Yeah, I’m saying they should be dischargable, again.
This post is not directed at MikeN1. I just got to thinking, and I need to rant on a bit about this.
That story of the lazy doctors and lawyers who all want to go bankrupt? That was a myth that politicians used to support the idea of removing bankruptcy protections, which obviously helps creditors and moneylenders, and hurts the little guy (poor students who can’t afford education). The numbers show that law and med students never declared bankruptcy in any large numbers. And law school and med school never used to be so expensive. And they were very selective to admit new students. So “student loans discharged in bankruptcy” was never a problem that needed to be fixed.
After Congress changed the law so that students could not take advantage of the same bankruptcy laws available to the rest of the U.S. (such as failed businessmen, consumer debts, other bad choices), the universities realized they had access to guaranteed large federally subsidized student loans. I say “guaranteed,” because now that student loan debt can no longer be discharged in bankruptcy, and students can have their wages garnished and property seized for life, all the way to the grave, this means that the feds are willing to loan money for huge, unrealistic tuition, no questions asked. Even if it breaks the backs of the students.
Around this time, U.S. universities across the board started raising tuition and fees drastically, while (not coincidentally) accepting larger and larger numbers of students and encouraging them all to apply for federally subsidized student loans. Whereas previously, many students couldn’t afford to go to college, the new message was “the cost doesn’t matter because the federal government will loan you the money!”
And as student enrollment continued rising, and tuition and fees continued rising, the feds kept on lending a river of cash. Everyone said “It’s wonderful that so many students can now take advantage of higher education!”
Supposedly, the federal loans were loans made to students. But to me it looks more like this: The naive students are encouraged to sign the loan papers, and then every semester a massive transfer of cash goes from the federal government to the bank accounts of the educational institutions, to pay for “tuition and fees.” The students see little, if any, of that money. And because the feds seem to have an endless river of money, the cost of education just keeps going up, the schools accept ever greater numbers of students, and the river of cash flowing into the universities becomes a tsunami.
That’s all taxpayer money used to enrich the universities, their administration, the vanity projects, and the endowments. And the poor students spend the rest of their life as indentured servants, having their meager paychecks garnished to “pay back” the government or private lenders (making mostly interest payments).
In most cases the education wasn’t worth even half of price that the students were charged. The price tag in most cases is a made up number: as long as the feds will continue lending (because they know the population are being turned into indentured servants to pay forever) then the tuition will go as high as the school can price it while keeping a straight face. But the price tag on the education is not tied to any actual cost of providing instructors or classes.
I went to a school that cost $10,000 per year. While I was a student (around the year 2000) they raised the tuition to $21,000 per year. That same school now charges $51,000 per year, per student! That is now a very common tuition rate at schools around the U.S. And the students sign the papers, and the federal government gives $50,000 per student, per year, to the university. At a large school, say 20,000 students getting loans for tuition, that’s ONE BILLION dollars per year that the federal government is giving to a SINGLE university. And the students are supposed to go six figures in debt then get regular jobs and pay it all back to the federal government? Something stinks here.
So many students are in a position where they are living through hardship, and can’t declare bankruptcy, and will be forced to live outside of the normal economy and society because of the debt on their back.
Why do I think students should be able to bankrupt their loans? This is only one lever that can be pulled to re-balance the system, but it’s an important lever. Allowing bankruptcy is not a free cancellation of all student debt. Some students (doctors, lawyers) who have the ability to make money will want to make the money, and they won’t be motivated to declare bankruptcy. Other students who can attend a reasonably priced school, may manage money wisely and repay their debts. And the students who are screwed for life and can never repay their loans will have their circumstances investigated by the bankruptcy trustee and the judge, if they choose to declare bankruptcy. Those who really don’t have a hope of repaying the debt should be able to go bankrupt and have a fresh start.
I believe, when lenders realize that their loan may not be repaid, they will lend more selectively. And if the universities don’t have the flood of free cash coming in, they might better control their costs. The system has to be rebalanced somehow.
There are all sorts of ways for the system to be rebalanced. A heavy-handed government could control the cost of tuition and the terms of lending by force of law. But no one in free-market U.S.A. wants lenders and educators to have the government dictate their business. Bankruptcy protections are available for everyone else, though. Why not just make it available to students, as well? Why should creditors get such special protection, and such power over the lives of only one type of citizen? The U.S. Constitution says that congress shall enact “uniform laws” on bankruptcy to apply throughout the United States. The way student loan debt is being treated is not “uniform” with the rest of the bankruptcy code. The system is being run for the benefit of the schools first, and the government second. Students are last.