In a surprising disclosure, SoFi Technologies has revealed that its private student loans may be dischargeable in bankruptcy under certain circumstances. This admission, made in the company’s annual report for the fiscal year ending December 31, 2026, challenges the widely held belief that private student loans are immune to bankruptcy proceedings.
The disclosure, found in the Risk Factors section of SoFi’s Form 10-K filed with the SEC states that private education loans may be discharged in bankruptcy in certain situations. These situations include when a court determines that the debt is not a qualified education loan or that repayment would cause undue hardship. Additionally, a private loan can be discharged if the borrower dies or becomes disabled.
Challenging the common belief about private student loans
Borrowers are often led to believe that private student loans are the one type of debt that cannot be discharged in bankruptcy. This misconception keeps many people paying their loans and prevents them from exploring whether their specific loan qualifies for the protection that lenders imply is automatic.
A lender can shape its marketing, but a public company must disclose real risks to shareholders. SoFi’s filing serves as that disclosure, shedding light on the potential dischargeability of private student loans.
The legal landscape of student loan dischargeability
Federal law does not shield every education debt from bankruptcy. Under 11 U.S.C. § 523(a)(8) only three categories of education debt survive bankruptcy without a special showing: government- or nonprofit-backed loans, an educational benefit and a qualified education loan as defined in 26 U.S.C. § 221(d)(1).
A private loan that does not fit into any of these three categories can be discharged much like credit card debt, without the need to prove undue hardship.
What a real bankruptcy attorney looks for
Joshua Cohen, a consumer attorney known as The Student Loan Lawyer explains that private loans are still a bear to discharge but specific facts can push a loan outside the protection of § 523(a)(8)(B). This means the loan can be discharged simply by filing for bankruptcy, without the need for a separate undue-hardship fight.
Cohen highlights several types of loans that often fall outside the definition of a qualified education loan:
- Money lent to a student who never earned a high school diploma or GED
- Loans for an unaccredited school or a non-degree program, such as a bar study loan or flight school that does not award a degree
- Loans made above the school’s cost of attendance
- Loans backed by a cosigner who had no dependent relationship with the student, such as grandparents, friends, neighbors, siblings, or even parents once the student was in graduate school
Cohen notes that the cost of attendance argument usually requires an adversary proceeding, which can be hard-fought and expensive. However, he points to a quieter dynamic in borrowers’ favor: Most private lenders do not want published case law that differentiates private loans from federal loans. When the facts raise a real question for a judge, settlement is very likely.
The broader implications of SoFi’s disclosure
With Americans carrying more than $1.8 trillion in student loan debt, the distinction between a qualified and non-qualified loan is not merely academic. SoFi’s disclosure serves as a reminder that the dischargeability of a loan depends on how it was originated.
Borrowers should pull their original loan documents and consult with a consumer bankruptcy attorney before assuming that their private student loans cannot be discharged in bankruptcy.
SoFi is not accused of doing anything wrong. This filing simply states the law and is required. However, it provides a useful receipt: the company holding the loan concedes to Wall Street what borrowers rarely hear.
