Two Decades of Bankruptcy Weaponization: Students Crushed While Corporations Shield Billions (2005-2024)

Between 2005 and 2024, the United States operated a two-tiered bankruptcy system that weaponized debt against students and working Americans while preserving bankruptcy as a strategic wealth-preservation tool for corporations and the wealthy—a defining example of 21st century American kleptocracy. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act made private student loans non-dischargeable regardless of circumstances, trapping millions in permanent debt, while corporations like Corinthian Colleges, ITT Tech, Purdue Pharma, and Trump’s businesses freely used Chapter 11 to shield assets, eliminate liabilities, and protect executives and investors from consequences of fraud.

The Student Debt Trap (2005-2024): The 2005 law created permanent, inescapable debt for students: $1.6 trillion owed by 44 million borrowers by 2019, growing to over $1.7 trillion by 2024. Students couldn’t discharge debt even when defrauded by predatory colleges (Corinthian’s falsified 80% job placement rates), disabled and unable to work, unemployed during recessions, or facing any other financial catastrophe. The government garnished wages, seized tax refunds, and withheld Social Security from elderly borrowers still carrying student debt. The non-dischargeable status made student loans risk-free for lenders and servicers, enabling predatory lending with no underwriting standards and loan servicing fraud (Navient’s $1.85 billion settlement for steering borrowers into costly forbearances).

The Corporate Bankruptcy Shield (2005-2024): During the same period, corporations strategically used bankruptcy to maximize profit extraction and minimize accountability: Corinthian Colleges extracted $1.4 billion annually in federal aid through fraud, filed Chapter 11 when investigations closed in, and protected remaining assets while 72,000 defrauded students remained liable for non-dischargeable debt. ITT Tech stranded 35,000 students with worthless degrees and bankruptcy-protected assets. The Sackler family used Purdue Pharma’s bankruptcy to shield $10+ billion in personal wealth extracted from the opioid crisis while victims received pennies on the dollar. Trump filed Chapter 11 six times, using bankruptcy to eliminate hundreds of millions in business debts while building a personal fortune that funded his political rise.

The For-Profit College Scam (2010-2019): The bankruptcy asymmetry enabled the predatory for-profit college industry: schools knew students couldn’t discharge debt, so they engaged in systematic fraud—falsified job placement rates, deceptive marketing, aggressive recruitment of vulnerable populations—loading students with $30,000-$100,000 in non-dischargeable debt for worthless credentials. The industry received 25% of all federal student aid ($32 billion annually) despite enrolling only 10-12% of students. When investigations exposed fraud, schools filed bankruptcy to protect assets while students faced lifelong debt. Executives extracted millions in salaries; investors earned returns; servicers collected fees; and students were crushed.

Regulatory Capture Protects the System (2017-2021): When Obama-era regulations threatened to hold predatory colleges accountable and provide relief to defrauded borrowers, the for-profit industry bought protection: Betsy DeVos, billionaire investor with debt collection investments and $200 million in Republican political donations, became Education Secretary. She froze borrower defense regulations, denied Corinthian relief, implemented partial debt relief formulas that blamed victims, and was held in contempt of court in 2019 for illegally collecting from defrauded students. DeVos’s Education Department awarded debt collection contracts to Performant Financial, a company she had invested in—regulatory capture so complete the official overseeing debt collection profited from debt collection.

The Supreme Court Preserves the System (2023): When Biden attempted broad student loan forgiveness ($10,000-$20,000 for 43 million borrowers) to address the crisis created by bankruptcy weaponization and for-profit fraud, the conservative Supreme Court struck it down 6-3. The majority prioritized loan servicer revenue over borrower relief, found that Missouri’s financial interest in debt collection gave it standing to block forgiveness, and invented novel legal doctrines to preserve the predatory debt system. The ruling came from a Court shaped by $400+ million in dark money, with justices appointed through Federalist Society vetting designed to protect corporate interests and wealth concentration.

The Kleptocratic Circle (2005-2024): The complete cycle demonstrated American kleptocracy: (1) Congress passes bankruptcy law that traps students in permanent debt while preserving corporate bankruptcy (2005); (2) Predatory for-profit colleges exploit non-dischargeable status to commit fraud, extracting $32 billion annually in federal aid (2010-2016); (3) When fraud is exposed, colleges use bankruptcy to shield assets while students remain liable (2015-2016); (4) Industry uses political donations to install captured regulator (DeVos, 2017) who blocks relief and profits from debt collection; (5) When democratic relief efforts threaten the system, captured judiciary strikes them down (2023). At each stage, wealth flows upward—from taxpayers to colleges to executives to investors to servicers to collectors—while debt crushes downward onto students who can never escape.

The 2005-2024 period proved that modern American bankruptcy law serves as a wealth transfer mechanism: debt weapons punish the powerless (students, medical patients, homeowners) who cannot escape obligations, while bankruptcy shields protect the powerful (corporate executives, investors, billionaire families) who use it strategically to preserve wealth. Student debt became the signature policy of kleptocracy—a system where fraud is rewarded, victims are punished, regulators protect industry, and courts block democratic relief.