June 20, 2018

HIGHER EDUCATION BUBBLE UPDATE: The $1.5 Trillion Student Loan Debacle Hits a Tipping Point.

What’s to be done about the large and growing number of Americans who cannot repay their student loans? There are two new developments. The New York Times reports, “Senators Marco Rubio and Elizabeth Warren introduced a bill on Thursday that would prevent states from suspending residents’ driver’s licenses and professional licenses over unpaid federal student loans.”

And The Wall Street Journal explains, “For decades, bankruptcy judges refused to consider reducing student loans. That is now changing, and some judges are throwing lifelines to people struggling to repay their debt.”

The Rubio/Warren bill, though it comes from the oddest of political bedfellows, makes a fair amount of sense. Depriving debtors of the means to repay their debts never seemed the smartest way to collect what they owed. The NYT reported last November that it had found 8,700 cases of student loan defaulters being stripped of their professional licenses, a figure that “most likely understated the true tally.” Tennessee appears to be the worse state in which not to repay student loans. Between 2012 and 2017, it went after the licenses of 5,400 student loan debtors.

Before giving too loud a hurrah for Rubio and Warren, however, it is worth considering why states passed such laws in the first place. Some student loan debtors, for example, do have the means to keep up with their repayments and simply choose not to. I’ve encountered several such individuals in the last few years—encountered because they boasted about it. What leverage does a state have to make such deadbeats pay up?

If only there had been some sort of warning.

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