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A generation of Americans has borrowed heavily for their education, and hundreds of thousands of them are deeply in debt. Some 37 million Americans owe a total of approximately $1 trillion dollars in student loans. They constitute an Indentured Generation as many of them will be paying student loan debt for much of their lives. Some will eventually pay their loans, others will obtain full or partial loan forgiveness, and many will default or die before completing payments. Members of the Indentured Generation in particularly dire circumstances will look to consumer bankruptcy for relief. But with very few exceptions, student loan debt cannot be discharged in bankruptcy. This is because the Bankruptcy Code excepts student loan debt from discharge unless the debtor can prove that repaying the debt would result in "undue hardship." Courts have held this to be a very strict standard, one that few debtors are able to meet. Accordingly, the relief that is provided to most debts under the United States Bankruptcy Code ("Code") is denied for student loan debt.

This article proposes that the Bankruptcy Code be amended to allow a student loan to be revalued to its actual fair market value. The fair market amount would be nondischargeable, and the remaining balance of the loan would dischargeable as general unsecured debt. This ensures that debtors who can pay their student loans will do so, but that those who are truly unable to do so will not be denied the "fresh start" that bankruptcy is intended to provide.

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student loan debt, bankruptcy, Bankruptcy Law

Original Citation

Originally published in Vol. 53, Santa Clara Law Review.