WASHINGTON—The Trump administration is looking to clarify when Americans can discharge student loans in bankruptcy, responding to concerns that more borrowers will be stuck under huge debt burdens for years.

Since 1998, federal law has prohibited Americans from discharging student loans made by the federal government, except in extremely rare circumstances. Congress expanded the prohibition to cover private student loans in 2005. Only borrowers who file for bankruptcy and prove an “undue hardship” in repaying their loans are permitted to have their loans expunged.

Congress never defined “undue hardship,” leaving it to bankruptcy judges to decide case by case. They set a high bar. Very few borrowers have had their loans expunged in bankruptcy, and student-borrower advocates say many others don’t even try.

The Education Department, in a public notice set to be released Wednesday, said it was considering whether to clarify what factors should be considered in determining whether borrowers meet the threshold for undue hardship.

The agency said it wanted to ensure the law was “appropriately implemented while also ensuring that borrowers for whom repayment of their student loans would be an undue hardship aren’t inadvertently discouraged from filing an adversary proceeding in their bankruptcy case.”

The agency formally requested comments and other information from the public on the issue to determine “whether there is any need to modify” how bankruptcy claims are evaluated, the notice states.

More than 40 million Americans owe roughly $1.38 trillion in student debt, most of it made by the federal government, New York Federal Reserve data show. Eleven-percent of that is delinquent—sitting in an account that hadn’t received a payment in at least 90 days—but roughly half of all student debt is held by borrowers who aren’t required to be making payments because they’re still in school, unemployed or for other reasons. Strike out those instances and the share of delinquent student debt is more like 22%, the New York Fed says.

A Wall Street Journal analysis found that fewer than 500 people attempted to extinguish student debt last year, when roughly 766,000 individuals and couples filed for bankruptcy. The number of cancellation attempts has fallen by 45% since 2010 as fewer people filed for bankruptcy and as repayment programs for federal student loans grew in popularity.

Legal experts also point out bankrupt borrowers can rarely afford to hire lawyers to fight lenders with sophisticated counsel. The typical cost ranges from $3,000 to $10,000. The lawsuits to win a loan cancellation can also drag on for years.

Other research shows more borrowers are taking on bigger and bigger student-debt loads and then failing to pay down their balances after school. A study released Friday by the Brookings Institution finds that most borrowers who left school owing at least $50,000 in student loans in 2010 had failed to pay down any of their debt four years later. Instead, their balances had on average risen by 5% as interest accrued on their debt.

(http://www.autoadmit.com/thread.php?thread_id=3898673&forum_id=2#35446619)