This Act amends bankruptcy law to make it easier for struggling student loan borrowers to discharge their debt by removing the "undue hardship" standard.
J. Correa
Representative
CA-46
The Student Loan Bankruptcy Improvement Act of 2025 aims to reform the bankruptcy process for student loan borrowers. This bill seeks to lower the current, overly difficult standard required to discharge student loan debt in bankruptcy proceedings. By making these changes, Congress intends to provide struggling borrowers with a genuine opportunity for a financial fresh start.
Student Loan Debt Relief Gets a Major Policy Upgrade: Bankruptcy Standard Eased for Millions
The Student Loan Bankruptcy Improvement Act of 2025 aims to overhaul how student debt is treated when someone files for bankruptcy. The core of this bill is simple but powerful: it’s designed to make it much easier for financially distressed borrowers to get a fresh start.
The One-Word Change That Could Change Everything
Right now, if you want to wipe out federal or private student loans in bankruptcy, you have to prove “undue hardship.” This is a notoriously high bar, often requiring you to prove that you can’t maintain a minimal standard of living and that this situation is likely to persist for the entire loan repayment period. In practice, courts use tests like the Brunner standard, which is so strict that Congress notes only about 0.01% of those who try actually succeed. The bill’s main maneuver, found in SEC. 3, is to amend the bankruptcy code (Section 523(a)(8)) by simply removing the word “undue.” This means the standard would drop from proving undue hardship to just proving hardship—a massive difference that recognizes that life doesn’t always go as planned.
Why the Old System Was Broken
Congress is clear: the current system is not working. Millions of borrowers—about six million federal borrowers alone—are seriously behind on payments. This isn't just about debt; it’s about credit scores tanking, making it harder to get a car loan, rent an apartment, or even secure a job that requires a credit check. The reality is that many people seeking this relief either didn't finish their degree or found their degree didn't lead to the expected higher income. This bill is grounded in the idea that bankruptcy is supposed to give honest people a fresh start so they can get back on their feet and contribute to the economy, not trap them in debt they can never repay.
Who Benefits and What’s the Catch?
The biggest winners here are the millions of borrowers who are genuinely struggling and might now have a viable path to debt relief. If you’re a former student juggling a low-wage job and rising costs, this change means that if you file for bankruptcy, you won't face the near-impossible legal battle of proving “undue” hardship. The bill also includes a critical provision (SEC. 4) stating that these new rules apply retroactively to every case that has already been filed, as well as all future cases. This means people currently stuck in bankruptcy court trying to meet the old standard could see their cases immediately impacted.
However, changing just one word leaves some legal gray area. While the intent is clearly to lower the bar, the courts will still need to define what hardship means without the “undue” qualifier. Will this open the door for those who could repay but choose not to? Congress counters that the existing safeguards, like the tough Means Test required to file for bankruptcy, already prevent widespread abuse. Still, there’s a potential cost: if more debt is discharged, the federal government (and by extension, taxpayers) bears the loss. This could put upward pressure on interest rates or lead to stricter lending standards for future students, which is something to watch closely.