Not enough student-loan borrowers know about this way to get rid of their debt

• More student-loan borrowers are successfully discharging their debt through bankruptcy.
• But filings still remain low, which some attorneys attributed to a lack of awareness of the process.
• Guidance under Biden eased the bankruptcy process, and Trump has continued it.

It's not a myth: you really can get rid of your student loans in court.

For decades, student-loan borrowers seeking relief through bankruptcy rarely succeeded. However, 2022 guidance implemented by former President Joe Biden eased the process by establishing clearer, more streamlined guidelines for borrowers. The changes have allowed the bankruptcy process to move more quickly.

President Donald Trump's administration has retained the guidance, and a recent study by Jason Iuliano, a law professor at the University of Utah, showed that it's working for borrowers. Iuliano found that success rates for student-loan borrowers seeking bankruptcy have reached 87% since Biden's guidance was implemented, and of those borrowers, 97% of their student-loan balances were eliminated. Still, bankruptcy filings remain "remarkably low," Iuliano wrote.

The reforms led to about 350 additional bankruptcy cases following the new guidance, Iuliano said. With over 40 million borrowers holding student debt and 5 million of them in default, the increase in cases is quite small.

"Put differently, in the first full year of the reforms, only one in 42,000 struggling borrowers filed an adversary proceeding to seek relief," he said.

The lack of awareness of the bankruptcy process is a concern for Bob and Tammy Branson, a bankruptcy attorney and senior paralegal, respectively, in Florida. They said they've seen an increase in successful cases for clients seeking bankruptcy since the 2022 guidance, but many attorneys across the country aren't taking cases because they don't know it works.

"A lot of attorneys, we think, don't believe it works because we couldn't do it for so long," Tammy said. "They don't even realize that this is solid. The attorneys for the Department of Justice are telling us to go forward. They're processing them. None of us knows each day what could happen, but it is a good process, and it's working."

The student-loan industry is undergoing critical changes in the coming year, making it increasingly important that borrowers are aware of their avenues for relief, including bankruptcy. The Trump administration is set to begin implementing its new repayment plans with less generous terms this summer. While wage garnishment and tax refund seizures are paused for defaulted borrowers, those behind on payments have a limited time to make a plan to return to good standing or risk losing their federal benefits.

It's not just low earners, Tammy said. Even borrowers making six figures might find they cannot afford their student-loan payments in addition to housing, food, and childcare costs, and bankruptcy could be their best way out — especially once consequences for defaulted borrowers resume.

"We think it's going to drive more people to bankruptcy because it might be their best way to resolve it," Tammy said. "Their only way to resolve it."

How the student-loan bankruptcy process has changed

Prior to the 2022 guidance, borrowers had to meet the "undue hardship" standard, which required them to show that they could not maintain a minimal standard of living, that their circumstances were unlikely to improve, and that they had made a good-faith effort to repay their debt.

That was a difficult bar to clear, and courts interpreted the standard strictly, resulting in very few successful cases. Biden's reforms retained the undue hardship standard but reduced the burden on borrowers by allowing them to complete self-attestation forms to help courts assess their discharge requests and avoid a lengthy investigation.

The Justice Department said in July 2024 that borrowers filed 588 new cases from October 2023 to March 2024, marking a 36% increase from the prior six-month period. Additionally, a group of Democratic lawmakers said in October 2024 that, based on data they obtained, nearly 900 borrowers filed for bankruptcy in the first eight months of fiscal year 2024, and 85% of those borrowers received full or partial discharges.

The lawmakers wrote at the time that the Education and Justice Departments "should continue to educate potentially qualifying borrowers, their attorneys, and other individuals and organizations who work to help borrowers."

Once a borrower files for bankruptcy, borrowers are protected from garnishments, Bob said, so it's in a borrower's best interest to file as soon as they can if they're at risk of defaulting.

"Bankruptcy, in general, gives everybody that fresh start and a breather," Bob said.