I don't often agree with the Wall Street Journal's opinion articles, but one written by Glenn Harlan Reynolds dated June 28, 2013 is quite thoughtful.
As I've thought for years, the article explains that one of the reasons the U.S. has such a bloated amount of student loan debt is that the government made so much debt available- and tuitions skyrocketed as an unintended consequence. Mr. Reynolds goes on to explain that college costs need to be brought under control, instead of being allowed to inflate at an annual rate of 7.45% from 1978-2011, which far exceeds the rate of inflation of everything else.
One of the ways to do that, according to Mr. Reynolds, is to remove the incentives for schools to accept the money, because now they are not responsible for the student's outcomes. Whether the student flunks out, or never gets a job by reason of the education, the school still wins, because it gets the money up front. He suggests capping the money that a student can receive, or index federal aid to the consumer price index.
But he also says that he favors allowing students to discharge their student loan debts in bankruptcy "after a reasonable time- say five to seven years, maybe even 10," with the schools having to repay the loan guarantors (often taxpayers) part of the loan balance.
Outstanding idea, Mr. Reynolds. That was the law when I started as an attorney. All student loans were dischargeable so long as the student had been in repayment 5 years. Even if it was 7, or even 10, it would be far better than now, when a student loan borrower can graduate with $50,000 or $100,000 or more in debt, with little hope of ever paying it off.
It's time to do something about this mess. Young people should not be completely "covered up" with student loan debt just to get an education, such that they cannot participate in the economy and buy houses and start families, the usual things that they should be doing after college graduation. I guess it is too much to expect Congress to pass such a common sense proposal, but it is a welcome sign when the Wall Street Journal starts advocating it.
What do you think about this issue? Should we allows student loans to be discharged in bankruptcy? Please post your comments below.