Bankruptcy Act Makes Private Student Loans Non-Dischargeable - Weaponizing Law Against Students

President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on April 20, 2005, fundamentally weaponizing bankruptcy law against student borrowers while preserving corporate bankruptcy as a strategic tool. The law amended Section 523(a)(8) to make private student loans from for-profit lenders non-dischargeable in bankruptcy, extending restrictions that previously applied only to federal loans to include all educational debt regardless of lender type.

Before BAPCPA, federal student loans were presumptively nondischargeable while private educational loans were generally freely dischargeable like other consumer debt. The 2005 law eliminated this distinction, trapping millions of borrowers in permanent debt regardless of circumstances. The law requires borrowers to prove “undue hardship” to discharge student debt—a standard so difficult to meet that it effectively creates permanent, inescapable debt for students while corporations freely use bankruptcy as a strategic business tool.

The law was heavily lobbied for by MBNA, the credit card giant that employed then-Senator Joe Biden’s son Hunter and contributed substantially to Biden’s campaigns. Biden voted for the bill despite warnings from consumer advocates. Sallie Mae and other student loan servicers stood to profit enormously by converting student debt into risk-free, permanent obligations that survived bankruptcy, job loss, disability, and even death in some cases.

The bankruptcy weaponization created a two-tiered system: students crushed by predatory lending cannot discharge educational debt, while corporations like Trump’s businesses, Purdue Pharma (Sackler family), and Corinthian Colleges strategically use Chapter 11 to shield assets and eliminate liabilities. The law enabled the predatory for-profit college industry by ensuring their students could never escape debt, no matter how fraudulent the educational services. Between 2005 and 2024, student debt ballooned from $364 billion to over $1.7 trillion, with bankruptcy protection eliminated as an escape valve.

This marked a turning point in American economic policy: debt was weaponized against individuals while preserved as a business tool for the wealthy, cementing a system where billionaires like Betsy DeVos could profit from student debt collection while students faced lifelong financial servitude for degrees that often proved worthless.