The Trump administration is taking a tougher stance on Americans with student loan debt, and borrowers are feeling it from both sides.
On the one hand, the US Department of Education has curbed income-based reimbursements (1). In August alone, 327,955 applications were denied, according to a December 15 court filing (2). For borrowers who counted on those plans to limit their monthly bills and eventually clear remaining balances, the consequences are immediate: higher payments or a limbo-like forbearance where interest continues to accrue while relief remains within 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 in arrears on their loans, putting them at risk of having part of their wages garnished after 30 days’ notice.
Online, frustration boils over. One Reddit user wrote (4), “Mine is going to cost almost $500 a month, which is literally impossible for me to pay. I’m laughing about it now, because I just can’t afford it. If I tried, me and my parents would be dead before I paid even a quarter of what I owe. It’s a joke.”
Amidst the tightening bolts, however, a surprising escape hatch opens. Student loans have long been considered nearly impossible to discharge through bankruptcy — but that assumption may be over.
Borrowers seeking 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 they are now able to pay off some or all of their student debt 87 percent of the time through bankruptcy, up from 61 percent in 2017, thanks in large part to a streamlined legal process introduced three years ago.
“It’s strikingly large when you consider that the narrative is impossible to download,” Iuliano said. The New York Times (6). His findings were published this month in American Journal of Bankruptcy Lawafter 15 years of research.
The change comes as financial pressure on borrowers continues to mount. A survey from the Institute for College Access and Success found that 42 percent of borrowers are forced to choose between student loan payments and necessities, while 20 percent are delinquent or already in default (7). Even though the Biden administration canceled $183.6 billion in loans for more than 5 million borrowers, broader forgiveness efforts have stalled (8).
For a small but growing number of borrowers, this changing landscape is already offering help. Amy Howdyshell, a 43-year-old nurse from Virginia, recently received more than $78,000 in federal student loans discharged in bankruptcy, much of it tied to a for-profit school for a degree she never graduated from (9).
After her husband suffered serious medical problems, including a heart attack, the couple filed for bankruptcy in 2023. With the help of an experienced student loan attorney, Howdyshell successfully pursued a discharge, freeing her family from debt that had long blocked their ability to save for a home or retirement.
“I now have the financial freedom to pursue my dreams of home ownership,” Howdyshell said The New York Times. “It was a scary process, but it was worth the gamble.”
Cases like hers remain rare, Iuliano says, in large part because many borrowers and their lawyers still don’t realize how much the odds have changed.
Read more: This is the quiet portfolio shift many wealthy investors are making in 2026. Should you consider it too?
The student loan system feels increasingly unstable, and that uncertainty is causing more people to seek help.
“The anxiety level among borrowers is very high right now,” said Latife Neu, a Seattle attorney. The New York Times. She has handled more than a dozen student loan bankruptcy cases under the streamlined process and said she has heard from a growing number of borrowers looking for options, including many nearing retirement (9).
In this environment, bankruptcy may be worth reconsidering, but only after weighing the trade-offs. A statement can significantly damage your credit (10), potentially dropping up to 200 points from your score and making it more difficult to qualify for loans, housing or favorable interest rates in the years to come.
The impact, however, is not the same for everyone. Borrowers who are already behind on payments, facing collections, or recovering from events like repossession or foreclosure may see less significant damage from a bankruptcy filing because their credit is already damaged. In contrast, those with strong credit and few bad marks could experience a much steeper decline.
Before taking that step, experts generally recommend exhausting other options first. This may include reviewing all available repayment plans, exploring consolidation or refinancing, and seeking guidance from an experienced student loan attorney or nonprofit credit counselor to understand which path makes the most sense for your situation.
We only rely on verified sources and credible third-party reports. For details, see our ethics and editorial guidelines.
CNBC (1); Hearing Court (2); PBS (3, 8); Reddit (4); SSRN (5); The 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. Offered without warranty of any kind.
