US student loan bankruptcy success rate jumps to 87%, study finds, challenging long-held myths for borrowers

The success rate for US student loan borrowers seeking to discharge their debt through bankruptcy has climbed sharply in recent years, reaching 87%, according to a new academic study. The findings challenge the long-standing belief that student loans cannot be cleared through bankruptcy proceedings.

Despite the improved odds, very few borrowers attempt to pursue this option. Legal experts say a widespread myth continues to discourage people from filing the additional court action required to seek student loan discharge, even as federal policy changes have made the process more accessible.

Study shows sharp improvement in outcomes
The study, published in The American Bankruptcy Law Journal, was conducted by Jason Iuliano, a professor at the University of Utah’s S.J. Quinney College of Law. Analysing 652 bankruptcy cases between October 2022 and November 2023 that included student loans, Iuliano found a dramatic rise in successful outcomes.

“People who file for discharge are winning at very high rates,” Iuliano said in conversation with CNBC. He noted that the success rate stood at 61% in 2017 and just 40% in 2007, highlighting a long-term shift in how courts assess student loan debt.

Policy changes reshaped the bankruptcy process
Improved results largely stem from revised bankruptcy guidance issued in November 2022 by the US Department of Education and the Department of Justice. The policy instructs government attorneys to evaluate student loan cases more consistently with other forms of unsecured debt.

Under the updated approach, borrowers complete a 15-page attestation form outlining their financial hardship. Experts say this has reduced prolonged legal disputes and lowered barriers for qualifying applicants. An Education Department spokesperson told CNBC the Trump administration has no current plans to reverse the guidance.
Persistent myths deter borrowers
Although more than 3 million student loan borrowers filed for bankruptcy between 2011 and 2024, only 7,293 pursued a separate adversary proceeding to discharge student debt, according to the study. Iuliano told CNBC that the misconception surrounding non-dischargeability remains deeply rooted.

“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 said, adding that the streamlined attestation process should be routinely considered.

Borrowers face mounting financial pressure
Student loan debt in the US now exceeds $1.6 trillion, held by more than 42 million Americans. Iuliano’s data showed women accounted for 73% of bankruptcy filers with student loans. The average balance was $115,000, while 10% owed more than $240,000. Borrowers ranged in age from 24 to 76.

Malissa Giles, a bankruptcy attorney in Virginia, said the simplified process has had a profound effect on clients. “It allows them to sleep at night,” Giles told CNBC. As defaults rise and wage garnishment resumes in early January, Iuliano said bankruptcy can represent “the only real path out” for some borrowers, according to CNBC.
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