President Trump’s student loan changes could lead to a surge in bankruptcy filings: former judge

Judge Sarah Shearer Curley has been handling bankruptcy cases for nearly 30 years, and she said some of them have been particularly harrowing, like the 73-year-old woman who stood before her in 2012 with a student loan balance of more than $584,000.

The debt dates back to the 1970s and increased as women advanced in their careers in the public sector, Curley writes in her new book, “The Price of Forgiveness: Debt, Bankruptcy, and the Future of Equity in America.” Carly said she “never made a lot of money” and was living in poverty, with Social Security as her only income at the time she sought debt forgiveness. Still, strict bankruptcy laws can make student loan forgiveness nearly impossible.

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

“While we allow financial markets to take myriad risks, we do not allow individuals to choose to pursue advanced degrees,” Curley wrote.

Mr. Curley retired in 2014. CNBC interviewed her this month about her new book. In it, Curley describes a legal system that often denies debt-ridden Americans the second chances they are promised. According to the U.S. Office of Court Administration, more than 500,000 personal bankruptcy cases will be filed in 2025, an increase of almost 50% from three years ago.

The interview has been edited and condensed for clarity.

Annie Nova: What is the biggest misconception people have about people filing for bankruptcy?

Sarah Shearer Curley: People believe that individuals who file for bankruptcy are committing fraud, hiding assets, and trying to defraud creditors. Nothing could be further from the truth.

AN: So why did people end up going to your court?

SSC: People are exposed to many unexpected events. People are not always able to properly plan for the next earthquake, hurricane, or natural disaster. But usually it’s someone losing their job. It is also possible that the disease becomes chronic, causing medical costs to skyrocket in a short period of time.

Student loans are another area of ​​concern. Universities are increasing tuition fees for basic degrees as well as graduate programs. Medical school tuition can cost more than $400,000 over four years.

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 labor market?

SSC: Even though most economists tout higher wages, many people work as independent contractors. They receive few benefits and have few rights. The company is not responsible for them.

Some people may work for a company but feel that their wages and benefits are inadequate. Many people are forced to work for multiple employers to meet their needs each week.

Unemployment may be low, but the quality of employment is also low.

AN: The story in your book about a woman in her 70s with a six-figure federal student loan balance really stood out to me. What happened in her case?

SSC: The federal government will not agree to any settlement. I was the one deciding whether her debt would be forgiven or not. However, the case law I had to follow did not support student loan debt forgiveness. So I didn’t have much flexibility in granting her relief.

But I praised her seven years of public service helping troubled teens in San Diego County. This is because for certain types of civil servants, the repayment period is only 10 years. That means you have three years left to pay off your debt.

An: Wow. Why won’t the federal government agree to a settlement with her?

SSC: The federal government employs law firms to represent it in bankruptcy court, and the law firms can have some discretion over how to proceed. As a result, some law firms are proactively positioning themselves.

In the case of a woman in her 70s, the lawyer at the law firm didn’t believe her when she said she had no assets and was receiving Social Security. However, the law firm did not conduct a thorough investigation. I thought she was trustworthy.

AN: Under President Joe Biden’s administration, it has reportedly become easier for federal student loan holders to have their debts forgiven in bankruptcy. What is the current situation?

SSC: The U.S. Department of Education sought to create repayment plans for student loan borrowers who were unable to repay their loans. The Department of Education could also agree to forgive at least some student loans.

But when the Department of Education is disbanded in 2025, few, if any, officials will be able to approve debt modification through one of the programs offered. As a result, it has become 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. Why? Do you think the new law will increase bankruptcy filings?

SSC: This bill placed unrealistic federal loan caps on students. As a result, when students take out loans from private lenders that are not federally guaranteed, those loans are often offered at higher interest rates.

Let’s say a student needs a $300,000 loan to attend medical school. If your personal credit score is low, your interest rate can jump to 16%, meaning you’ll pay $5,017 per month in interest over 10 years, or $302,040.

These expenses are not sustainable for most people. Bankruptcy filing rates will likely increase.

AN: You write that medical debt is another big reason people have to file for bankruptcy. Could you please tell me more about this?

SSC: There were many people before me with chronic illnesses. Chronic illness is a problem because debts can only be discharged at the beginning of a bankruptcy case. Like any other chronic illness, your debt will continue to grow day by day for years to come.

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

SSC: In 2005, dramatic changes were made to the Bankruptcy Code. Currently, people have to jump through many hurdles to receive relief.

There was no evidence to support a specific belief that individuals engage in fraud or file bankruptcy cases every few months. However, the creditor lobby called for the bankruptcy law to be made more pro-creditor. Individuals are usually under constant stress as they have to fill out numerous forms and attend hearings.

AN: How does filing for bankruptcy affect people’s emotions?

SSC: Many people are traumatized by filing a bankruptcy case. They believed that if they tried harder, they could solve their debt problems. But when you are about to lose your home, car, or business, you are forced into bankruptcy.

Many people consider failure to solve economic problems to be a moral failure. They feel like they have failed.

AN: What was it like for you to see people day in and day out under the pressure of insurmountable debt?

SSC: Sometimes, after I’ve made a decision, at the end of the hearing, I tell the person that we can’t provide what they really need under current law. I told them the law needs to change. It’s time for major financial institutions and corporations to take a break, and it’s time to give individuals a break as well.