debt imposed on the debtor. In particular, the bankruptcy court made note of the mental distress the debtor suffered by simply carrying the debt, and held that it “will not ignore a hardship simply because it is not reflected on a balance sheet.” As most undue hardship analyses tend to focus on the financial implications surrounding student loan debt, the bankruptcy court’s emphasis on an intangible cost here was unusual. At least in Iowa, this may signal an expansion of considerations as to whether student loan debt should be dischargeable.


Whether student loan debt constitutes an undue hardship remains a highly fact-intensive inquiry. The split application of the Brunner test and the totality-of-the-circumstances test among courts further reduces the certainty of any given outcome. However, Fern may signal a broadening of circumstances qualifying for the discharge of student loan debt, even where monthly payments on the debt are $0.