Around 45 million Americans owe a total of $1.6 trillion in
student loans, and approximately 20 million of those debtors are not paying
them back. Betsy DeVos, President Trump's Education Secretary, admitted
more than a year ago that only one out of four student borrowers was paying
down principal and interest on their federal loans. "In the commercial world," DeVos observed, "no bank regulator would allow this portfolio to be valued at full, face value."
So why not just forgive all
this festering debt--debt that is preventing struggling Americans from buying
homes, having children, or saving for their retirement?
That notion is now a mainstream
idea in American politics. Senator Bernie Sanders got the ball rolling when he
called for wiping out all this debt. Senator Elizabeth Warren proposed
something slightly less radical--forgiving student debt up to $50,000.
And Joe Biden, the Democrats' presumptive nominee for the Presidency, wants to
forgive all debt owed by individuals who attended a public university or a
historically black college (HBCU).
Even Al
Jazeera, an Arabic-focused news organization, based in Qatar, wants to
forgive all federal student loan debt. America is experiencing its worst
economic crisis since the 1930s, Al Jazeera reporters pointed out, and the U.S.
needs to prioritize relief for "people, not profit." Al Jazeera
calls for canceling all student loan debt, which would "help those hit
hard by the coronavirus pandemic to "rebuild their futures."
Writing off all federal student
debt is not a crazy idea, especially, as I just said, a bunch of it isn't being
paid back anyway. But does Congress have the political will to do it? I don't
think so.
After all, the straightforward
solution to this crisis would be to simply allow overwhelmed
debtors to discharge their student loans in bankruptcy. Bills have been
introduced in Congress that would accomplish just that, but those bills have
gotten nowhere.
I've said this before, and I
will repeat it. Congress should allow insolvent Americans to file for
bankruptcy and discharge their student loans like any other consumer debt:
credit cards, car loans, and business obligations.
And all Congress needs to do
to accomplish this sweeping reform is to remove two words from the U.S.
Bankruptcy Code: "undue hardship." It is the "undue hardship" language, after all, that the federal courts have interpreted so harshly, and which has denied bankruptcy relief to millions of honest student-loan debtors.
Of course, if Congress abolished the "undue hardship" standard, it would need
to appoint a lot more bankruptcy judges to deal with a torrent of bankruptcy filings. And the judges would need to make sure that people who
have the financial wherewithal to repay their loans don't fraudulently apply
for bankruptcy relief.
In my view, calls to wipe out
all student debt are irresponsible because politicians know this is never going
to happen. Bankruptcy reform provides an orderly and fair way to give
unfortunate student debtors a fresh start while guarding against fraud.
