One only needs to check the news occasionally to know that there is at least a half-trillion dollars of noncollectable student loan debt out there. Those loans, a huge percentage of them being owed to non-government entities, may never be fully repaid.
The original (first) “plan” was to transfer only federal student loan debt to the taxpayers by repaying those loans from tax revenue. When the multi-state backed lawsuit against this plan hit the SCOTUS, a majority of justices (because it only takes a majority) decided that the plan needed Congressional approval. It was just too much money and affected too many people for this to be a simple “rule change”. They decided that the original plan – to assist service members, veterans, and first responders – was being stretched to include those who were neither service members, veterans, nor first responders. SCOTUS said “sorry, you can’t do that without a specific law passed by Congress.”
The next (current) plan is to extend the delay to the time that repayments must begin – but only for a certain percentage of those who still have student loan debt. This plan is still under consideration, but there are already signs that another lawsuit will be filed against this plan as well.
Back when Joe Biden was a senator, the bankruptcy laws were changed to make it extremely difficult to discharge student loans during a bankruptcy proceeding. In fact, not only was it difficult, but for too many… it was impossible. The one debt that remained after other debts were negotiated was the student loan debt. And for some, the amount of debt was crushingly high.
The result of this law meant that universities knew that their loans would be backed by the US Government in case of default. And, without any brakes being applied on the loan process, they kept raising their tuition fees. Sometimes by 10% or more per semester. After all, they knew they’d eventually get their money – no matter what.
Late last year, the Biden administration released new “guidance” on student loan handling in bankruptcy. That “guidance” was released as a way to convince some people that The Government Is Here To Help. An overview of that “guidance” can be found on the National Consumer Law Center page https://library.nclc.org/article/new-process-discharge-student-loans-bankruptcy.
But until laws are changed to allow student debt to be fully considered in bankruptcy, that “guidance” is still optional to a bankruptcy court. That court can still decide that not one dime of the $70,000 debt for nursing college may be discharged, even if it is the sole reason that the nursing graduate cannot qualify for a home loan based on standard liquidity calculations.
Ok, so what’s the solution?
There’s a fairly easy way to open the relief valve on student loan debt: allow them to be fully discharged in a bankruptcy proceeding. Pass a law that student loans must be the first expense considered in a bankruptcy hearing and cannot be put aside in favor of other debt.
This solves two problems: student borrowers who can barely make ends meet due to their (sometimes) $800-$1200/mo student loan debt repayment can now use that $800-$1200/mo for living expenses. The elimination of that $70,000 debt also means that their liquidity calculation might now be positive enough for them to possibly qualify for a home loan.
The second problem that gets solved is entirely related to higher education. By telling universities (and their lenders) that they might now have to “eat” loans that might never be repaid, they might actually begin to change their curricula toward programs that teach usable and employable skills. They might spend more time pushing STEM curricula – with graduates able to earn enough to repay the loans – and less time teaching mostly-useless “studies” curricula.
After all, being a part-time barista with a $100,00 degree in basket weaving studies — well, that’s just not a path to success. And any university that would lend $100,000 so a student can get a degree in basket weaving studies deserves to be stuck with the bill.
A graduate with a STEM degree has an excellent chance of being hired, well-paid, and able to pay off that loan while also being able to afford a home.
Don’t get me wrong: if a student wants to spend $100,000 and get a degree in basket weaving studies, they should be allowed to do so. But a university should know that they won’t be able to get federal or commercial backing for a degree program that doesn’t result in a usable skill (even if one of the courses is Barista 201).
