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Let Students Discharge College Debts In Bankruptcy? Yes, But...
Forbes ^ | July 24, 2014 | George Leef

Posted on 07/25/2014 5:42:54 AM PDT by reaganaut1

Ever since the obstreperous Occupy Wall Street protests of 2011, Americans have been getting an earful about the alleged crisis of student loan debt. Sensing a chance to appear both compassionate and pro-education, many lawmakers want to do something to ease the plight of indebted students.

Senator Elizabeth Warren, for example, is pushing her populist plan of allowing students to refinance their loans at absurdly low interest rates. President Obama recently expanded the touchy-feely repayment system so that students would never have to pay more than ten percent of their discretionary income for 20 years before the rest of the loan is forgiven.

And that is only ten years if the individual goes to work in a “public service” job. For more on Uncle Sam’s foolish generosity with our money, see this piece I wrote in May.

What about good old bankruptcy? Unlike other kinds of debts, the law does not permit students to wipe out their college debts by declaring bankruptcy. Should the law be changed?

(Excerpt) Read more at forbes.com ...


TOPICS: Business/Economy; Culture/Society; Editorial
KEYWORDS: bankruptcy; college; georgeleef; studentloans

1 posted on 07/25/2014 5:42:54 AM PDT by reaganaut1
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To: reaganaut1

No! The student loans are now federal loans.


2 posted on 07/25/2014 5:48:49 AM PDT by DownInFlames
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To: reaganaut1

All these proposals have two things in common

1 - Keep the easy money flowing to students and colleges

2 - Let someone else pay off the moocher students debt

In Liberal-Land once you make it past the abortionist’s knife you are set for life as long as you vote the right way.


3 posted on 07/25/2014 5:50:33 AM PDT by Iron Munro (IRONY)
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To: reaganaut1
"Should the law be changed?"

Of course! Changed to require colleges to cosign student loans! If colleges were the ones on the hook if the student defaults, we wouldn't see nearly the number of defaults we see now. The main driver of the incredible college cost inflation over the past 35 years has been the easy availability of gov't money.


4 posted on 07/25/2014 5:50:45 AM PDT by Sooth2222 ("Suppose you were an idiot. And suppose you were a member of congress. But I repeat myself." M.Twain)
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To: reaganaut1

From the article:
“If individuals can escape from heavy credit card, medical bills,
and other debts through bankruptcy,
what should be different about student loans?”

“Unlike other kinds of debts, the law does not permit students
to wipe out their college debts by declaring bankruptcy.”

“Brannon has a good reply:
“If we are concerned that allowing students to escape debt via bankruptcy
might leave the government on the hook,
we could make the institutions of higher learning
assume their loan payments after a bankruptcy.”


5 posted on 07/25/2014 5:53:42 AM PDT by Repeal The 17th (We have met the enemy and he is us.)
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To: reaganaut1

I’m still trying to figure out how to short the student loan market...


6 posted on 07/25/2014 5:58:51 AM PDT by Wyatt's Torch
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To: Sooth2222
If student loans were discharged in bankruptcy, then loan issuers would necessarily be reluctant to loan to "affirmative action" students who would not financially benefit from college and/or flunk out before graduation.

If colleges were responsible for defaults, then colleges would also be reluctant to accept students who would not financially benefit from college, and would be less likely to offer worthless majors and courses.

This means that colleges and "civil rights" leaders would fight against this savagely.

7 posted on 07/25/2014 6:00:07 AM PDT by PapaBear3625 (You don't notice it's a police state until the police come for you.)
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To: reaganaut1

A student loan forgiveness scheme is going to win somebody an election. That is inevitable at this point IMO.


8 posted on 07/25/2014 6:05:42 AM PDT by Buckeye McFrog
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To: reaganaut1

The federal government needs to get out of the student loan business altogether.

Until that happy day arrives, going forward loans should only be made to students in majors that stand a decent chance of getting a job and being able to repay the loan.

No more money to grievance studies or transgendered Aleutian folk dancing.


