Independent New Hampshire Journalism · Northfield, NH

Everyone Gets a Fresh Start but You

Bankruptcy erases almost every debt in America. Federal student loans are the rare exception, a carve-out written in 1976 and welded shut by two boomer presidents. In New Hampshire, the state with the most student debt in the country, both senators turned the last key.

A New Hampshire graduate who falls behind on her bills has a remedy the law calls a fresh start. Default on a credit card and bankruptcy can erase it. Total the financed truck and walk away from the note, and a judge can clear it. Sink a small business, run up the hospital bills, lose money you don’t have at a casino card table: a federal court can wipe most of it clean. One debt is missing from that list. The loan she signed for the degree that was supposed to make every other bill survivable follows her out of the courtroom, past her thirties, and in plenty of cases toward retirement.

That exception is not a quirk of the market or a fact of nature. Congress built it, kept it, and tightened it across half a century. The two laws that finally sealed it shut were signed by the two oldest baby boomers ever to reach the White House, men born ten weeks apart in the summer of 1946. The generation that could always start over authored the one rule that denies a fresh start to the people who followed, attached to the single debt that defines them.

And no state lives on the wrong side of that rule harder than New Hampshire. Its graduates leave school owing more than those of any other state. Its legislature funds public college at the lowest rate in the nation. When the last lock turned in Washington in 2005, both of New Hampshire’s United States senators voted to turn it.

The door used to be open

For most of American history there was nothing special about a student loan. Before 1976 it was discharged in bankruptcy like any other unsecured debt, the same as a credit card balance or a doctor’s bill. A borrower who could not pay went to court, and the slate was cleared.

What changed was not the evidence. It was the story. In the mid-1970s a claim took hold in Congress that opportunists were gaming the system: running up loans, grabbing the diploma, then filing bankruptcy before the first payment to wipe the debt clean. The image was vivid. It was also close to fiction. When the Government Accountability Office studied the question, it found that fewer than one percent of student loans had been discharged in bankruptcy. The panic was built on a fraction of a percent.

Congress restricted the loans anyway. The Education Amendments of 1976 ruled that a federal student loan could not be discharged for the first five years of repayment unless the borrower could prove “undue hardship.” A debt that had been treated like every other debt was now treated like a suspect.

How the door got welded shut

From there the rule only narrowed. In 1978 the Bankruptcy Reform Act moved the restriction into the U.S. Bankruptcy Code, where it still sits at Section 523(a)(8). In 1990 the Crime Control Act stretched the waiting period from five years to seven. Each step put the exit a little further out of reach.

Then came the two changes that mattered most, and both carry a boomer’s signature. In 1998 President Bill Clinton, born that August in 1946, signed the Higher Education Amendments that erased the waiting period altogether. The option to discharge a federal loan simply by waiting long enough was gone. After 1998, “undue hardship” was the only door left, no matter how many years a borrower had already paid.

Seven years later President George W. Bush, born that July, weeks before Clinton, finished the job. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a long-sought prize for the lending industry, extended the discharge bar to private student loans for the first time. A loan from a bank now enjoyed the same protection as a loan from the government, though no taxpayer stood behind it. Public and private student debt were locked out of bankruptcy together.

The pattern is hard to miss. The carve-out was born under the Greatest Generation, but it was the boomers, once they held the presidency and the gavel, who pulled out the last exits rather than restore the ones their predecessors had taken.

What “undue hardship” really means

The law still says student debt can be discharged for “undue hardship,” which sounds like a safety valve. In practice it is closer to a sealed hatch. Congress never defined the phrase, so the courts did, and most of them adopted a 1987 federal appeals decision, Brunner v. New York State Higher Education Services Corp. To win, a borrower has to prove three things at once: that she cannot maintain a minimal standard of living if forced to repay, that her situation will persist for most of the repayment period, and that she has made good-faith efforts to pay. One court called what that demands a “certainty of hopelessness.”

