Former Judge Warns Trump’s Student Loan Law May Boost Bankruptcies

Sarah Sharer Curley, who served nearly 30 years as a U.S. Bankruptcy Court judge in Arizona, has shared insights from her new book, "The Price of Forgiveness: Debt, Bankruptcy, and the Future of Fairness in America." In it, she recounts harrowing cases like that of a 73-year-old woman burdened with over $584,000 in student loan debt dating back to the 1970s. Despite the woman’s modest income and reliance on Social Security, the strict bankruptcy system made discharging her debt nearly impossible.

Curley was the first woman appointed to her court and retired in 2014. Recently, she spoke with CNBC about challenges faced by borrowers struggling under student loans, medical debts, and other financial pressures. She highlights how the bankruptcy process often falls short of providing a true fresh start for indebted Americans.

Unexpected Hardships and Economic Realities

Curley emphasizes that bankruptcy is not about fraud or concealment, as many mistakenly believe. Instead, unforeseen events like job loss, chronic illness, or natural disasters push people into financial distress. Student loans are a growing concern amid rising education costs. For example, medical school tuition can exceed $400,000 for four years.

Despite reports of wage growth, many workers are independent contractors or hold multiple jobs with limited benefits and low pay. This economic reality forces many to live paycheck to paycheck, vulnerable to financial shocks.

The Limits of Bankruptcy Relief for Student Loans

One notable case in Curley’s book involves the elderly woman with massive federal student debt. The government refused any settlement offers, leaving Curley to decide if the debt could be discharged under restrictive laws. While she acknowledged seven years of public service credit, the woman still faced repayment obligations.

Curley notes that federal lawyers often aggressively defend government interests in bankruptcy court, sometimes dismissing borrower claims without thorough investigation. She found the woman credible despite skepticism from the government’s representatives.

Changes in Student Loan Discharge Policies

During President Joe Biden’s administration, efforts were made to ease student loan repayment and discharge options. The Department of Education sought to modify loans for struggling borrowers and considered partial forgiveness. However, after significant staff reductions in 2025, the department’s capacity to approve these relief programs diminished, making settlements harder to obtain.

Curley describes a law passed under President Donald Trump in July 2025 as particularly harsh on borrowers. This legislation imposed strict federal loan caps, pushing many students toward private loans with higher interest rates. For instance, a medical student needing $300,000 might face interest rates as high as 16%, leading to monthly payments exceeding $5,000 over a decade. Such financial burdens are unsustainable for most and could drive an increase in bankruptcy filings.

Medical Debt and the Burden of Chronic Illness

Medical expenses remain a significant cause of bankruptcy. Curley recalls cases where individuals with chronic diseases faced mounting debts that accumulated even after filing for bankruptcy. The law only permits discharge of existing debts at the time of filing, leaving ongoing medical costs unchecked. This situation exacerbates stress and financial instability for many.

The Complex and Stressful Bankruptcy Process

Since reforms in 2005, bankruptcy law has become more demanding, requiring debtors to complete extensive paperwork and attend multiple hearings. Curley explains these changes were influenced by creditor interest groups, despite little evidence of widespread bankruptcy abuse. The process often leaves debtors in prolonged states of anxiety rather than providing swift relief.

In 2025, personal bankruptcy filings surged by nearly 50% compared to three years earlier, with over half a million cases recorded. Curley’s observations connect this rise in part to the tightening student loan policies and the growing financial pressures faced by many Americans.

Her book and insights shed light on the challenges faced by borrowers trapped in a system where education debt, medical costs, and economic instability collide. They call attention to the need for balanced policies that offer realistic debt relief options while protecting financial institutions.