Simpler bankruptcy process raises student loan discharge rates, study finds

A new analysis finds that the vast majority of student loan borrowers who seek discharges in bankruptcy are succeeding, largely because of a simplified legal process introduced three years ago. According to the study by Jason Iuliano of the University of Utah, borrowers have an 87 percent success rate in dismissing most or all of their loans, up from 61 percent in 2017 and more than double the rate nearly two decades ago.

The analysis covered roughly 650 completed cases filed from mid-October 2022 through mid-November 2023; the process includes a 15-page attestation form. One borrower, Amy Howdyshell, had more than $78,000 in federal student debt dismissed after filing bankruptcy. Student loans must still be addressed through a separate adversary proceeding in bankruptcy and are evaluated under the undefined legal standard of "undue hardship," which courts have often applied using the Brunner test.

The newer approach adopted by the Justice and Education Departments makes each part of that test easier to meet in many cases—for example, allowed expenses that equal or exceed income can satisfy the first prong, and being over 65 or having loans in repayment for at least 10 years can satisfy the second.

Key Topics

Business, Student Loans, Bankruptcy, Jason Iuliano, Justice Department, Brunner Test