Student Loan Discharge in Bankruptcy? We NEED it.

Student Loan Discharge in Bankruptcy? We NEED it.

Forbes Magazine just published on a topic near and dear to my heart:  Allowing student loans to be discharged in bankruptcy.  (See full article here).

The problem with the article is that it is based on false premises.  The article states that other loans that are dischargeable are not government backed.  That is just completely wrong.  Home loans are all dischargeable, and they are backed by the federal government.  This is what caused the home loan crisis after-all.

The other point the author misses, is that school tuition has been dramatically increasing during the same period that bankruptcy was non-dischargeable.  This will suddenly stop once these student loans can fail through bankruptcy.  I would expect to see a dramatic decrease in student tuition costs if it becomes more difficult to get a loan and easier to discharge the debt.

All in all, the author comes around to the point that student loans should be dischargeable, if the colleges become accountable for repaying the loans that the tax payers have backed.  The problem with this, is that the wrong party is forced to be accountable.  The truly accountable party is the bank that loaned the loan that eventually failed.

What George Reef is missing is any accountability for the lenders.  He seems to clearly want to protect the banks, rather than the schools, or the government as he claims in his article.

All in all, student loans need to be dischargeable to make it more difficult to get student loans and eventually to lower the price of tuition.

You must be logged in to post a comment