Trump-Style Student Loan Overhaul Sparks New Wave of Bankruptcies in the US

The number of personal bankruptcy filings in the United States in 2025 exceeded half a million cases, up nearly 50% from three years earlier. Former federal bankruptcy judge Sarah Sharer Curley argues the surge is not merely a pandemic effect but a signal that the debt relief system—especially for education loans—is increasingly difficult for individuals to access.

In an interview with CNBC, Curley, who spent nearly three decades adjudicating bankruptcy cases in the District of Arizona, warned that the student loan policy overhaul signed by President Donald Trump in July 2025 could worsen the situation. “That law sets an unrealistic cap on federal loans,” she said, predicting bankruptcy numbers will keep rising.

The core of the problem lies in the policy design. When students run out of access to federal loans, they turn to private lenders without government guarantees. The interest charged is far higher. Curley gives an example: a medical student who needs a US$300,000 loan with a low credit score could be charged 16% interest per year. With a ten-year term, the monthly installment reaches US$5,017, and the total interest paid nearly equals the principal, at US$302,040. Such a burden, she stresses, is impossible for most households to bear.

Curley also highlighted the case of a 73-year-old woman who appeared before her in 2012. Her education loan debt had ballooned above US$584,000, starting from a 1970s-era loan that kept accruing interest for decades. The woman relied only on social security and lived below the poverty line. The federal government refused to negotiate, and the law firm representing the government did not conduct an adequate investigation. Curley herself found the woman credible, but the applicable law limited her room to maneuver. She could only grant relief by counting seven years of public service, leaving three years of obligation remaining.

“We let financial markets take incalculable risks, but we refuse forgiveness to individuals who chose to pursue higher education,” Curley wrote in her book, The Price of Forgiveness.

Since 2025, the US Department of Education has undergone massive downsizing. According to Curley, almost no employees remain authorized to approve debt modifications through available programs. As a result, negotiations with federal creditors have become increasingly difficult. She compares this situation with the era of the Joe Biden administration, when borrowers had greater leeway to obtain debt relief through bankruptcy.

The problem does not stop at student loans. Curley notes that medical debt from chronic illness is another trigger. Patients with long-term conditions can only discharge debt recorded at the start of the case, while treatment costs keep growing every day. The bankruptcy procedure after the 2005 reform—driven by creditor lobbying—is now filled with forms and hearings that leave filers living under prolonged stress. “Many people are traumatized when filing for bankruptcy. They feel they have failed morally,” she said.

For Indonesia, this dynamic is a mirror. Domestic education loan programs, including Kredit Usaha Rakyat for the education sector and student loan schemes, need to anticipate similar risks: high interest, long tenors, and limited restructuring mechanisms. The Financial Services Authority (OJK) notes that consumer credit growth, including multipurpose loans, continues to rise. Without strict oversight, household debt burdens could weigh on purchasing power and financial system stability.

Curley closes with a call for policymakers to grant relief equally to large corporations and individuals. “It is time we gave the same leniency to individuals,” she said. The question now: will Congress and the White House revise the loan cap before the next wave of bankruptcies arrives, or will they let the labor market and households bear the burden themselves?