9 posted on 07/25/2014 6:09:18 AM PDT by Arm_Bears (Rope. Tree. Politician. Some assembly required.)
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To: reaganaut1

I am so sick of this. If you are going to let students discharge this debt, then have the colleges make the loans. Let them suffer. They are to blame in large part for suckering kids into taking useless overpriced courses and then throwing them to the wolves in the market. Of course, kids who take these courses and don’t take their studies seriously are to blame too. The one party who is not to blame is the US taxpayer, who is getting screwed left and right already.


10 posted on 07/25/2014 6:14:43 AM PDT by Opinionated Blowhard ("When the people find they can vote themselves money, that will herald the end of the republic.")
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To: Wyatt's Torch
I’m still trying to figure out how to short the student loan market...

Buy the banks that hold the loans?

Or, are they too big to fail? Haven't we seen this act once before?

11 posted on 07/25/2014 6:17:35 AM PDT by Lou L (Health "insurance" is NOT the same as health "care")
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To: reaganaut1

http://www.thedenverchannel.com/financial-fitness/many-over-50-are-still-saddled-with-student-loans


12 posted on 07/25/2014 6:21:06 AM PDT by ReaganÜberAlles (Remember, you can't spell "progressive" without "SS".)
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To: reaganaut1

How about a program where a person can voluntarily join some type of a civilian or military “corp” for X number of years with each year paying off a portion of their student loans. Sort of an indentured servitude program.


13 posted on 07/25/2014 6:24:11 AM PDT by ReaganÜberAlles (Remember, you can't spell "progressive" without "SS".)
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To: reaganaut1

Student loans should be cut by 85%.

We’d all be much better off: taxpayers; the colleges, which would have to refocus on simply providing a good education within financial constraints; and students who could work their way through lower-cost schools, value their studies more, and graduate without debt.


14 posted on 07/25/2014 6:24:25 AM PDT by 9YearLurker
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To: Opinionated Blowhard

This whole mess began when we made someone other than the seller (college)libel for making a bad decision i.e. financing a worthless degree. I recall when I was in school, I was at my last semester cash short. My only asset was some stock I had acquired by working. I went to a bank and wanted to get a loan on the stock...the answer was no. Eventually I had to sell it and use the proceeds for my tuition. It really POed me but I learned a lesson which was don’t sign up for anything for which you cannot pay. This was before the student loan program of course.


15 posted on 07/25/2014 6:25:17 AM PDT by Mouton (The insurrection laws perpetuate what we have for a government now.)
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To: Opinionated Blowhard

Yep. And the colleges wouldn’t make the loans, because that would bankrupt them. Which gets us back to where things ought to be: lower cost, rarely financed, and requiring hard work and dedication from students.


16 posted on 07/25/2014 6:25:30 AM PDT by 9YearLurker
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To: PapaBear3625

The trouble is that most of the loan issuing is done by Uncle Sam, who would see making even more bad student loans as part of his larger current mission of redistribution and reparations.


17 posted on 07/25/2014 6:26:40 AM PDT by 9YearLurker
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To: reaganaut1

Not only no, but HELL NO!

The terms of these loans were no secret when the students signed up for them. The fact that they are not dischargeable in bankruptcy was abundantly clear. They should be held to the terms of the loan they signed.

Since these loans are written with no collateral other than the future earnings of the student, no bank in the world would write them unless it was clear that they were not dischargeable in bankruptcy. Otherwise, every single borrower would just declare bankruptcy the day after graduation. Their only assets at that point are their diploma, and their fond memories of five years of undergraduate education well partied. The lender can’t recover any money from those!

If you want to change the law, to make all new student loans dischargeable in bankruptcy, I’m all for that. But without any guarantee, no bank would write that loan for anything less than 20% interest. And even at that, they would probably lose money.

If the low interest loans are dischargeable, it is nothing more than a free education for every student willing to commit fraud. The few people who would repay the loan would be chumps. We should not have a policy that rewards fraud.


