Bankruptcy success rate jumps for student loan borrowers: study

Repaying student debt in bankruptcy has long been thought to be difficult, if not impossible. However, this was not the case in recent years, a new to work finds it.

The success rate for student loan borrowers trying to pay off their debts in bankruptcy has “jumped” to 87%, according to an analysis published this month in The American Bankruptcy Law Journal by Jason Iuliano, a professor at the University of Utah SJ Quinney School of Law. Iuliano found that in 2017, the bankruptcy success rate for those with education debt was 61 percent, compared to 40 percent in 2007.

“People who apply for resignation are earning very high rates,” Iuliano told CNBC. His study used the final dataset of 652 bankruptcy discharge cases, including student loans, from October 2022 to November 2023.

The improved outcomes for student loan borrowers in bankruptcy are largely due to updated bankruptcy guidelines issued by the Biden administration. U.S. Department of Education and Department of Justice in November 2022 put forward a policy Experts say student loans are treated like other types of debt in bankruptcy court. Borrowers can fill out a 15-page form. certification formdetailing their financial struggles and defending a Mulligan.

The Trump administration has not rescinded this guidance. The Ministry of Education did not respond to a request for comment.

More than 42 million Americans have student loans and outstanding debt $1.6 trillionGovernment data shows.

Government lawyers fought the cases and some people said “the certainty of despair” And “extreme difficulty”

Malissa Giles, a bankruptcy attorney in Virginia, said the easier bankruptcy process has been “life-changing” for her clients, many of whom have carried student debt for decades.

“It helps them sleep at night,” he said.

In the cases Iuliano reviewed, women made up 73% of student loan bankruptcy filers. The average student loan balance of applicants was $115,000, but 10% of borrowers owed more than $240,000. The debtors’ ages ranged from 24 to 76.

While the likelihood of bankruptcy for student loan borrowers is slowly increasing, Iuliano found that many people still do not bother to file a separate lawsuit required to have their student debt discharged, which is called adversarial litigation, Iuliano found.

Between 2011 and 2024, more than 3 million student loan borrowers filed for bankruptcy. But in his study, he writes that only 7,293 of those people took the additional step of requesting their student loans be erased.

“The myth that student loans can never be discharged in bankruptcy is so pervasive that many lawyers do not even raise the possibility with their clients,” Iuliano told CNBC.

“But the new certification process is so streamlined that bankruptcy attorneys should recommend it to every client with a student loan,” he said.

Easier bankruptcy process could offer a lifeline Many Americans are struggling with education debt.

Student loan holders are under pressure due to a weakening labor market, numerous changes to the credit system and, most recently, problems accessing relief programs including debt forgiveness and affordable repayment plans. The Department of Education says more than 5 million student loan borrowers are currently in default, and that total could soon rise to nearly 10 million borrowers in question earlier this year.

The Trump administration will begin garnishing the wages of defaulting student loan borrowers in early January, a Department of Education spokesperson recently told CNBC.

“For many people, interest and fees have turned the balance into something they can never repay, so bankruptcy is the only real way out,” Iuliano said.