In bankruptcy circles, successfully discharging student loans is like spotting a unicorn—everyone's heard stories, but nobody believes they exist. Until 2024, when Mis Loe from Los Angeles proved that unicorns are real, and they live in Chapter 7 bankruptcy court.
Ms. Loe managed to discharge 98% of her $356,637 student loan debt through bankruptcy, which is roughly equivalent to finding a parking space in downtown San Francisco during rush hour—theoretically possible, but so unlikely that people don't plan for it.
The Traditional "Undue Hardship" Test
For decades, discharging student loans required proving "undue hardship" under the Brunner test, which essentially asks:
Can you maintain a minimal standard of living while paying your loans?
Will this financial hardship persist for the significant future?
Have you made good faith efforts to repay?
Translation: "Are you so completely financially destroyed that even we feel bad for you?"
The bar was set so high that more people have successfully climbed Mount Everest than have discharged student loans in bankruptcy.
Seriously—over 6,000 people have summited Everest, while student loan discharge cases could probably fit in a small restaurant.
The DIY Bankruptcy Approach
Ms. Loe's story gets interesting: she represented herself using a non-profit platform called Upsolve. This is like performing brain surgery after watching YouTube tutorials—technically possible, but most people wouldn't recommend it.
Typical Attorney Reaction: "You're going to sue the federal government... by yourself... over student loans... in bankruptcy court?"
Ms. Loe's Response: "Hold my coffee and watch this."
The fact that she succeeded while representing herself makes this even more remarkable. It's like winning the lottery while being struck by lightning during a solar eclipse.
The Department of Education's Strategy
The U.S. Department of Education looked at Ms. Loe's case and apparently thought: "We could fight this and potentially lose, creating a precedent that encourages millions of other borrowers to try the same thing. Or we could settle and hope nobody notices."
They chose Option B.
Settlement Terms:
- 98% of debt forgiven (approximately $350,000)
- Monthly payments of $60 for 10 years (total: $7,200)
- No admission that student loans are actually dischargeable
Government's Logic: "If we settle instead of going to trial, we avoid creating a binding precedent while continuing to tell everyone else that discharge is basically impossible."
The Systemic Barriers
Student loan discharge remains rare due to multiple barriers:
Psychological Barriers:
- Fear of suing the federal government
- Belief that "student loans can never be discharged"
- Assumption that legal costs exceed potential benefits
Practical Barriers:
- Complex legal procedures requiring specialized knowledge
- Expensive attorney fees for uncertain outcomes
- Time-intensive process during financially stressful periods
The Catch-22: People most likely to qualify for discharge are least likely to afford the legal process to pursue it.
The Income-Driven Repayment Reality Check
According to FOIA data, only four borrowers serviced by PHEAA were scheduled for loan forgiveness in 2025 under Income-Driven Repayment plans. Four. In the entire country.
Context: There are approximately 45 million student loan borrowers in America. So the odds of IDR forgiveness are roughly the same as being struck by lightning while winning the lottery during that solar eclipse we mentioned earlier.
Why Settlements Make Sense
From the Department of Education's perspective, settling these cases is strategically smart:
Risk Management: Avoid creating precedents that could open floodgates
Resource Conservation: Litigation is expensive and time-consuming
Control: Maintain the narrative that discharge is rare and difficult
The Broader Implications
Ms. Loe's case suggests several important trends:
Technology Democratization: Platforms like Upsolve make bankruptcy filing more accessible
Government Strategy Shift: DOE increasingly prefers settlements to contested litigation
Legal Evolution: Courts may be more receptive to discharge arguments than historical data suggests
The Reality Check
Before everyone rushes to bankruptcy court with discharge dreams:
- Ms. Loe's case had specific circumstances supporting her undue hardship claim
- Self-representation in federal court remains extremely challenging
- Settlement doesn't guarantee similar outcomes for other debtors
- The legal standard for discharge hasn't actually changed
Student loan discharge through bankruptcy remains rare but not impossible. Ms. Loe's success proves that unicorns exist, but it doesn't mean they're easy to find.
For millions of borrowers struggling with student debt, her case provides hope while highlighting continued system challenges. The real lesson might be that with proper preparation, legal strategy, and perhaps luck, even the most difficult financial challenges can sometimes be overcome.