For as long as most Americans can remember, a single piece of financial "wisdom" has been repeated with the certainty of gospel: student loans cannot be discharged in bankruptcy. Attorneys believed it. Financial advisors repeated it. And millions of struggling borrowers never even considered bankruptcy as an option, convinced their educational debt would follow them to the grave.
It turns out the conventional wisdom was wrong—and getting more wrong every year.
A comprehensive new study has found that 87% of student loan borrowers who attempt to discharge their debt through bankruptcy now succeed. That's up from 61% in 2017 and just 40% in 2007. The myth that kept generations of borrowers from exploring relief options is finally crumbling under the weight of actual data.
Why the Myth Took Hold
The belief that student loans are "special" in bankruptcy stems from a legitimate legal distinction. Unlike credit card debt, medical bills, or most other consumer obligations, student loans require borrowers to demonstrate "undue hardship" to obtain discharge. The standard, established by courts rather than statute, has historically been interpreted harshly.
Under the commonly used Brunner test, borrowers must prove:
- They cannot maintain a minimal standard of living if forced to repay
- Their financial circumstances are likely to persist for a significant portion of the repayment period
- They have made good faith efforts to repay the loans
Courts initially applied this standard with extreme stringency, requiring proof of permanent disability or other catastrophic circumstances. Horror stories of failed discharge attempts—borrowers rejected despite severe illness, job loss, or poverty—became the dominant narrative.
But the judicial landscape has shifted dramatically, and most people haven't noticed.
What Changed
Several factors have combined to improve discharge success rates:
DOJ Guidance: In November 2022, the Biden administration's Department of Justice issued new guidance encouraging U.S. Attorneys to more fairly evaluate undue hardship claims. The memo explicitly rejected the "certainty of hopelessness" standard that some courts had adopted.
Judicial evolution: Bankruptcy judges—many of whom came of age during the student debt explosion—have grown more sympathetic to borrowers and more skeptical of rigid application of the Brunner test. Several circuits have expressly adopted more flexible approaches.
Better representation: Specialized attorneys have developed expertise in student loan bankruptcy cases, building successful track records that encourage more filings.
Changed circumstances: The pandemic pause gave many borrowers years without payments, creating circumstances that often support hardship claims.
"The idea that student loans can never be discharged in bankruptcy has always been a myth—but for a long time, it was a self-fulfilling prophecy. People didn't try because they believed they couldn't succeed. Now we're seeing what happens when they actually try."
— Jason Iuliano, Professor of Law at Villanova University
Why Few Pursue the Option
Despite the improving success rates, relatively few borrowers attempt bankruptcy discharge. The study found that less than 1% of those in default pursue the option. Several barriers explain this reluctance:
The myth itself: The most significant barrier is simply the pervasive belief that discharge is impossible. If borrowers don't know success is achievable, they won't try.
Cost: Filing for bankruptcy costs money—attorney fees, filing fees, and related expenses can total thousands of dollars. For those already struggling with debt, this creates a painful Catch-22.
Complexity: Student loan discharge requires a separate legal action (called an adversary proceeding) within the bankruptcy case. Many attorneys are unfamiliar with the process or uncomfortable taking these cases.
Stigma: Bankruptcy still carries social stigma, and some borrowers are reluctant to pursue it even when financially rational.
Who Should Consider Bankruptcy
Bankruptcy discharge may be appropriate for borrowers who:
- Have experienced permanent reductions in earning capacity due to disability, age, or job market changes
- Are in default and have minimal retirement savings or assets
- Have unsuccessfully attempted income-driven repayment or other relief options
- Face decades of payments with little prospect of eventual forgiveness
- Would struggle to maintain a basic standard of living while repaying
Importantly, bankruptcy is not an easy escape hatch. Courts still evaluate claims seriously, and those with good earning potential who simply prefer not to repay will generally fail. But for genuinely distressed borrowers, the option is far more viable than commonly believed.
The Process
For those considering this path, here's what to expect:
- Consultation: Speak with an attorney experienced in student loan bankruptcy cases (not just general bankruptcy)
- Documentation: Gather evidence of financial hardship—tax returns, medical records, employment history, budget analysis
- Chapter selection: Decide whether to file Chapter 7 (liquidation) or Chapter 13 (reorganization)—both allow student loan discharge proceedings
- Adversary proceeding: File the separate action seeking student loan discharge
- Litigation or settlement: The case may be resolved through trial, motion, or negotiated settlement
The process typically takes 6-12 months from filing to resolution, though complex cases can take longer.
The Bigger Picture
The improving discharge landscape comes at a critical moment. With wage garnishment resuming for 5.5 million borrowers in default and income-driven repayment options narrowing, bankruptcy may become an increasingly important safety valve.
Critics argue that the system shouldn't require litigation to obtain relief that could be achieved through simpler administrative processes. Supporters of expanded discharge counter that borrowers deserve the same bankruptcy protections available for virtually every other type of debt.
Whatever one's policy views, the practical reality has changed. The myth is dying. And for the millions of Americans struggling under student debt they genuinely cannot repay, that's news worth knowing.
