Student Loans and Bankruptcy
The current Presidential decree to cancel student loan debt, is I believe, unconstitutional. It is just a political vote grab trying to entice votes for the Democratic party. I have watched news broadcast after broadcast, read news articles after news article and they all focus on the wrong idea.
If a person cannot afford to pay their student loans, and they don’t pay, what is the remedy? Sue the person who defaults, then garnish wages, seize assets, make their lives financially difficult. Yet if the person doesn’t pay, the liability still grows. If the debt remains uncollected it gets listed on the person’s credit reports. Eventually, if the person hasn’t paid it when they die, the debt is likely never going to be collected.
In essence, if a student loan is not paid, it still ends up that the tax payer has to cover the student loan, bailing out the lender if they hold a lot of student loan debt.
As a result, all of the arguments that the forgiveness program is unfair to those who paid their student loans or never took student loans in the first place, is irrelevant to the people who cannot afford to pay the loans back, or to the lenders or government or taxpayer, who foot the bill for the uncollectable debt. Nor is it relevant to compare someone who went to trade school or did not go to any school but worked from high school. That’s like saying that it is unfair that some people get food stamps, or housing aid while others don’t.
Notwithstanding that, there is a very simple solution, allow student loans to be discharged in bankruptcy. Currently, while student loans are technically dischargeable, it is extremely difficult to do so. In order to have a student loan discharged, a person, from the time of taking a student loan, must live in abject poverty for the duration the loan was outstanding. If a person goes on vacation, buys a car, owned a house, or pretty much any other asset, the student loan will not be discharged.
It does not matter that a person, who may have been paying the loan, but fell on hard times and lost a job, and can no longer afford to pay not only the loan, but the other expenses of living. The agency will fight tooth and nail and usually wins to have the loan treated as non-dischargeable. Is that fair?
Change the law so that a student loan is dischargeable like a credit card, just make it so that the student loan has to be in repayment for a period of time. Once that time period is past, the student loan fully dischargeable without any further proceedings. This is the idea that none of the programs, news articles, talking heads, left or right, has focused on. Allowing student loans to be dischargeable will allow those who cannot afford to pay the loans, to have the debt removed. Those that can afford to pay the loans do. And don’t have people jump through hoops for the discharge.