Findings

The Congress finds the following: (1)Student loan borrowers deserve an opportunity to discharge debt using a fair, nation-wide standard for relief. (2)The current standard of undue hardship fails to provide an achievable avenue for relief of student loan debt requiring significant costs and a paperwork burden. (3)Student loan borrowers rarely meet the arbitrary and draconian standard of undue hardship, especially in jurisdictions using the Brunner test, with only 0.01% successfully being discharged as of 2022. (4)The criteria utilized in the Brunner test, which is used by most bankruptcy courts in the United States, is inconsistent with the main goal of bankruptcy of giving honest debtors a fresh start, enabling them to more fully participate and contribute to the economy. (5) The Brunner test was developed by the courts decades ago when debtors could discharge their student loans in bankruptcy by simply waiting five or seven years—it should no longer be used now that the waiting period for discharge was eliminated by Congress. (6)By changing the standard of hardship, Congress would provide bankruptcy courts with needed flexibility to adopt more reasonable criteria in determining discharge standards for student loan debt. (7)Adopting this new hardship standard does not negate requirements for discharge under bankruptcy proceedings like means testing, disclosure requirements, and exemption limitations, securing bankruptcy’s integrity and benefitting both debtors and creditors who have an increased opportunity for repayment. (8) As of June 2025, around six million borrowers of Federal student loans are passed due by at least 90 days. (9)A majority of borrowers with 90 days or more past due student loans as of June 2025 could move into default by September 2025. (10)Millions of student loan borrowers are facing significant credit score declines making it more expensive or difficult to get necessary insurance, loans, and credit cards. (11)The vast majority of debtors seeking bankruptcy discharges for student loans never obtained degrees or got degrees that have not enabled them to secure better employment or have a higher earning potential as predicted when Congress adopted the undue hardship standard. (12)According to a Duke Law Journal article, between 2011 and 2019, less than 0.1 percent of applications made by student loan debtors in bankruptcy court seeking a discharge of student loan debt were successful, largely because attorneys discourage their clients from seeking an adversary proceeding on the belief that it is too hard to meet the undue hardship standard. (13) Each year, less than one percent of the approximately 250,000 people who file for bankruptcy seek to discharge student loan debt based on undue hardship, a mere fraction of the nearly 43 million people who have Federal student loan debt. (14) Between November 2022 and September 2024, approximately 2,500 people sought to discharge student loan debt through bankruptcy. (15)The Department of Education (Department) recently reported that twenty percent of borrowers are in default and another four million are between three and six months behind on their payments. The Department estimates that as many as 10 million borrowers could be in default within a few months. (16)There is little evidence of debtors abusing the bankruptcy system by seeking unfair discharges of student loan obligations, a concern raised by Congress when it adopted the undue hardship standard. (17)The concerns of abuse were addressed and minimized with the passage in 2005 of the Bankruptcy Abuse Prevention and Consumer Protection Act with the enactment of a rigorous Means Test to evaluate debtors’ ability to repay debts. (18)Student loan debt owed by Americans who file for bankruptcy with student loans is often never paid, whereas bankruptcy proceedings provide an opportunity to address this reality. (19)With the restart of student loan collections, the number of borrowers with student loan debt is expected to rise. The change to a hardship standard will facilitate fair and appropriate discharges and repayment plans.