18 posted on 07/25/2014 6:26:50 AM PDT by Haiku Guy (Health Care Haiku: If You Have a Right / To the Labor I Provide / I Must Be Your Slave)
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To: ReaganÜberAlles

How about letting them just work for a time in the private sector instead?


19 posted on 07/25/2014 6:27:09 AM PDT by 9YearLurker
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To: reaganaut1

End ALL federal aid to education, including student loans.
Federal money flowing to colleges is what provides the breeding ground for Cloward-Piven types. Most college money is now spent on administrations that are more concerned with diversity than education. The result is the quality of a college education today is so poor that many grads are lucky to get a job at McDonald’s.
The only way to get rid of these leeches is to starve them out by cutting off their funds.


20 posted on 07/25/2014 6:27:29 AM PDT by wdk535
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To: Lou L

That’s one way but inefficient and diluted by other activities. What does Sallie Mae do with the loans? Who holds the paper? Any synthetic products related to that paper? CDS’s related? Someone get Blankfien on the phone. Surely GS can make a bundle on this... :-)


21 posted on 07/25/2014 6:28:37 AM PDT by Wyatt's Torch
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To: DownInFlames
No! The student loans are now federal loans.

Too bad you didn't read the article. Let me summarize: if the student files for bankruptcy and succeeds, the burden of the debt then gets transferred to the institution where the student attended. This would force the institution to think and invest in each student. As of right now, there is no risk to any place of "higher learning" because just about everybody can get a federally backed student loan. These places know this, and water down their curriculum and inflate grades which keeps the student firmly planted in their seat and the money rolling in.

22 posted on 07/25/2014 6:29:47 AM PDT by corlorde ("It's a shame nobama truly doesn't care about any of this. Our country, our future, he doesn't care")
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To: PapaBear3625
The problem is not so much traditional college students going to University to earn a traditional college degree. The problem is the expansion of the student loan system to all sorts of sketchy types of educational facilitates.

Here is the back story.

The student loan program has large component of fraud where unqualified students take out tens of thousands of student loans to go finger nail polishing school and other trade schools or private diploma mills. The students do little and often don't attend school at all and just use the loans as spending money.

In some cases the situation is pure fraud and the schools simply split the tuition with the students and take the money and run. In the real world no one would ever loan on these types of educational activities but standards have been lowered and affirmative action type incentivize granting loans to unqualified and fraudulent borrowers.

It's the Student Loan equivalent of the Sub Prime Mortgage lending that killed our housing market.

These scams are especially prevalent with various communities and demographics where Obama has strong constituencies

The rub comes when it's time to pay the money back. The recipients soon learn that the banks are serious about repayment and student loan debt cannot be discharged in bankruptcy .

People who ran up a huge student loan bill enrolling in Latisha's Academy of Urban Basket Weaving and used the $30000 for clubbing and living expenses now find they are and unemployable and saddled with a debt load that their EBT cards can't service and that they can't shake the debt via bankruptcy.

Now Obama wants to bail them out.

23 posted on 07/25/2014 6:34:20 AM PDT by rdcbn
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To: Mouton

Yes, let’s reward those students who make bad decisions and attend schools they can’t afford. We’re already rewarding the illegals who don’t want to wait in line to immigrate legally.


24 posted on 07/25/2014 6:35:56 AM PDT by ladyjane
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To: corlorde
Too bad you didn't read the article. Let me summarize: if the student files for bankruptcy and succeeds, the burden of the debt then gets transferred to the institution where the student attended.

Oh, sorry. I didn't realize this entire thread was a pointless circle jerk. Putting the colleges on the hook will never, ever, ever happened.

25 posted on 07/25/2014 6:38:24 AM PDT by Haiku Guy (Health Care Haiku: If You Have a Right / To the Labor I Provide / I Must Be Your Slave)
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To: 9YearLurker

I think many would gladly sign up for three or four years and get rid of all the debt. Value given for value returned.

