Student Loans and Texas Bankruptcy: What’s Changing in 2025

 Posted on August 06, 2025 in Bankruptcy

Student loan debt in the United States now exceeds $1.7 trillion – the second-highest category of consumer debt after mortgages. These debts can significantly impact the quality of life for borrowers, including delaying major life events such as starting a family and homeownership. Student loan debt disproportionately affects students from low-income families and communities of color.

As of 2025, Texas borrowers may have more options for discharging student loans in bankruptcy. Historically, federal student loans have been virtually impossible to eliminate through bankruptcy, barring a showing of "undue hardship." Proposed reforms may soon change that landscape, making it easier for those filing for bankruptcy in Texas to include student loans.

If you are considering filing for bankruptcy, having a highly experienced Fort Bend County, TX bankruptcy attorney by your side can help ensure your bankruptcy goes smoothly. While bankruptcy can be a difficult step to take, it can give you the fresh financial start that you need and deserve.

Current Bankruptcy Rules for Student Loans in Texas

Student loans are not an automatic part of a Texas bankruptcy proceeding. You must file a separate action known as an "adversary proceeding" within your bankruptcy case. This asks the court to determine that repayment of your student loans would cause you and your dependents undue hardship. The burden of proving undue hardship rests on the person filing. The predominant standard is a three-prong test known as the Brunner test. All three of the following must be true to qualify for student loan forgiveness under the Brunner test: 

• You cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your student loans.
• Your financial situation is unlikely to improve during the loan repayment period.
• You have made a good-faith effort to repay your student loans before seeking a discharge through bankruptcy.

Potential New Department of Justice/Department of Education 2025 Guidance

Updated guidance for 2025, under the Student Loan Bankruptcy Improvement Act of 2025 (HR 4444), may permit federal student loans to be discharged in bankruptcy without requiring the borrower to prove extreme hardship. As of August 2025, the Act remains under consideration. The Private Student Loan Bankruptcy Fairness Act of 2025 (H.R. 423) aims to enable private student loan borrowers to discharge their debt, regardless of whether they demonstrate undue hardship.

If this legislation is passed, only federal Direct Student Loans and Direct Consolidation Loans would qualify. Older loans, such as Perkins or FFEL, would still require case-by-case litigation. Federal law still requires an adversary proceeding within the bankruptcy case to request discharge of student loans. Currently, Texas courts continue to rely on the Brunner Test to determine student loan eligibility.

Broader Policy Shifts Affecting Student Loan Borrowers

Unfortunately, even if these proposed Acts pass, other policy shifts within the current administration could still adversely affect student loan borrowers. As of mid-2025, the end of pandemic-era payment pauses, resumed collections, and wage garnishments are now in place for defaulted loans. Legislative changes from the "Big Beautiful Bill," signed on July 4, 2025, may also affect repayment plans and borrowing limits, indirectly impacting whether borrowers are eligible for bankruptcy relief.

Contact a Montgomery County, TX Bankruptcy Lawyer

If your student loan debt feels overwhelming, 2025 may offer a more realistic path to relief through bankruptcy. While the "undue hardship" standard for discharging student loans in bankruptcy remains, there are clear shifts toward easing discharge, especially for federal student loans. If you have unmanageable student loans and are considering filing for bankruptcy, consulting with a Conroe, TX bankruptcy attorney can help you make the right decision. Attorney Fealy is dedicated to helping good people navigate difficult times. If you are ready for a fresh financial start in life, call 713-526-5220 to schedule your free consultation.