The Trump administration is taking a tougher line on Americans with student loan debt, and borrowers are feeling it from two sides.
For one thing, the US Department of Education has slammed the brakes on income-based payments (1). In August alone, 327,955 applications were denied, according to a December 15 court filing (2). For borrowers who had such plans in place to limit their monthly bills and eventually erase remaining balances, the consequences are immediate: higher payments or a limbo-like forbearance where interest continues to accrue while relief remains out of reach.
At the same time, the government is preparing to restart wage garnishment for borrowers in default as early as January (3). Millions of people are already more than 270 days late on their loans, putting them at risk of having part of their wages garnished after a 30-day notice.
Online, frustration boils over. One Reddit user wrote (4): “Mine will be almost $500 a month, which is literally impossible for me to pay. I’m laughing about it now because I simply can’t afford that. If I tried, my parents and I would be dead before I even pay a quarter of what I owe. It’s a joke.”
However, in the middle of the tightening screws, a surprising escape hatch opens. Student loans have long been considered nearly impossible to discharge through bankruptcy, but that assumption may be outdated.
Borrowers seeking bankruptcy relief are finding success at rates few would have believed just a decade ago. An analysis by Jason Iuliano (5), a law professor at the University of Utah, found that filers now manage to discharge some or all of their student debt 87% of the time through bankruptcy, up from 61% in 2017, largely due to a streamlined legal process introduced three years ago.
“That’s surprisingly high when you consider that the narrative is impossible to fulfill,” Iuliano said. The New York Times (6). Their findings were published this month in The American Journal of Bankruptcy Lawafter 15 years of research.
The change comes as financial pressure on borrowers continues to grow. 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 in default or already in default (7). Although the Biden administration canceled $183.6 billion in loans for more than 5 million borrowers, broader 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 from Virginia, recently had more than $78,000 in federal student loans discharged through bankruptcy, much of it 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 obtained a discharge, freeing her family from the debt that had long blocked their ability to save for a home or retirement.
“I now have the financial freedom to pursue my dreams of homeownership,” Howdyshell said. The New York Times. “It was a scary process, but it was worth the risk.”
Cases like his remain rare, Iuliano says, largely because many borrowers and their attorneys still don’t realize how much the odds have changed.
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The student loan system feels increasingly unstable, and that uncertainty is driving more people to seek relief.
“The level of anxiety among borrowers is really high right now,” said Latife Neu, a Seattle attorney. The New York Times. He has handled more than a dozen student loan bankruptcy cases under the streamlined process and said he is hearing from an increasing number of borrowers looking for options, including many nearing retirement (9).
In that environment, it may be worth reconsidering bankruptcy, but only after weighing the pros and cons. One filing can significantly damage your credit (10), potentially removing up to 200 points from your score and making it difficult to qualify for loans, housing, or favorable interest rates for years to come.
The impact, however, is not the same for everyone. Borrowers who are already behind on payments, facing collections, or recovering from events such as repossessions or foreclosures may see less significant damage from a bankruptcy filing, since their credit is already impaired. Conversely, those with solid credit and few negative ratings could experience a much steeper decline.
Before taking that step, experts often recommend exhausting other options first. That may include reviewing all available repayment plans, exploring consolidation or refinancing, and seeking guidance from an experienced student loan attorney or nonprofit credit counselor to understand which path makes the most sense for your situation.
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CNBC (1); Court listener (2); PBS (3, 8); Reddit (4); SSRN (5); The New York Times (6, 9); The Institute for College Access and Success (7); Experian (10)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
