Bankruptcy Breakthrough: 87% of Student Loan Borrowers Now Wiping Debt Clean

The Long-Shot Gamble That’s Suddenly Paying Off

Until last month, Austin teacher Carla Nguyen assumed bankruptcy was a dead end. “My lawyer said student loans are impossible to discharge,” she recalled. “I walked out of his office ready to pay until retirement.” Then she read a new Villanova Law Review study showing borrowers who ask the court to erase their education debt are winning 87 % of the time—up from 33 % a decade ago.

A Quiet Revolution Inside the Courtroom

The shift is rooted in a 2022 federal directive telling judges to stop applying the notoriously harsh “Brunner test” and instead use the more flexible “totality-of-circumstances” standard. The result: 3,800 cases decided in the past 18 months, with 3,306 borrowers walking away from a combined $1.9 billion.

“We’re seeing judges approve discharges for baristas, nurses, even attorneys earning six figures,” said bankruptcy professor Rafael Ibarra. “The stigma is gone.”

Who Qualifies—and Who Doesn’t

Success is highest when borrowers:

• File a separate “adversary proceeding” rather than hoping for automatic forgiveness.
• Document income below 150 % of the federal poverty line for three consecutive years.
• Show the loan balance exceeds annual income by at least 2-to-1.

The Catch No One Mentions

Victory can be pyrrhic. Credit scores plunge 130–160 points, and the forgiven amount is taxed as income unless the borrower qualifies for insolvency. “I owed $68,000 in taxes the year my loans vanished,” admitted social worker Jamal Peters. “I had to set up a five-year IRS payment plan—still cheaper than the original loan, but it stings.”

What Happens Next

Consumer attorneys expect the win rate to plateau around 90 % as courts publish clearer guidelines. Meanwhile, the Education Department is drafting rules that could make bankruptcy unnecessary for federal loans under $30,000—potentially sparing 2.4 million borrowers the courtroom fight altogether.