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Student loan borrowers facing financial distress increasingly turn to a once-overlooked legal strategy—bankruptcy—to protect their income and potentially discharge their debt. With federal student loan collections resuming after a lengthy pause, the interplay between bankruptcy law and student debt discharge is drawing unprecedented attention.
The Growing Student Loan Crisis: A Perfect Storm for Bankruptcy Filings
The Education Department’s resumption of student loan collections—after more than five years of pandemic-related relief—has created a financial crunch for millions. Over 5 million borrowers are now at risk of wage garnishments, Social Security offsets, and tax refund seizures.
- Chapter 13 bankruptcy filings are already increasing as federal pandemic relief fades.
- As many as 10 million borrowers could default in the coming months, up from 4 million currently, according to Education Department data.
“Millions of Americans live paycheck to paycheck,” said Scott Barna, president of Stretto, a legal services firm. “For many, wage garnishment or job loss becomes the tipping point that drives them to file for bankruptcy.”
Bankruptcy and Student Loans: Not Impossible, Just Complicated
Contrary to popular belief, student loans can be discharged in bankruptcy—but the process is notoriously complex. Historically, less than 0.01% of student loans in bankruptcy were discharged as of 2022.
However, a 2022 policy shift by the Education and Justice Departments introduced a new, borrower-friendly “attestation” process designed to lower the bar for discharge by clarifying the “undue hardship” standard.
Key Benefits of Filing Bankruptcy for Student Loan Borrowers:
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- Automatic stay halts wage garnishments and collection efforts.
- Opportunity to apply for partial or total student loan discharge.
- Time to reorganize finances or explore alternative repayment strategies.
“There’s a growing awareness that bankruptcy is a real recourse for student loan borrowers,” Barna noted.
How the 2022 Attestation Process Changed the Game
The attestation process, implemented in 2022, allows borrowers to provide detailed information about:
- Current financial hardship.
- Likely future financial challenges.
- Good-faith efforts to repay student loans.
Impact So Far:
- 85% of student loan bankruptcy cases since the 2022 policy have resulted in partial or full discharge.
- Student loan-related bankruptcy proceedings jumped nearly sixfold between January 2023 and January 2025.
“Most borrowers—and even many attorneys—still don’t realize this option exists,” said Barna.
Strategic Bankruptcy: A Chess Match for Borrowers
Joshua Cohen, known as The Student Loan Lawyer, emphasized that borrowers must think strategically.
“Bankruptcy might buy you time or even eliminate your debt. But what’s your endgame? Are you seeking a discharge or just halting collections temporarily?” Cohen explained.
According to Stretto’s data, discharge decisions take an average of 7.5 months.
Cohen’s Bankruptcy Tips for Borrowers:
- Prioritize exiting default through loan consolidation or rehabilitation.
- Use bankruptcy as a last resort or as a strategic pause.
- Understand that student loans may continue accruing interest even during bankruptcy proceedings.
“It’s like playing chess. Every move should set up the best possible endgame,” Cohen said.
Chapter 13 Bankruptcy: Temporary Relief with Long-Term Risks
Michelle Bass, head of consumer bankruptcy at Wolfson Bolton Kochis PLLC, said Chapter 13 bankruptcy can stop collections for three to five years via an automatic stay.
But borrowers should beware:
- They must commit to repaying other unsecured debts.
- Student loans might continue accruing interest.
- They could exit bankruptcy in a worse position financially.
“Bankruptcy can be a band-aid if you don’t address the student loan itself,” Cohen warned.
Why Borrowers from For-Profit Colleges Are Especially Vulnerable
Borrowers who attended for-profit colleges represent about 70% of student loan defaults. These borrowers often face:
- Higher interest rates.
- Poor employment outcomes.
- Increased likelihood of needing bankruptcy protection.
“Garnishment will exacerbate financial strain, especially for borrowers already in default,” said Michael Hunter, head of Epiq’s bankruptcy analytics.
Hunter predicts a 20-30% surge in bankruptcy filings by 2025, continuing the trend from 2024’s 14.2% increase.
Alternatives to Bankruptcy: When It’s Not the Best Option
While bankruptcy may provide temporary relief, income-driven repayment plans (like SAVE) can offer sustainable, long-term solutions for many borrowers—if they qualify and legal challenges don’t derail these programs.
“Bankruptcy isn’t always the best move, especially for borrowers who can’t afford the costs or risk,” Bass explained.
Conclusion: Bankruptcy Is No Longer a Last Resort—It’s a Legal Strategy
The resumption of federal student loan collections has forced millions to consider their legal options. Thanks to recent government policy changes, bankruptcy is emerging as a viable strategy, not just a desperate last resort.
Key Takeaways:
- Bankruptcy filings are rising sharply among student loan borrowers.
- The 2022 attestation process has made discharging student loans more achievable.
- Borrowers should weigh all available options, including consolidation, rehabilitation, income-driven repayment, and strategic bankruptcy filings.
“For the first time in decades, borrowers have a clear path to potentially shedding crushing student loan debt through bankruptcy,” Barna concluded.
