Student loan borrowers are experiencing a notable change in their ability to discharge debts through bankruptcy. A recent analysis reveals that the success rate for discharging student loans in bankruptcy has risen to an impressive 87 percent. This increase is largely attributed to a simplified legal process introduced three years ago, making it easier for borrowers to navigate the complexities of bankruptcy.
Historically, discharging student loans in bankruptcy was viewed as nearly impossible. Borrowers faced a daunting process that required them to file a separate lawsuit, often incurring significant costs and stress, with no guarantee of success. In some jurisdictions, individuals had to demonstrate that their financial situations were “hopeless” before a judge would grant a loan discharge.
According to a study conducted by Jason Iuliano, a professor at the University of Utah’s S.J. Quinney College of Law, this perception is changing. The study, published in The American Bankruptcy Law Journal, indicates a marked improvement in discharge rates, increasing from 61 percent in 2017 and more than doubling the rate from nearly two decades ago. Iuliano, who has been researching this issue for 15 years, noted, “That’s strikingly high when you think about the narrative being it’s impossible to discharge.”
This increase in success rates can be traced back to changes implemented during the Biden Administration. Specifically, the U.S. Department of Justice and the U.S. Department of Education established clearer guidelines regarding the types of cases eligible for loan discharge. These improvements have streamlined the process, allowing borrowers to present their cases using a simplified 15-page attestation form.
The shift in the legal landscape offers hope to many borrowers burdened by student debt. As the bankruptcy landscape evolves, the combination of clearer guidelines and simplified processes provides a pathway for those struggling to manage their financial obligations. The implications of these changes could lead to a substantial reduction in the financial strain faced by countless individuals across the country.
As more borrowers successfully discharge their student loan debts, the narrative surrounding bankruptcy is gradually transforming. This significant increase in success rates underscores a critical shift that could reshape how student loans are perceived in the context of bankruptcy proceedings. The ongoing developments in this area will likely continue to affect borrowers’ decisions and strategies for managing their debts.
