Should People With Student Loan Debt Be Allowed To Declare Bankruptcy?

By Phillip Molnar
The San Diego Union-Tribune

WWR Article Summary (tl;dr) Should student debt be treated like other debt, allowing individuals to file for bankruptcy? Well, it depends on who you ask, economists have a mixed response to the question.

The San Diego Union-Tribune

Question: Do you think Congress should make it easier for those with student loan debt to declare bankruptcy?

Phil Blair, Manpower

NO: Students need to take their education debts as seriously as any other debt. But we do need to make sure that student debt can be refinanced at very competitive rates and terms, just like all other debt that Americans take on.

Kelly Cunningham, San Diego Institute for Economic Research

YES: Although allowing student loan holders to declare bankruptcy will cause lenders to be much more restrictive in extending loans. Ease of issuing loans combined with rising college tuition led to student debt exploding over the past decade. Student loan servicers operating outside normal financial oversight often extended loans to candidates with extremely high chances of defaulting and no real commitment to higher education – much like subprime mortgages issued to nearly anybody during the mortgage crisis.

David Ely, San Diego State University

YES: Unlike other forms of debt, student debt is typically not dischargeable through bankruptcy. Thus, individuals can struggle for years trying to pay off student loans. Unable to repair their credit rating, spending is constrained and borrowing for a major purchase such as a home is unlikely. The economy would be healthier if these individuals were able to emerge from bankruptcy with the burden of student debt lifted and then able to rebuild their lives.

Gina Champion-Cain, American National Investments

NO: Those seeking advanced education should be precisely the population able to make a loan risk calculation not a group destined for bankruptcy. Government’s debt relief role should be limited to accrediting institutions that provide viable, valued educations. Restricting student loan access to predatory for-profit schools would preempt the source of greatest concern and protect the most vulnerable students. Education must become more accessible and less loan dependent or we’ll all suffer economically.

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