The Trump administration is taking a hard line on Americans with student loan debt, and borrowers are feeling it from two sides.
On one front, the US Department of Education has put the brakes on income-driven repayment (1). In August alone, 327,955 applications were denied, according to a December 15 court filing (2). For borrowers who were counting on those plans to cap their monthly bills and eventually wipe out outstanding balances, the result is immediate: higher payments or a limbo-like forbearance where interest rises while relief remains out of reach.
At the same time, the government is preparing to resume payments for defaulting borrowers as early as January (3). Millions of people are already more than 270 days behind on their loans, putting them at risk of having part of their paychecks garnished after 30-days’ notice.
Online, frustration is growing. One Reddit user wrote (4), “I would have about $500 a month which is literally impossible to pay. I laugh at it now because I can’t afford it. If I tried, my parents and I would be dead before I even paid a quarter of the debt. This is a joke.”
Between the tight screws, however, a surprising escape hatch is opening. Student loans have long been thought to be nearly impossible to wipe out through bankruptcy—but that notion may be outdated.
Borrowers pursuing bankruptcy relief are succeeding at rates few would have believed a decade ago. An analysis by University of Utah law professor Jason Iuliano (5) found that filers now manage to discharge some or all of their student loans through bankruptcy 87% of the time, up from 61% in 2017, largely due to a streamlined legal process introduced three years ago.
“It’s surprisingly high when you think about the story that it’s impossible to discharge,” Iuliano said. The New York Times (6). His findings were published this month American Bankruptcy Law JournalAfter 15 years of research.
The change comes as financial pressures mount on borrowers. A survey by the Institute for College Access and Success found that 42% of borrowers are forced to choose between student loan payments and basic needs, while 20% are delinquent or already in default (7). Although the Biden administration canceled $183.6 billion in loans for more than 5 million borrowers, widespread forgiveness efforts have stalled (8).
For a small but growing number of borrowers, this changing landscape is already providing relief. Amy Howdyshell, a 43-year-old licensed practical nurse in Virginia, recently discharged through bankruptcy had more than $78,000 in federal student loans, much of which was tied to a for-profit school for a degree she never completed (9).
After her husband suffered serious medical problems, including a heart attack, the couple filed for bankruptcy in 2023. With the help of an attorney experienced in student loan cases, Howdyshell successfully discharged her family from debt that had long blocked their ability to save for a home or retirement.
“Now I have the financial freedom to pursue my dreams of home ownership,” Howdyshell said The New York Times. “It was a scary process but worth the gamble.”
Cases like his remain rare, Iuliano says, largely because many borrowers and their lawyers still don’t realize how far the hurdles have moved.
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The student loan system is feeling increasingly volatile and that uncertainty is driving more people to seek relief.
“The anxiety level among borrowers is really high right now,” said Latife Neu, a Seattle attorney. The New York Times. She has handled more than a dozen student loan bankruptcy cases under the streamlined process and said she is hearing from an increasing number of borrowers looking for options, including multiple retirements (9).
In that environment, bankruptcy may be worth reconsidering but only after weighing the tradeoffs. Filing can significantly damage your credit (10), potentially knocking 200 points off your score and making it harder to qualify for loans, housing or favorable interest rates for years to come.
The effect, however, is not the same for everyone. Borrowers who are already behind on payments, facing collections, or recovering from events such as repossession or foreclosure, may see less significant damage from a bankruptcy filing because their credit is already weakened. Conversely, those with strong credit and few negative scores may experience a much sharper decline.
Before taking that step, experts generally recommend exhausting other options first. This may include reviewing all available repayment plans, exploring consolidation or refinancing, and seeking guidance from a student-loan-experienced attorney or nonprofit credit counselor that makes the most sense for your situation.
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CNBC (1); court audience (2); PBS (3, 8); Reddit (4); SSRN (5); The New York Times (6, 9); Institute for College Access and Success (7); Experienced (10)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
