A groundbreaking academic study has revealed a dramatic and encouraging shift for American student loan borrowers. The success rate for those attempting to wipe out their education debt through bankruptcy has soared to 87%, challenging decades of conventional wisdom that deemed such loans nearly impossible to clear.
Bankruptcy Success Rate Shows Dramatic Long-Term Climb
The research, published in The American Bankruptcy Law Journal, was conducted by Professor Jason Iuliano from the University of Utah’s S.J. Quinney College of Law. By analysing 652 bankruptcy cases filed between October 2022 and November 2023 that involved student loans, Iuliano documented a sharp upward trend. This marks a significant leap from a 61% success rate in 2017 and a mere 40% back in 2007.
"People who file for discharge are winning at very high rates," Professor Iuliano stated in an interview with CNBC. His findings underscore a fundamental change in how courts are now evaluating pleas for student loan relief during bankruptcy proceedings.
Policy Reforms Pave the Way for Borrowers
The remarkable improvement in outcomes is largely attributed to revised federal guidance issued in November 2022. The US Department of Education and the Department of Justice introduced a new policy that instructs government lawyers to assess student loan cases more in line with other types of unsecured debt.
Under this streamlined process, borrowers must complete a 15-page attestation form to detail their financial hardship. Legal experts confirm this has minimised lengthy court battles and lowered the barrier for eligible applicants. A spokesperson for the Education Department indicated that the current administration has no plans to revoke this guidance.
Why Do So Few Borrowers Attempt This Route?
Despite the favourable odds, an astonishingly low number of borrowers pursue this option. The study found that while over 3 million individuals with student loans filed for bankruptcy between 2011 and 2024, only 7,293 initiated the separate 'adversary proceeding' needed to discharge that specific debt.
Professor Iuliano identifies a deep-rooted myth as the primary culprit. "The myth that student loans are never dischargeable in bankruptcy is so pervasive that many attorneys never even raise the possibility with their clients," he explained. He urges that the new, simpler attestation process should become a standard consideration for those in financial distress.
The scale of the crisis is immense. Total student loan debt in the US has ballooned to over $1.6 trillion, burdening more than 42 million Americans. The study's data highlights that women comprised 73% of the bankruptcy filers with student loans. The average debt balance was $115,000, with one in ten borrowers owing more than $240,000. The age range of filers spanned from 24 to 76 years old.
For those struggling, the policy change has been life-altering. Virginia-based bankruptcy attorney Malissa Giles told CNBC that the simplified process "allows them to sleep at night." With loan defaults rising and wage garnishments resuming, Professor Iuliano notes that for many, bankruptcy has become "the only real path out."
