While the law states that students who amass college debt cannot discharge those debts through bankruptcy, that’s not really the truth. Why? Congress wrote the laws to permit discharge of student loan debts in some cases. For example, President Obama’s program calculated payments based upon earnings and forgives balances after 20 years or 10 years for those who find jobs in "public service."
Was the goal to interest young people in public service? Increase the numbers of dues-paying Service Employees International Union members who uniformly vote for Democrats? Or, might the goal have been to achieve both outcomes by encouraging students to amass burdensome college loan debt and for taxpayer’s to pick up the bill?
Well, lo and behold! As the Obama administration enters its sunset, regulators at the U.S. Department of Education now want those laws more broadly interpreted so that students can amass even more college loan debt and then dump it on taxpayers, once again leaving them holding the bag.
To wit, in his analysis of bankruptcy court proceedings where students sought to have their college loan debt discharged, George Leef found:
- In 2012, in 35 adversary proceedings, the debtor won full discharge in 47% of the cases and 33% received a reduction or more favorably repayment terms.
- Many of the successful debtors did not have legal counsel; they represented themselves.
- In a recent “guidance letter,” US-DOE concerning “undue hardship discharge cases,” tips the scales more in favor of students who are petitioning for bankruptcy discharge.
What the President and the then-Democratic majority in Congress did was to change the terms of the U.S. Bankruptcy Code, allowing for no distinction between kinds of debt. In turn, private lenders foresaw a lucrative business in the otherwise risky college loan business.
So did administrators at the nation’s institutions of higher education.
With a larger pool of students seeking admission and able to take out even larger loans, those administrators did what any greedy crony socialists would do: They raised tuitions! While that’s called “price gouging,” what difference does it make, they reasoned, as the debt is borne by students not the institutions. Those administrators were like pigs at the trough chowing down all of the federal fodder they could.
Leef suggests that Congress should require institutions of higher education receiving Title IV loan money to bear some responsibility if a student defaults on the payments. Right now, those institutions don’t have any “skin in the game’ when enrolling students who are taking out loans to attend those institutions.
Let the discussion begin…
To read George Leef’s analysis click on the following link:
"Actually, You Can Discharge Student Debts and the Feds Want to Make It Easier"