The Trump administration is taking a tougher stance on Americans with student loan debt, and borrowers are feeling it on both sides.
On the one hand, the U.S. Department of Education has curbed income-based repayment (1). According to the court file dated December 15, 327,955 applications were rejected in August alone (2). For borrowers who rely on plans to limit their monthly bills and eventually wipe out any remaining balances, the consequences are immediate: higher payments or a limbo-like forbearance where interest continues to accumulate but relief remains out of reach.
At the same time, the government is preparing to restart wage garnishment 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 seized after 30 days’ notice.
Frustration is simmering online. One Reddit user wrote (4): “Mine will be almost $500 a month, which is literally impossible for me to pay. I just laugh about it now because I can’t afford it. If I tried, my family and I would be dead before I even paid a quarter of my debt. This is a joke.”
However, a surprising escape hatch opens in the middle of the tightening screws. It has long been thought that student loans would be nearly impossible to wipe out through bankruptcy, but that assumption may be out of date.
Debtors pursuing bankruptcy relief are succeeding at rates few would have believed just a decade ago. An analysis by University of Utah law professor Jason Iuliano (5) found that filers were able to discharge some or all of their student debt through bankruptcy 87% of the time, up from 61% in 2017, thanks largely to a streamlined legal process that began three years ago.
“That’s a pretty high number when you consider that the narrative is impossible to tell,” Iuliano said. New York Times (6). Their findings were published this month American Journal of Bankruptcy LawAfter 15 years of research.
The change comes as financial pressure on borrowers continues to increase. A survey by the Institute for College Access and Success found that 42% of borrowers had to choose between student loan payments and basic needs, while 20% were delinquent or were already in default (7). Although the Biden administration canceled $183.6 billion in loans to more than 5 million borrowers, broader amnesty efforts have stalled (8).
For a small but growing number of borrowers, this changing environment is already providing relief. Amy Howdyshell, a 43-year-old licensed practical nurse in Virginia, had recently taken out more than $78,000 in federal student loans through bankruptcy, much of which was due to a for-profit school for a degree she never completed (9).
The couple filed for bankruptcy in 2023 after the husband suffered serious medical problems, including a heart attack. With the help of an attorney experienced in student loan cases, Howdyshell successfully pursued discharge, freeing her family from debt that had long hindered their ability to save for a home or retirement.
“I now have the financial freedom to pursue my homeownership dreams,” Howdyshell said. New York Times. “It was a scary process, but it was worth the gamble.”
Iuliano says cases like his remain rare, largely because most debtors and their lawyers still don’t realize how much the odds have changed.
Read more: This The quiet portfolio shift many wealthy investors will make in 2026. Should you consider this too?
The student loan system is becoming increasingly unstable, and this uncertainty is pushing more people to seek help.
“The level of anxiety among debtors is really high right now,” said Seattle attorney Latife Neu. New York Times. He has handled more than a dozen student loan bankruptcy cases under the streamlined process and said he has heard that a growing number of borrowers are seeking options, including those with impending retirement (9).
In such an environment, bankruptcy may be worth reconsidering, but only after the trade-offs have been weighed. Applying can significantly damage your credit (10), potentially causing your score to drop by as much as 200 points and making it harder for you to qualify for loans, housing, or affordable interest rates in the years to come.
However, the effect is not the same for everyone. Debtors who are already behind on payments, facing collections, or trying to avoid events such as repossession or foreclosure may suffer less significant harm from filing for bankruptcy because their credit has already been damaged. On the other hand, those with strong credit scores and few negative scores may experience a much steeper decline.
Experts generally recommend exhausting other options before taking this step. This may include reviewing all available repayment plans, exploring consolidation or refinancing, and seeking guidance from an attorney or nonprofit credit counselor experienced with student loans to understand which path makes the most sense for your situation.
We rely only on vetted sources and reliable third-party reports. For details, see editorial ethics and guidelines.
CNBC (1); Court Audience (2); PBSs (3, 8); Reddit (4); SSRN (5); New York Times (6, 9); 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 any warranty.