Who could argue with that?


26 posted on 07/25/2014 6:40:09 AM PDT by ReaganÜberAlles (Remember, you can't spell "progressive" without "SS".)
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To: ReaganÜberAlles

Me. The government is terrible at managing anything. We don’t need to have masses of young would-be students learning how to work by learning how to live off the government.

Are you to young to remember CETA and other such counterproductive job initiatives in the past?

Why can’t you just let them work it out on their own—whether they work and go part-time to a community college, or whatever their resources and ingenuity?


27 posted on 07/25/2014 6:57:01 AM PDT by 9YearLurker
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To: rdcbn

The problem is also one of massive subsidies to middle and upper-middle-class students and their families to fund waste and frivolity for years and years.

It’s not just Worker Joe taking some classes from Phoenix.


28 posted on 07/25/2014 6:58:33 AM PDT by 9YearLurker
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To: Haiku Guy

Yep. If it did happen, it would just be an initial step to directly subsidizing and in effect nationalizing our entire higher ed system. ObamaCollege.


29 posted on 07/25/2014 6:59:39 AM PDT by 9YearLurker
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To: ladyjane
I hope you are not inferring I support the notion we need to continue or expand this ridicules college loan program. I am dead against expanding it, maintaining the status quo, or finding some way around paying down the debt by those who amassed it.
30 posted on 07/25/2014 7:00:13 AM PDT by Mouton (The insurrection laws perpetuate what we have for a government now.)
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To: corlorde

To fuel their ridicules marketing of these worthless degrees, colleges are now erecting plush student housing. In fact, one of the best investments in the housing industry now is in firms that specialize in building these facilities.


31 posted on 07/25/2014 7:07:59 AM PDT by Mouton (The insurrection laws perpetuate what we have for a government now.)
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To: Haiku Guy
Oh, sorry. I didn't realize this entire thread was a pointless circle jerk

As opposed to other deep and meaningful threads that are of great importance and relevance to what, exactly.

32 posted on 07/25/2014 7:23:13 AM PDT by corlorde (forWARD of the state.)
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To: 9YearLurker
The problem is also one of massive subsidies to middle and upper-middle-class students and their families to fund waste and frivolity for years and years.

It’s not just Worker Joe taking some classes from Phoenix.


Abuse of the system is wide spread at all levels.

Fraud and the rise of diploma mills and pseudo trade schools sucking up student loan dollars is a huge part of the delinquent and unrecoverable student loan debt.

Student loans have always been expensive and somehow previous generations managed to pay the debt off. Even the 1970 , students ended up $30k in debt if they funded their educations primarily via student loans. Obama is trying to bail out the Sub Prime borrowers who took the student loan money and wasted it and also the upper middle to wealthy students who borrowed a quarter million dollars to get a degree in Womyn's Studies, African-American studies, Hispanic Studies, Asian Studies, Queer Theory or other such made up, phony baloney degree from an Ivy League type school.

Bailing out these losers and spongers as Obama proposes will destroy the Student Loan system that for generations has allowed the middle class students whose parents cannot afford to pay for their schooling to get a college eduction.

33 posted on 07/25/2014 7:47:17 AM PDT by rdcbn
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To: rdcbn

Agreed that that’s where the worst of it is. But it’s also ruining the colleges, which humor unserious students with ever more expensive recreational facilities and it makes it too easy for students to graduate both ruined for real work and primed for financial ruin as well.

There should be less government support for student loans than there was in the ‘70s, too.


34 posted on 07/25/2014 8:04:41 AM PDT by 9YearLurker
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To: Mouton

I agree. It rewards the irresponsible spenders and penalizes the responsible workers.


35 posted on 07/25/2014 8:17:01 AM PDT by ladyjane
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To: reaganaut1

I think the colleges should be nationalized.


36 posted on 07/25/2014 8:21:02 AM PDT by Jim Noble (When strong, avoid them. Attack their weaknesses. Emerge to their surprise. Hat)
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To: 9YearLurker

Allowing the option of my plan is not at odds with anything you have said.

