Editor’s note: This post has been revised to include content previously omitted.
On August 21, 2019, Donald Trump made some very cheap news. Across the mainstream media, we saw headlines including, “Trump orders cancellation of student loans for disabled vets“. This sounds great, except that it really isn’t.
For decades, the fact of the matter has been that anyone with a total and permanent disability determination—whether they are a veteran or not—can get their loans canceled. This is a well-established process and, by all accounts, it is relatively easy to do.
From the StudentAid.Ed.Gov page:
A total and permanent disability (TPD) discharge relieves you from having to repay a William D. Ford Federal Direct Loan (Direct Loan) Program loan, a Federal Family Education Loan (FFEL) Program loan, and/or a Federal Perkins Loan or to complete a TEACH Grant service obligation.
To qualify for a TPD discharge, you must complete and submit a TPD discharge application, along with documentation showing that you meet our requirements for being considered totally and permanently disabled, to Nelnet, the servicer that assists the U.S. Department of Education with the TPD discharge process.
All Trump really did, here, was to order the Department to automatically write off these loans (in consultation with the VA), rather than the veterans doing it themselves. The people who haven’t bothered to send in the form likely have forgotten about their loans long ago, so that the government finally cleared it off their books made not one bit of difference for the overwhelming majority of people that this affected. They probably don’t, and won’t even realize this has happened. They have other challenges to worry about.
So this was a very cheap headline; I would call this fake news.
Trump needs to do far better than this. The real heavy lifting that needs to be done lies in the fact that student loans have been uniquely singled-out and, unlike every other loan in this country, are essentially impossible to discharge in bankruptcy court.
The Founders enshrined bankruptcy rights in the Constitution. Men like Thomas Jefferson, Robert Morris, and even George Washington were being wrecked- along with a huge percentage of the citizenry- at the hands of British banks and merchants. It should come as no surprise, therefore, that in Article I, Section 8, “uniform” bankruptcy laws are called for ahead of the power to raise an army, declare war, and even ahead of the power to coin currency!
The sole exception to this- student loans-, has created a big-government, predatory lending system the likes of which this country has never seen, The Department of Education books nearly $100 Billion in interest on what has grown to a $1.7 Trillion (or more) mountain of debt. As of 2010, the profit on this was reported to be $50 billion. It is surely far higher today, and the profits of this lending monstrosity are being plowed back into controversial government programs like Obamacare. The harm this is causing to the citizens is incalculable.
If Trump is serious about draining the swamp, he needs to walk the talk. 11 USC 523(a)(8) must be repealed, or neutralized by executive order.
With his pen, Trump could (for example) order the Department of Education to stop challenging bankruptcy filers in court. Heck, he could even call on the Department of Education to write off all of the loans that it holds, and probably those that it guarantees (although the latter may require congressional funding).
Trump likes to think he is bold and tough, that he is the guy to “drain the swamp”. If that is true, he needs to step up and walk the talk on this issue, and at a minimum demand that Congress return standard bankruptcy rights to the loans.
Conservatives from the Cato Institute, George Mason University, and even the National Review are now all calling for the return of standard bankruptcy protections to student loans. Trump should listen to them, and keep in mind that while very few of the 45 million voters (30 Million of whom are distressed by them) will actually have to file for bankruptcy when 11 USC 523(a)(8) is repealed, ALL of them will feel the weight of this predatory big-government monstrosity lifting, and will respond.
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