Myth Busted: Turns Out Bankruptcy Can Wipe Out Student Loan Debt After All

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Enlarge this image Many Americans who get overwhelmed by student loan debt are told that student debt can't be erased through bankruptcy. Now more judges and lawyers say that's a myth and bankruptcy can help. Mitch Blunt/Getty Images/Ikon Images  A few years ago, Lauren had a big problem. The Queens, N.Y., resident had graduated from college with an art degree as the Great Recession had hit. She had private student loans with high interest rates. For work, all she could find were retail jobs. And by 2016, her loans had ballooned to about $200,000.  " 'I can't afford to actually pay my bills and eat and pay my rent,' " she remembers thinking. "I was financially handicapped. I mean, my student loan payments were higher than my rent was."  So Lauren started to look into bankruptcy. She doesn't want her last name used because she thinks all this might hurt her job prospects.  Over the years, a myth has taken hold that you can't get student debt reduced or wiped out through bankruptcy. But many bankruptcy judges and legal scholars say that's wrong. And bankruptcy can be a way to get help.  Bankruptcy is not fun. Your credit gets destroyed for years, and you have to be in pretty dire financial straits for it to make sense. But if you reach that point, you can get your debts reduced or erased through bankruptcy so you can get back on your feet.  But the lawyers Lauren called said that with student loans it's different because there are special rules for student debt.  "They had told me things like you have to have a disability where you're not able to even work," she says. "And I was like, 'Well, but that doesn't make any sense.' "  Jason Iuliano, a Villanova University law professor, says that over the past 30 years, Congress has made it harder to discharge student debt. You need to meet what's called an "undue hardship" standard. That also means more work for your lawyer.  But Iuliano says that this has created the misconception that it's nearly impossible to get help for student debt through bankruptcy. That's not true.  Iuliano did some research and says a quarter-million student loan debtors file for bankruptcy each year. They do that because they have credit card debt or other debts and they can get those reduced or erased.  But when it comes to trying to get their student debt forgiven, "more than 99% of the student loan debtors in bankruptcy just give up without even trying," Iuliano says. "It struck me as a really surprising statistic when I first uncovered it."  For those who do try, though, Iuliano's research finds that about half the time the person gets some or all of the student loan debt erased. One study he did found that they got help through bankruptcy about 40% of the time. And he says more recent data from this past year show that figure rising to more than 50% of the time.  "So I think

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