Dec 31, 2025
The Trump administration is taking a harder line on Americans with student loan debt, and borrowers are feeling it from two sides.
On the one front, the U.S. Department of Education has slammed the brakes on income-driven repayment (1). In August alone, 327,955 applications were denied, according to a Dec. 15 court filing (2). For borrowers who were counting on those plans to cap their monthly bills and eventually erase remaining balances, the fallout is immediate: higher payments or a limbo-like forbearance where interest keeps piling up while relief stays out of reach.
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At the same time, the government is preparing to restart wage garnishment for borrowers in default as early as January (3). Millions of people are already more than 270 days behind on their loans, putting them at risk of having part of their paycheck seized after a 30-day notice.
Online, frustration is boiling over. One Reddit user wrote (4), “Mine will be nearly $500 a month which is literally impossible for me to pay. I just laugh at it now because simply no way I can afford that. If I tried, my parents and I would be dead before I pay even a quarter of what I owe. It’s a joke.”
Amid the tightening screws, however, a surprising escape hatch is opening. Student loans have long been considered nearly impossible to wipe out through bankruptcy — but that assumption might be outdated.
A shift is changing the odds
Borrowers who pursue 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 filers now manage to discharge some or all of their student debt 87% of the time through bankruptcy, up from 61% in 2017, largely due to a streamlined legal process introduced three years ago.
“That’s strikingly high when you think about the narrative being it’s impossible to discharge,” Iuliano told The New York Times (6). His findings were published this month in The American Bankruptcy Law Journal, following 15 years of research.
The shift comes as financial pressure on borrowers continues to grow. A survey from the Institute for College Access and Success found 42% of borrowers are forced to choose between student loan payments and basic necessities, while 20% 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 delivering relief. Amy Howdyshell, a 43-year-old licensed practical nurse in Virginia, recently had more than $78,000 in federal student loans discharged through bankruptcy, much of it tied to a for-profit school for a degree she never completed (9).
After her husband suffered serious medical issues, including a heart attack, the couple filed for bankruptcy in 2023. With help from an attorney experienced in student loan cases, Howdyshell successfully pursued a discharge, freeing her family from debt that had long blocked their ability to save for a home or retirement.
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“Now I have the financial freedom to pursue my dreams of homeownership,” Howdyshell told The New York Times. “It was a scary process but worth the gamble.”
Cases like hers remain rare, Iuliano says, largely because many borrowers and their lawyers still don’t realize how much the odds have shifted.
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Weighing your options before taking the plunge
The student loan system feels increasingly unstable, and that uncertainty is driving more people to look for relief.
“The anxiety level among borrowers is really high right now,” Latife Neu, a Seattle attorney told The New York Times. She has handled more than a dozen student loan bankruptcy cases under the streamlined process and said she’s hearing from a growing number of borrowers searching for options, including many nearing retirement (9).
In that environment, bankruptcy may be worth reconsidering but only after weighing the tradeoffs. A filing can significantly damage your credit (10), potentially knocking as much as 200 points off your score and making it harder to qualify for loans, housing or favorable interest rates in the years ahead.
The impact, however, isn’t 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 since their credit is already impaired. By contrast, those with strong credit and few negative marks could experience a much steeper drop.
Before taking that step, experts generally recommend exhausting other options first. That may include reviewing all available repayment plans, exploring consolidation or refinancing, and seeking guidance from a student-loan-experienced attorney or nonprofit credit counselor to understand which path makes the most sense for your situation.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
CNBC (1); Court Listener (2); PBS (3, 8); Reddit (4); SSRN (5); The New York Times (6, 9); The Institute for College Access and Success (7); Experian (10)
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Victoria Vesovski is a Toronto-based Staff Reporter at Moneywise, where she covers the intersection of personal finance, lifestyle and trending news. She holds an Honours Bachelor of Arts from the University of Toronto, a postgraduate certificate in Publishing from Toronto Metropolitan University and a Master’s degree in American Journalism from New York University’s Arthur L. Carter Journalism Institute. Her work has been featured in publications including Apple News, Yahoo Finance, MSN Money, Her Campus Media and The Click.
