[countingteeth]

It's neither a lie nor a myth, yet the truth is surprising.

A 2011 study found only 0.1% of student debtors in bankruptcy even apply for discharge of student loans. Yet of that self-selecting group, 40% were successful. The question is why more don't apply for discharge, and how successful they might be.

Regardless, this does show that "student loans are not dischargable in bankruptcy" is generally true, given a discharge rate of only 0.04%.

Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894445

Iuliano, Jason. "An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard." Princeton University, Woodrow Wilson School of Public and International Affairs, Department of Politics. July 24, 2011. 86 American Bankruptcy Law Journal 495 (2012)

[JoeAltmaier]

I guess that means 60% are unsuccessful. My friend who was jailed for 5 years could not even get a deferment. He had large fines added to his loan for missing payments. In prison he could only earn some trivial amount (cents on the dollar) for working, so it was impossible to keep up with the loans.

[ci5er]

The decision about whether one can discharge or not discharge in bankruptcy is determined by the court. The decision about whether one can defer or not defer is determined by the loan administrator.

I'm guessing that upon release, your friend would be (have been) an outstanding candidate for being able to discharge the loans (and penalties and interest) through a bankruptcy proceeding.

[smallnamespace]

> The question is why more don't apply for discharge

Maybe a substantial number did the research and determined they weren't eligible?

[will_brown]

No it is because rather large percentages of people who file bankruptcy do so pro se, without a lawyer, or worse pay a "bankruptcy mill" who charges a low flat fee to complete cookie cutter bankruptcy petitions, but since they don't generally actually become attorney of record they don't represent the debtor at these hearings.

>Maybe a substantial number did the research and determined they weren't eligible?

Everyone is "eligible" to argue that student loans are a substantial hardship and have the Court rule. Odds are the legitimate bankruptcy candidate can likely show hardship of significant crushing student loans. Moreover, there is no reason 100% of bankruptcy petitioners without student loans shouldn't list them.

[smallnamespace]

> there is no reason

Cost, time and effort can be reasons, surely?

E.g. if my loans are $50k, and I or my lawyer think that the odds of getting them eliminated are <1%, then based on the expected value, I should spend less than $500 of time and effort on it.

[JoshTriplett]

> if my loans are $50k, and I or my lawyer think that the odds of getting them eliminated are <1%, then based on the expected value, I should spend less than $500 of time and effort on it.

Leaving the probability aside, this assumes that expected values of money are linear. The negative value of debt grows faster than linear; a debt of $50000 is not exactly 10 times worse than a debt of $5000, if you can arrange your finances to pay the $5000 but could never successfully pay $50000 (for instance if the amount you can afford to pay down regularly would cover a large part of the principle on the former but almost entirely interest on the latter).

[smallnamespace]

That's true, but then the amount I'm willing to pay in the example above should be even less than the expected value of $500.

[will_brown]

The cost, time and effort is the bankruptcy itself. Once that step is taken it would be the equivalent of omitting any other debts because the cost, time and effort it listing them.

I think maybe your hypothetical is assuming the cost/benefit of a bankruptcy purely for a student loan as opposed to multiple debts, and I am addressing my desire to see 100% of those already filing bankruptcies to list student loans, and as you will see another comment listed the statistics, it is a tiny percentage of filers who list student loans, but of those who do nearly 40% are successful.