The
coronavirus pandemic rolls along like a tropical storm gathering force in the Gulf of Mexico.
Every
day, it kills more Americans and further batters the national economy. The airline industry,
the travel industry, and the restaurant business are begging for financial
assistance to help them survive an economic crisis that no one saw coming.
PresidentTrump and Congress are working on a $2 trillion
aid package to assist industries that have been hit hardest by the COVID-19 outbreak and provide cash assistance to individuals who lost their
jobs or their businesses due to the pandemic.
Lawmakers also recognize that student-loan debtors need relief. Even before the
pandemic, millions of college-loan borrowers were struggling to pay off their
loans. Now--as the unemployment rate rises and whole industries collapse, a lot of student-loan debtors have their backs to the wall.
Republicans and Democrats have both
proposed some form of assistance for student debtors. The Republicans recommend giving students a three-month break from their student-loan payments with no
interest accruing. The Democrats want the Department of Education to
make student-loan payments on borrowers' behalf for as long as the national
emergency lasts.
These proposals are a good start, but they do not go far enough. More than 45 million people have outstanding student
loans, and less than half of them can pay them back. As President Trump
might say, it's time to "go big" when we think about student-loan relief.
First of all, let's take a look at
Senator Bernie Sander's proposal for total student-loan forgiveness—a $1.6
trillion-dollar bailout. Let's also examine Senator Elizabeth Warren's plan for
loan forgiveness up to $50,000 per debtor. These ideas are not as wacky as some
commentators have made them sound.
Regarding Bernie's idea, let's face
facts. More than 8 million people are in
long-term, income-based repayment plans, and most of these people are not paying
down the interest on their loans. In fact, their loan balances grow with each
passing month due to accruing interest. Millions more are in default or have
their student loans in deferment. They're not paying their loans back either.
What's the point of pretending the student-loan scheme is a solvent federal program? It's not. Bernie's plan to wipe out all student debt and offer a free college education is a logical proposal.
Senator Warren's plan to help student debtors also makes sense. She wants to cap debt relief at $50,000, and that would help a great
many people. After all, as Don Trooper and colleagues recently reported in The Chronicle
of Higher Education, people with small loan balances are more likely to
default on their loans than people who owe $100,000 or more.
Forgiving student debt for individuals who ow relatively small amounts would help a lot of debtors who took out student
loans to attend for-profit colleges and trade schools and didn't benefit from
their educational experience. That would be a good thing.
But if we really want to "go big,"
Congress must do two straightforward things. First, it must strike the"undue hardship."
language from the Bankruptcy Code and allow insolvent student-loan borrowers to
discharge their college loans in bankruptcy like any other nonsecured consumer debt. Second, it must repeal those provisions of the 2005 Bankruptcy Reform Act that made it
more complicated and more expensive for beaten-down debtors to file for
bankruptcy.
The very purpose of bankruptcy in American law is to give honest but unfortunate debtors a fresh start. Lawmakers need to remember that now as we enter into this century's Great Depression.
The very purpose of bankruptcy in American law is to give honest but unfortunate debtors a fresh start. Lawmakers need to remember that now as we enter into this century's Great Depression.