Private student loans now dischargeable in bankruptcy—federal loans still locked in
H.R. 423 — Private Student Loan Bankruptcy Fairness Act of 2025 · Filed by Steve Cohen (D-TN) · 5 cosponsors · Introduced Jan 15, 2025 · Referred to committee
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What it does
This bill modifies bankruptcy law to make certain private student loans dischargeable in bankruptcy. Currently, federal student loans and most educational debts cannot be discharged except in cases of undue hardship. The bill amends the bankruptcy code to allow discharge of private student loans that are not funded by a governmental unit, potentially giving borrowers a path to eliminate these debts through bankruptcy.
Why we flagged it
The bill's core function is to expand bankruptcy discharge eligibility for private student loans by removing a statutory prohibition. This is a debt-relief measure that shifts the legal treatment of a specific class of consumer debt.
What the text implies
- Private student loan servicers and lenders may face increased default risk and portfolio losses if borrowers use bankruptcy to discharge debt, potentially raising borrowing costs for future private student loan origination.
- The bill applies only to bankruptcy cases filed after enactment, creating a temporal cliff that may incentivize borrowers to file bankruptcy quickly if the bill passes.
The full analysis lists 4 implications of this text.
Who stands to gain
individual borrowers with private student loans; bankruptcy attorneys