This paper analyzes the effect of student loan debt on personal bankruptcy. While nearly impossible to discharge education debt in bankruptcy, student loans have mandatory repayments that may constrain some borrowers. The distress faced by some may reach the point where student loan borrowers seek protection for those debts that can be addressed through bankruptcy. Results suggest that student loan debt may supplement the existing credit card debt and adverse event explanations of bankruptcy. We present evidence from a nationally representative panel survey (NLSY79) that education debt is positively related to filing for bankruptcy among those with active unpaid loans. Student loan borrowers with ‘some college’ are 64 percent more likely to file bankruptcy. Associate degree holders and those with a bachelor degree or higher education are 68 percent and 43 percent more likely to seek bankruptcy protection, respectively. Separately, we estimate that the likelihood of bankruptcy increases 6.8 percent for each $10,000 of unpaid loans.
