November 25, 2020

AccessLex Institute Statement on Changes to Bankruptcy Code to Protect Student Loan Borrowers

Policy and Advocacy
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AccessLex Institute announced its support for restructuring the treatment of student loans under the Bankruptcy Code to better assist borrowers in financial distress. This proposal supplements AccessLex Institute’s support of various other, student-borrower friendly positions.

Prior to 1976, student loans, much like other forms of unsecured credit, were dischargeable in bankruptcy; but changes made over the last 40 years to the Bankruptcy Code have resulted in overly burdensome procedural and substantive hurdles to the discharge of student loans by borrowers. Today, a student loan borrower seeking discharge must engage in a separate adversary proceeding within the bankruptcy proceeding to prove that a student loan creates an "undue hardship" before a court may order full or partial discharge of such loans in bankruptcy. As a result of these hurdles, it is estimated that a mere 0.3 percent of student loan debtors in bankruptcy cases even seek to have their educational debts discharged.i

AccessLex Institute believes there is an opportunity to maintain responsible borrowing and offer assistance to those experiencing financial crises. AccessLex believes that the "fresh start" afforded through bankruptcy may be the most appropriate choice and should be more accessible to student loan borrowers under certain circumstances. Therefore, we support permitting the discharge of Federal and private student loans in bankruptcy proceedings on par with other unsecured consumer debt once any affected loan has been in repayment for at least seven years (exclusive of deferments or mandatory forbearance). The current statutory framework and applicable undue hardship requirements would continue to apply to student loans:

  • In repayment less than 7 years;
  • Owed by a borrower who had sought and been granted discharge of any student loan amount in a previous bankruptcy proceeding; or,
  • Eligible to participate in an income-driven repayment plan that provides for monthly payments no greater than 15% of discretionary income, with the possibility of loan forgiveness after no longer than 25 years.

AccessLex Institute believes that this position sufficiently recognizes the unique nature of student loan debt and properly balances the interests of various stakeholders. In addition, it seeks to eliminate any opportunity for serial use of bankruptcy as a substitute student loan repayment plan and keeps bankruptcy focused as a last resort option for those truly in need.

There is also interest in Congress to ease the burden on student loan borrowers. Several bills introduced this year seek to make it easier for student loan debtors to discharge their educational debt either by eliminating the undue hardship test entirely, or eliminating it for certain types of loans only. "While we believe that our proposal best resolves the current policy inequities, we look forward to working with our higher education colleagues and federal policymakers to provide borrowers in crisis with a path to a more secure financial future," said Christoper P. Chapman, president and chief executive officer of AccessLex Institute.


i Austin, D. A. (2013). The indentured generation: Bankruptcy and student loan debt. Santa Clara Law Review, 53(2), 329- 420.