Student debt keeps going up and up and there’s no end in sight. It’s conceivable that everyone could soon come to the conclusion that a high-priced education is not what it was once worth. Like the housing bubble, the student loan bubble could pop. Not everyone can afford a McMansion in the ‘burbs, and not everyone can really afford to attend Luxury University.
Dan Kadlec of Time Magazine writes that creative solutions are needed. But how can we start?
Rortybomb‘s Mike Konczal has an idea: roll back the bankruptcy protections provided to student loan creditors. As we’ve posted before, student loans used to be dischargeable in bankruptcy, but over the past twenty years, Congress has passed laws that severely limit dischargeability. The reasons for doing so are ostensibly to benefit students: nondischargeability lowers interests rates (because creditors write-off fewer loans due to bankruptcy) and prevents students from abusing the system by declaring bankruptcy right after graduation.
So Konczal advocates going back to the 1989 laws on student loans: government, nonprofit student loans would not be dischargeable for the first five years, but private loans would be dischargeable. The five-year period prevents students from taking advantage of the system while at the same time providing a release valve for students who simply cannot afford to pay their loans.
Konczal also advocates lowering the interest rate on student loans to essentially zero. While the world’s great vampire-squid wrapped around the face of humanity, Goldman Sachs, sucks money from the discount window of the Federal Reserve almost for free, graduates are stuck paying upwards of 8.5% on federally backed student loans. The banks are too big to fail, but America’s future is? As Konczal advoactes:
Mass refinance all student loans into the current low rates the financial sector enjoys. This would give the 99% of Americans just a hint of the kind of total government support places like Goldman Sachs have gotten.
That’s real student loan reform. What say you, readers?
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