As Long as Taxpayers Remain Conned into Guaranteeing Student Loans They Cannot Be Discharged in Bankruptcy
My PJ Tatler post from yesterday on the student loan/higher education bubble got a wide variety of compelling responses in the comments. (In my experience it's rare to see such a high percentage of smart commenters anywhere online.)
There's one in particular that I'm going to have to vigorously dissent with to such a degree that a new post is warranted.
"Bobby b" wrote in response to me outlining the wide variety of options available to borrowers to prevent their default by writing:
About 99% of this problem goes away if we can change one rather venal aspect of the current equation:
In an act of unbelievable cruelty and viciousness, student loan debt was made to be undischargeable in bankruptcy. Thus, these supposed uncollectable accounts continue to build up interest for decades until some asset or income stream is discovered that is reachable through the debtor’s name.
What other debt do we protect so zealously? Other than tax debts, the answer is, none. So, who paid off who in order to go against constitutionally-established bankruptcy concepts to call out this one form of debt as an exception to the idea that everyone deserves a chance to start over?
And, to make matters worse, think about who it is – what group in general – that is getting massacred by this “your debt is forever” outrage? It’s mostly very young people with little available cash who are looking to improve themselves and their lot in life by going to college.
And who benefits from this new slavery? It’s those very colleges, all of whom seemed to double and triple in price in a relatively short period of time.
There’s a new slave trade, and it’s run by academia. Kill it.
There's a reason why federally-insured student loans cannot -- and SHOULD NOT -- be discharged in bankruptcy. Would you like to guess what happened when they could? People who were perfectly capable of making the money to pay back their loans -- like doctors and lawyers -- would just declare bankruptcy to clear the huge debts they had accumulated going through law or medical school. Who cares if their credit is trashed for a few years? They're making more than enough money with the skills and credentials that they have just effectively stolen.
Education is not like other investments. If a bank loans someone money to buy a house, business, or a car and the borrower cannot pay the loan then there are means for at least recovering some value: repossess the car, foreclose on the house, liquidate the business assets. But what to do when millions of people decide they don't want to pay for the education and the life experiences they've just had over the course of (in some cases) a decade? We're not exactly at Total Recall-level technology yet where we can erase people's memories. (Not that I'm arguing that's a solution here!)
Here's the straight dope: everyone who takes out their student loans is capable of making some kind of payments. Maybe not as large a payment as the banks want but that's why income-based repayment programs exist. (And don't bring up the already-granted exceptions of those who become disabled. The one correct exception to the rule is that yes, federal student loans can be discharged due to disability.) The many, many options to prevent default that I lined out in my previous post are RIDICULOUSLY generous. All the various options added up together make it entirely possible for especially "hard luck" individuals to delay paying their loans for more than ten years (5 years forbearance + 3 years economic hardship deferment + 2-3 years unemployment deferment + 3 years Title IV administrative forbearance.) But of course you're not supposed to do that. The options are supposed to just be used here and there and you're supposed to be making payments and trying to pay off one's debt, instead of finding creative ways to avoid it. Anyone who "cannot" make payments is really just choosing to spend their money on other things -- just as our federal government is debating raising the debt ceiling because it refuses to talk seriously about CHOOSING to end destructive entitlement programs (like this very one) that actually hurt far more than they help.