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Student loans have grown to nationally threatening proportions. The numbers are staggering. About 44 million people (over 50 million when including cosigners) in the US have student loans. The default rate for 2004 students is 40%, and they only borrowed about a third of what is being borrowed today. Moreover, most of these loans are not dischargeable in bankruptcy court, nor do they have statutes of limitations. Recent data suggests that as many as two-thirds of all borrowers are in trouble. They are in default, forbearance, deferment, or are otherwise delinquent.
So, approximately 30 million people are losing sleep over their student debt. Unfortunately, the various forgiveness/repayment plans in place are failing the vast majority of borrowers seeking relief. The success rate for the Public Service Loan Forgiveness Program, for example, is almost a non-existent 0.1%. Similarly, we know that the large majority of people in the Income-Based Repayment Program are being disqualified for any one of the many grounds the Department of Education has for expulsion. The Department and its contractors are, clearly, not inclined towards forgiveness of any kind.
The Founding Fathers, themselves, suffered much due to predatory loans from British banks and merchants. They called for uniform bankruptcy laws ahead of the powers to raise an army, coin currency, and even declare war in the Constitution. One could conclude, then, that there was a good reason for this. The unique violation of this with student loans proves their wisdom in spades.
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In the last presidential election, all of the major party candidates avoided this issue. Both Hillary and Bernie rolled out programs calling for free-tuition or debt-free college. These would have only helped future students, however. Fifty million voters who have already graduated would have been left out in the cold with over $1.6 trillion in student loan debt on their shoulders. Donald Trump decried the government’s profit-making on the student loan program (despite some profits funding Obamacare). Sadly, he also did not propose anything to fix this problem.
Since the election, many editorials have appeared in places like USA Today, The Washington Post, and Bloomberg, calling for the return of these lost bankruptcy rights. These calls to action come from liberal and very conservative authors, alike.
For the next presidential election, a number of candidates appear to be courageous enough to do what is right. They want to return the standard bankruptcy rights back to these loans and their borrowers. Elizabeth Warren, who taught bankruptcy law at Harvard University, is a prime example. One of her first forays into the national spotlight was in a seminal, 2006 top story on 60 Minutes, where she discussed exactly this. Since she has been in the Senate, though, she has not done anything towards this end. This is concerning. If she is committed to convincing the voters she is serious, this must be one of her top campaign priorities.
Former Congressman John Delaney is another candidate. Unlike Warren, Delaney has actually introduced legislation (not once, but twice) that would make student loans treated like any other in bankruptcy proceedings. His bills were even bipartisan, which speaks volumes.
Finally, there is–of course–Donald Trump. President Trump knows first-hand why bankruptcy rights are so crucial to this country. As president, he could steal this ground from the Democrats. He could issue an executive order tomorrow, preventing governmental challenging of student loan bankruptcy claims in court. While this would not repeal this unjust law, it would–at least–render it “toothless.” This could be his best move to add to his base.
The student loan bankruptcy issue is no longer ignorable. The numbers are just too large. Returning bankruptcy rights is the minimum that could be done at this late date to stabilize the lending system. I suspect that some candidates will even call for the cancellation of all student debt. There is a growing argument for it. We’ll see.
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