Student Loans: Constitutional Challenge to Non-Dischargeability

Bankruptcy Discharge: The Constitutional Norm

The Bankruptcy Clause (Article I, Section 8, Clause 4) empowers Congress to establish "uniform Laws on the subject of Bankruptcies throughout the United States." Since the Bankruptcy Act of 1898, American bankruptcy law has provided discharge of unsecured debts for individuals unable to pay, recognizing that economic failure should not result in permanent debt slavery.

The 1976 Exception: Creating a Permanent Debtor Class

In 1976, Congress amended the Bankruptcy Code to make student loans non-dischargeable for five years after entering repayment, unless the debtor could prove "undue hardship." This exception was expanded in 1990 (seven years) and made permanent in 1998 and 2005 (no time limit, applies to both federal and private student loans).

Result: Student loans became the only private debt in American history that cannot be discharged in bankruptcy without meeting an extraordinarily high standard that courts have interpreted to require near-total disability and permanent poverty.

Comparison to Other Unsecured Debt

The "Undue Hardship" Standard: Impossible Burden

Courts have interpreted "undue hardship" using the Brunner test (Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987)), which requires proof of:

1. The debtor cannot maintain a minimal standard of living if forced to repay the loans;
2. Additional circumstances exist indicating this state of affairs is likely to persist for a significant portion of the repayment period; and
3. The debtor has made good faith efforts to repay the loans.

In practice: Courts require near-total disability, permanent poverty, and proof that the debtor will never earn sufficient income to repay. Even cancer patients, disabled veterans, and individuals living below the poverty line have been denied discharge. The success rate for student loan discharge is estimated at less than 1%.

Permanent Debt Burden

Unlike all other unsecured debt, student loans follow borrowers for life. Interest capitalizes (is added to principal), creating exponential growth. Borrowers on income-driven repayment plans often see their balances increase despite making payments for decades. The debt is never forgiven except through death, total disability, or after 20-25 years of payments (with the "forgiven" amount treated as taxable income).

Extraordinary Collection Powers

Student loan creditors possess collection powers unavailable to any other private creditor:

• Wage garnishment without court order - Up to 15% of disposable income
• Tax refund offset - Federal and state tax refunds seized
• Social Security garnishment - Up to 15% of Social Security benefits (including disability)
• Professional license revocation - Some states revoke licenses for default
• No statute of limitations - Collections can continue indefinitely

Economic Impact

As of 2024, over 45 million Americans owe $1.7 trillion in student loan debt. Millions are in default or unable to make payments. The non-dischargeability provision traps borrowers in permanent debt cycles, preventing home ownership, family formation, retirement savings, and economic participation. This creates a permanent debtor class denied the "fresh start" bankruptcy provides to all other debtors.