Trump’s Student Loan Changes Could Increase Bankruptcy Filings, Former Judge Says

In the nearly three decades that Judge Sarah Sharer Curley has presided over bankruptcy cases, some have been particularly painful to watch, she said — like the 73-year-old woman who appeared before her in 2012 with a student loan balance of more than $584,000.

The debt dated back to the 1970s and had increased throughout the woman’s public-sector career, Curley writes in her new book, “The Price of Forgiveness: Debt, Bankruptcy, and the Future of Equity in America.” She had “never made a lot of money,” Curley said, and by the time she applied for debt relief, the woman was living in poverty, with Social Security as her only income. Even so, strict bankruptcy laws can make it nearly impossible to discharge student loans.

Curley, the first woman appointed to the U.S. Bankruptcy Court for the District of Arizona, said it’s a familiar story.

“We allow financial markets to take countless risks, but we refuse to allow any individual to be forgiven for choosing to pursue higher education,” Curley wrote.

Curley retired in 2014. CNBC spoke with her this month about her new book, in which she describes a legal system that often fails to give indebted Americans the second chances it promises. By 2025, more than half a million personal bankruptcy cases will have been filed, an increase of nearly 50% from three years ago, according to the Administrative Office of the U.S. Courts.

The interview has been edited and condensed for clarity.

Annie Nova: What do people get most wrong about people who file for bankruptcy?

Sarah Sharer Curley: People assume that people who file for bankruptcy are committing fraud, trying to hide their assets, and deceiving their creditors. Nothing could be further from the truth.

AN: And then why did the people end up in your yard?

CSS: People are subject to many unexpected events. People can’t always plan adequately for the next earthquake, hurricane, or natural disaster. But usually it’s someone who loses their job. It may also be a disease that becomes chronic and medical costs increase significantly over a short period of time.

Student loans are another area of ​​concern. Universities charge more for foundation degrees as well as graduate programs. The cost of studying medicine over four years can exceed $400,000.

AN: You write that many people who file for bankruptcy are not unemployed; they just live paycheck to paycheck. What does this tell us about our economy and our job market?

CSS: Despite the rising wages touted by most economists, many people work as independent contractors. They receive few benefits and have few rights. The company is not responsible to them.

Other people may work for a company but find the pay or benefits insufficient. Many people are forced to work for multiple employers to meet their needs on a weekly basis.

Even though unemployment is low, job quality is also low.

AN: Your book’s story about the woman in her 60s with a six-figure federal student loan balance really resonated with me. What happened in his case?

CSS: The federal government would not accept any settlement. It was I who would have to decide whether his debt would be discharged or not. But the case law that I had to follow was not in favor of forgiving student debt. So I didn’t have much flexibility to grant him relief.

However, I credited him with seven years of public service to troubled teens in San Diego County because people who work in certain types of public services only have a 10-year payback period. This meant she would only need to repay the debt for three more years.

AN: Wow. Why wouldn’t the federal government agree to any settlement with her?

CSS: The federal government uses law firms to represent it in bankruptcy court, which allows law firms to have some discretion in how to proceed. As a result, some law firms are taking aggressive positions.

In the case of this 70-year-old woman, the firm’s lawyers did not believe her when she said she had no assets and was on Social Security. But the law firm failed to conduct an adequate investigation. I found it credible.

AN: Under President Joe Biden’s administration, it would have become easier for federal student loan holders to get their debt discharged in bankruptcy. What is the current situation?

CSS: The U.S. Department of Education attempted to develop repayment plans for student borrowers who could not repay their debts. It was also possible that the Department of Education would agree to forgive at least some student loans.

However, once the Department of Education was gutted in 2025, there were few, if any, staff capable of approving debt modifications through any of the proposed programs. As a result, it became more difficult to reach a settlement with the Ministry of Education.

AN: In your book, you describe President Donald Trump’s “big, beautiful bill,” passed in July 2025, as an “attack” on student loan borrowers. How so? Do you think the new law will lead to an increase in bankruptcy filings?

CSS: The bill created unrealistic federal loan limits for students. Therefore, if a student takes out a loan from a private financial institution that is not federally guaranteed, that loan will often be issued at a higher interest rate.

Let’s say the student needs a loan of $300,000 to go to medical school. If the individual has a lower credit score, their interest rate can go up to 16%, resulting in a payment of $5,017 per month over 10 years, or $302,040 in interest.

These expenses are not sustainable for most individuals. The rate of bankruptcy filings will most likely increase.

AN: You write that medical debt is another major reason people have to file for bankruptcy. Can you say a little more about this?

CSS: Many people who appeared before me suffered from chronic illnesses. Chronic illness is a problem because the person cannot pay off the debt they owe until the bankruptcy case begins. As with any chronic illness, debt continues to increase day by day for years.

AN: You write that the bankruptcy process is “tortuous” for most individuals. How so?

CSS: Radical changes were made to bankruptcy law in 2005. People now have to jump through many hoops to get relief.

There was no evidence to support certain beliefs that individuals were engaging in fraud or filing for bankruptcy every few months. But the creditors’ lobby insisted that the bankruptcy law be more creditor-friendly. The numerous forms to fill out and the hearings to attend generally keep the person in a state of perpetual stress.

AN: How does filing for bankruptcy affect people emotionally?

CSS: Many people are traumatized when they file for bankruptcy. They believed that by working harder they could solve their debt problems. However, when they are on the verge of losing their home, car or business, they turn to bankruptcy.

Many view their inability to resolve their financial problems as a moral failure. They feel like they have failed.

AN: What was it like for you, day after day, to see people under the pressure of insurmountable debt?

CSS: Sometimes, at the end of the hearing, after making my decision, I would let the individual know that under the current law I could not provide them with what they really needed. I told them the law needed to be changed. We are giving relief to large financial institutions and corporations, and it is time we did so to individuals as well.