August 19th, 2017
by Alan Collinge, StudentLoanJustice.Org
If you are in college, and you’re looking for something worthy to fight for, you should strongly consider the student loan issue. This problem is quickly becoming the national economic injustice of our time, and has reached nationally threatening proportions. While at first glance, the problem appears complicated and confusing, it is actually quite simple, and its genesis hearkens back to the creation of this country. Interestingly, this problem transcends partisan and cultural divides, and actually could serve to bring together those on the left and right on campus.
Founding fathers like George Washington, Thomas Jefferson, and others were in debt up to their eyeballs to British banks and merchants. They came to understand the hard way how a lending system could be used against the citizens. Of course it wasn’t just the Founders who were being exploited, it was many if not most early American settlers. John Adams famously remarked, “There are two ways to enslave and conquer a country. One is by the sword. The other is by debt”.
So when these men created the Constitution, they made it a point to require bankruptcy rights very prominently. Few people realize that a uniform bankruptcy system is, in fact, called for ahead of the power to raise an army, ahead of the power to coin currency, and even ahead of the power to declare war in Article I, Section 8 of the Constitution. Obviously, bankruptcy rights were very important to these men. Even Adam Smith, the founder of western economic theory, was compelled to advocate strongly for bankruptcy protections as a means to encourage entrepreneurship, risk taking, and also as a means to compel good faith in a lending relationship.
Student loans, however, violate these longstanding economic principles, and the wishes of the Founders. Congress has placed conditions on bankruptcy for student loans so severe, that of 169,000 people with student loans who filed for bankruptcy in 2014, fewer than 20 got any sort of relief. When our legislators first restricted this right in the 70’s, some members warned that such a move had dire constitutional implications, but their concerns went unheeded. Today, student loan are the only type of loan in this country from which bankruptcy rights have been removed, the consequences have been severe.
The student loan industry has become obscenely predatory and profitable for the banks who lobbied for the removal of bankruptcy protections, but it isn’t just the banks that are cashing in. In 2012, the federal government booked over $50 billion in profit from student loans, and this has certainly increased since then. What is more disturbing is that years of White House Budget data show that the government is now actually making a profit on defaults. This is a defining hallmark of a predatory lending system, and unfortunately for the students, the Department of Education sits on top of it all, and their lawyers fight tooth-and-nail behind the scenes to keep bankruptcy gone.
In 1998, when Congress made bankruptcy permanently unavailable for the overwhelming majority of borrowers, the nation owed roughly $100 Billion in student loans. Today that has exploded to $1.5 Trillion. By the end of this year, nearly one in four borrowers will have defaulted on their loans. People’s lives are being devastated. Families are being torn apart, particularly where cosigners are put on the hook for their kid’s exploded loans. People are fleeing the country, and some are even committing suicide as a result of their student loan debt.
While many have been devastated by this predatory lending system, the worst is yet to come, and is poised to crash down on your head if nothing is done. If you think you don’t need to worry because there are forgiveness programs in place, you are wrong. These programs are failing miserably. Assuming they aren’t ended, my best estimate is that only around 10% will make it through. The rest will be disqualified from the program, and left owing far more than when they graduated.
Thankfully, there is bipartisan legislation in Congress right now, called HR 2366, that will return standard bankruptcy protections to student loans. This will restore basic fairness, compel the lenders to administer the lending program in good faith, and bring down the price of college for future students. The cost of returning bankruptcy is estimated to be less than $3 billion per year- a pittance compared to how much the government is profiting on the program currently.
No one wants to do something as unpleasant, stigmatizing, and shameful as file for bankruptcy. Not having this right, however, is not acceptable, tolerable, or constitutional. The Founders were not perfect, but they were absolutely right on this one.
Student leaders reading this need to fight vigorously for HR 2366. Citizens already out of school are engaged in this struggle, but you, the students are in a unique position to get it done. Both liberals and conservatives on campus should join forces on this, and perhaps can find some common ground in the process. If not for yourself, please fight for the tens of millions who have been trampled by this system, and the untold millions who will follow in your footsteps. As dramatic as it may sound, the nation really needs you on this.
Alan Collinge is Founder of StudentLoanJustice.Org and author of The Student Loan Scam (Beacon Press).