Question:
what happens to a debtor who simply doesn't have and never will have the money to pay a nondischargeable debt like student loans?

Answer:

There are some loan forgiveness programs if you work in a designated "underserved area" in specific professions (public health, teaching). Peace Corps and VISTA type programs simply freeze your loans (no increased interest) for the duration of your service. The Army Reserve (and maybe other branches) has a loan forgiveness program if you join under a designated "critical specialty". I joined as an RN, but had to specifically join under "surgical" in order to get loan forgiveness. For each year I served in the Reserves, the government paid off $3K of my loans. It doesn't matter what schooling the loans were for, job-related or not.

It's true that the IRS is a nasty creditor, but a lot has happened in recent years to soften that image (and the IRS's behavior): First, the recent hearings on Capitol Hill of IRS debtor "horror stories" have put pressure on the IRS to "reform" itself, lest Congress intervene by ping new laws to weaken its powers. Secondly, the IRS introduced the "Offer In Compromise" Plan several years ago to allow tax debtors to be forgiven a portion of what they owe in exchange for what they can afford to pay now. Unfortunately, no such "Offer in Compromise" plan has been introduced for student loan debtors, who find themselves unable to pay back government-backed student loans, years after graduating. You can either pay 100% (plus penalties and interest) or you live underground in constant fear of garnishment/judgment. Congress has recently upped the pressure by making student loans nondischargeable FOREVER, thanks to the Higher Education Amendments of 1998 (it used to be that student loans were dischargeable after maturing 7 years). Some have likened this scheme to a virtual debtor's prison, wherin an SL debtor can be in debt the rest of one's life, with no hope of attaining solvency or avoiding harment and collections proceedings, short of hitting the Lotto. Ironically, the law now treats student loan debtors more harshly than tax dodgers and delinquint dads.