So the popular line, that you can never bankrupt a student loan, is not quite right, and the truth is worse. You can, in theory. You simply have to convince a judge that your financial life is hopeless, in a separate lawsuit most borrowers never file. A 2022 Justice Department guidance tried to make that process less punishing, letting borrowers attest to their hardship on a standard form. The hatch opened a crack. It is still a hatch.

It was never the only debt — and that is the tell

Student loans are not the only obligation bankruptcy refuses to erase. Child support and alimony survive it. So do most tax debts. So do criminal fines and debts run up through outright fraud. There are sound reasons a parent should not be able to bankrupt away their children’s support. The harder question is why a 22-year-old’s decision to finance a public-college education ended up filed beside fraud.

Set that against what stayed dischargeable, because that is where the generational math shows. The debts a boomer was most likely to carry — the credit cards, the mortgage on a house bought when houses were cheap, the car loan, the loan for a business that didn’t make it — all of it could still be wiped clean in bankruptcy court. The one debt singled out for permanence was the one the next generations could not avoid if they wanted the jobs their elders kept telling them required a degree.

This is the move at the center of what I have called generational malpractice: not theft in a single transaction, but a slow transfer of cost and risk from the people who hold power to the people who do not hold it yet. Boomers came up when public college was heavily subsidized and a degree was cheap. They watched that subsidy shrink and the price climb, and they let the debt land on their children. And they kept the law that says their children, unlike them, can never walk away from it.

New Hampshire wrote itself the worst version

New Hampshire turned a national policy into a local catastrophe. Graduates of the Class of 2020 here left school owing about $39,950 on average, the highest figure in the United States. Roughly 40 percent of that debt was private. That is exactly the category the 2005 law sealed off from bankruptcy, the kind of loan that carries higher rates and fewer protections than a federal one.

It did not have to be this expensive. New Hampshire funds its public colleges and universities at $4,557 per full-time student, dead last among the fifty states and a fraction of what the top states spend. When a state refuses to pay for higher education, the cost does not vanish. It moves onto students as debt, the same debt the bankruptcy code then declares all but permanent.

The act that locked private loans out of bankruptcy carried New Hampshire votes. Senators Judd Gregg and John Sununu both voted yes on the 2005 law. The state with the heaviest student-debt burden in the country sent two men to Washington who helped make that burden harder to escape. It fits a familiar Concord habit. The same disinvestment that has put a half-million-dollar median home out of reach for young families, and that runs through why everything in this state costs what it does, runs through the student-loan trap too. The people who built the ladder keep pulling up the last rung behind them.

The generation that could always start over

Strip away the policy language and the charge is simple. The boomers inherited a system in which any debtor, a student included, could fail and begin again. They presided over the defunding of the colleges they had attended on the cheap. They signed the laws that turned the resulting debt into the one obligation Americans cannot escape. Then they handed the bill to their children and called them irresponsible for owing it.

A bankruptcy judge in this country will still forgive the gambler’s losses and the failed entrepreneur’s debts. The one thing the law will not forgive is the attempt to get an education in a state that decided not to pay for one. That is not a market outcome. It is a decision, made by people who left themselves the exit and welded ours shut. Naming them is the least the record requires.

— Dexter Dow, Granite State Report

About the author. Dexter Dow is the editor of Granite State Report and the author of Generational Malpractice, a study of how policy quietly shifts cost and risk from one generation onto the next.

Fact check

Editor’s note. Every factual claim above was verified against primary sources before publication; see the fact-check table. This piece corrects a common misstatement: federal student loans are not literally impossible to discharge in bankruptcy and are not the only nondischargeable debt. They can be discharged on a showing of “undue hardship” under 11 U.S.C. § 523(a)(8), a standard most courts apply through the Brunner test, and other debts including child support, most taxes, fines, and fraud are also excepted from discharge. The historical record is that the restriction did not exist before 1976 and was tightened to its present form in 1998 and 2005. The Government Accountability Office discharge figure dates to the 1970s and is presented here as a historical finding. Corrections: Granite State Report corrects verified errors promptly and appends a note identifying what changed and when.