We develop a dynamic household finance model showing that student loans --  non-dischargeable in the U.S. bankruptcy -- alleviate the well-documented debt overhang in labor supply decisions. Non-dischargeability mutes opportunities for households to strategically reduce labor supply at the expense of creditors, thus mitigating incentive distortions. This effect, however, is partially undone by Income-Driven Repayment (IDR) plans, which set student loan payments formulaically regardless of outstanding balance. IDR thus allows households to pseudo-discharge student debt and re-activates debt overhang. We provide supporting empirical analyses and derive policy implications regarding student loan reforms, adverse selection, and human capital investment.