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Sunday, October 23, 2016

Due to legal decisions about how to structure the rules governing student debt, student loans stay forever, are virtually impossible to discharge under hardship, churn fees when they go bad, and creditors can access anything, including Social Security, in their attempts to be repaid. This is significantly more strict than the rules for other kinds of debt. Here’s a great way to describe the legal frame we use to treat student loans, from Elizabeth Warren in 2007: “Why should students who are trying to finance an education be treated more harshly than someone who negligently ran over a child or someone who racked up tens of thousands of dollars gambling?”

So what’s the solution? There’s a short-term and a long-term problem. The long-term problem, in my mind, can only be solved by unapologetically embracing the promise of a “public option”: free public universities that are capable of constraining cost inflation. This requires us to also face and resist the corporatization and privatization of our existing public universities.

But that doesn’t get us out of the current situation. What can be done? I propose two things:

1. Party Like It’s 1989

Instead of being so bold as to ask that people trying to invest in themselves, and ultimately the country, are treated as fairly as someone who negligently ran over a child, I’m just going to suggest we just do a mulligan on the 1990s and 2000s student loan “reforms.”

Here’s a quick, high-level history of student loans and the bankruptcy code, courtesy of University of Illinois law professor Bob Lawless:

In 1976, Congress first added an exception to the bankruptcy discharge dealing with student loan debt. That exception was continued in the 1978 Bankruptcy Code, and the exception was expressly limited to student loans from a governmental unit or nonprofit institution. Even then a student loan could be discharged if more than five years had passed since the loan first became due (typically after graduation) or if the debtor could show payment of the student loan would cause undue hardship, which is a difficult burden to show. In 1990, five years was changed to seven years and in 1998 was dropped altogether, leaving undue hardship the only reason a court could discharge a student loan from a governmental unit or nonprofit institution. As part of the 2005 changes to the U.S. bankruptcy law, Congress again amended the student loan discharge exception to allow even loans from for-profit lenders to be excepted from the bankruptcy discharge.

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  • Wib

    Ordinary Americans, and especially students, should not be treated any worse than these banks that we have bailed out. However, current law concerning student loans is, in my mind, a form of involuntary servitude of students to lenders, something we supposedly did away with when Lincoln emancipated the slaves. If we can discharge virtually any other debt under bankruptcy law, then student loans should be treated the same way. Hopefully, judges have enough sense to know when bankruptcy is being sought as a sham and when it is real. If they don’t, replace them with bankruptcy judges that can spot the difference.

  • cross country man

    As a loan holder who was enticed into attending a Seminary and being told a lie that I would automatically be licensed to practice Counseling in a field I already held accrediatation and licensure in three other States it was logical that I would find a position for which I was exceedingly qualified. OHIO pure and simple did not honor that agreement with the school due to another inept State Administrator named Tracy Mason who is no longer employed by that Office. Ergo no positons were available to me because of her lieing and misrepresentations made to me! I cannot be hired even though I have two Master’s Degrees in the Field I am eminently qualified for! I think I should be granted permanent full forgiveness on those loans in their entirity due to circumstancs over which I had no control! Why should I be forced into this unpleasant business further when a Sallie Mae and Bank Representative also lied to us as students at another Seminary (Payne Seminary). It turned out not only did he lie, but we were forced into signing up with Sallie Mae when no other lender was offered. I had loans with Great Lakes and those should have been consolidated into that Lender rather than the reverse. That guy was another Herb Cain and a low down dirty skunk. He disappeared after another Semester which was clearly due to some investigation about his conflict of interest issues.

  • tbaileyckd


  • DianneLee

    The average college graduate pays about $5800 more a year in federal taxes than the average high school graduate. Over 30 years, that totals about $172,000. If that’s divided by the 4 years it takes to get a college education, the government would break even if it paid every student $42,000 a year to attend school, and you can get a good education for a lot less than that, even including room and board.
    This doesn’t even consider that with the degree, the person is less likely to ever need unemployment or welfare, that more students would complete high school if they could see a clear way to a really good job, and that they would be enriching the Social Security and Medicare funds, as well as keeping jobs in America.
    The best investment we could make to keep America strong is to not just forgive all student loans but to make all higher education, as long as the student is making decent grades, totally free, and increase the number of schools and teachers to make room for all who can profit from the education. We don’t, even at this time of high unemployment, have so much a lack of jobs as we have a lack of people who have the skills to perform the jobs that are available- in other words, a lack of education.

  • dpaano

    I have a student loan that has been in forbearance since 1985 and has grown from $40,000 to over $125,000. I’m 65 years old, and I have little or NO chance of paying that back. The payments, even at the lowest rate, are over $1000/month. Once I retire and go on Social Security, if they are allowed to garnishee my SS check, I will be left with little or NOTHING to live on. I got my MBA, which was partially paid for by my employer, Northrop Aircraft, with the idea that Northrop would find a position within the company once I graduated which would utilize what they partially paid for(International Business); however, that didn’t happen. They didn’t offer me anything nor did they give me the opportunity to move into one of many international departments within the company that would allow me to utilize what I had learned. Thus, I ended up with an MBA that I could not use….I was 38 years old and a little too old for most companies to hire me as an entry-level employee in this field. Plus, I was making relatively good money at what I was doing, and to take an entry-level position would have meant a large drop in pay. So, I’m stuck with an ever-growing student loan that eventually I’m going to have to pay, using my meager Social Security check when I retire. Guess I’ll have to die on the job in order to survive!!

  • WayneIvey

    When I graduated with a Master’s degree in social work, I wanted full-time work as a social worker, but all I could find was part-time, on-call work through a health care temp agency; as a result, I was unable to make payments on my Sallie Mae loan (tried but they returned the small check that I had sent). Now I am 73 years old with a loan that started out less than $25,000 and, at the 9%+ interest rate, it is now $167,000. My only income is Social Security, and it is being garnished, and it will continue to be garnished until I die. I would declare bankruptcy if I could.

  • rebeccaB

    Student loans are becoming the number one source of debt for Americans. Not long ago, that burden belonged to credit cards. Federal loans come with a lot of strings connected. For all the strings, though, the loans are intended to help motivate education and advanced degrees. Graduate university students, in 2012, will be expected to start paying down $18.1 billion in student loan interest. Graduate student loans to lose interest subsidy. The deal does not change borrowing limits, but it does change what students are responsible for in the end as student loans are designed to help students pay for university tuition, books, and living expenses.

  • SDDarlin

    At 56 years of age I graduated with a bachlor’s degree in 2010. I took out a few student loans that would help me to live on while I was in college. When the TO BIG TO FAIL BANKS had their crisis my loans were bought out by AES.
    In my original contract I was able to defer payments till I was out of college. Since AES has taken over my loans they are telling me that I do not qualify for the deferment because I graduated.
    I was planning on getting my Master’ but do not know if this will happen now. Is there a way to fight this?