Some people will never pay of their loans in the way you describe. Their entire lives would be that of a debtor in financial prison. Allowing them another option hurts no one.

Why would you be against that?


37 posted on 07/25/2014 9:12:07 PM PDT by ReaganÜberAlles (Remember, you can't spell "progressive" without "SS".)
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Oh hell, no!


38 posted on 07/25/2014 9:17:58 PM PDT by combat_boots (The Lion of Judah cometh. Hallelujah. Gloria Patri, Filio et Spiritui Sancto!)
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To: ReaganÜberAlles

Because it is a subsidy, it enlarges government, and it is not an appropriate role for government. As I described previously, government jobs provide counter productive/negative experience anyway.


39 posted on 07/25/2014 11:00:39 PM PDT by 9YearLurker
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To: Buckeye McFrog

“A student loan forgiveness scheme is going to win somebody an election. That is inevitable at this point IMO.”

Without question. The majority of student loan debt is held by working professionals; many of them with Master’s degree debts of over $50k. The first politician to say, “Vote for me and I’ll forgive your student loan!” is going to win millions of votes.


40 posted on 07/26/2014 5:33:12 AM PDT by CodeToad (Arm Up! They Are!)
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To: 9YearLurker

Prove it is a subsidy.

Also, the “government” ...you...may never recover many of the funds as many, many of the debtors will die in debt many tens of thousand s of dollars.

My option gets value for value given. Your plan loses value.


41 posted on 07/26/2014 8:16:08 AM PDT by ReaganÜberAlles (Remember, you can't spell "progressive" without "SS".)
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To: ReaganÜberAlles

Anything run by the government is a subsidy. How does letting the private sector make all student loans “lose value?” You sound like a socialist.


42 posted on 07/26/2014 10:31:02 AM PDT by 9YearLurker
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To: 9YearLurker

And you are stupid. Here’s the choice dummy: The option I posit gets you, the taxpayer, at least some of your tax money back in the form of service.

Your way guarantees that many people will die or hide or go off the grid or go to a foreign country and never pay anything back. Your way is lose - lose. My option is win- win.

Ohhhh....And you would never call me a socialist to my face sweetie, I promise you that. But you can try.


43 posted on 07/26/2014 1:46:45 PM PDT by ReaganÜberAlles (Remember, you can't spell "progressive" without "SS".)
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To: ReaganÜberAlles

Can you even read? I don’t want taxpayers on the hook for loans at all. Your social engineering is a completely inappropriate role for the government. My tax money shouldn’t be paying for someone else’s five-year vacation. And letting them perform a couple of years of “government service” doesn’t make that better.

Get the government out of student loans. Period.


44 posted on 07/26/2014 1:51:41 PM PDT by 9YearLurker
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To: 9YearLurker

Hey Einstein...... That wasn’t the argument. IDIOT. The government IS IN STUDENT LOANS RIGHT NOW!!! AND HAS BEEN FOR SOMETIME. THAT IS WHAT WE ARE DEALING WITH NOW!!

Clear enough yet?!

I agree with the idea of getting govt out of anything it can be and should be gotten out of.

Quit posting to me you are to dumb to deal with. Friggin jackass.


45 posted on 07/26/2014 2:04:59 PM PDT by ReaganÜberAlles (Remember, you can't spell "progressive" without "SS".)
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To: Iron Munro

>> Let someone else pay off the moocher students debt

The moochers’ peers will be responsible for paying their debt.


46 posted on 07/26/2014 2:06:56 PM PDT by Gene Eric (Don't be a statist!)
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To: reaganaut1
He's right that the incentives need changing. But his solution is overcomplicated. Colleges shouldn't be in the loan business. Down the road, his scheme would likely come to naught, and there would be a lot of political pressure to "fix" it and relieve the colleges who screwed up.

The proper solution is to make getting a college loan like getting a car loan or a house loan, but without the car or house available to cover default. College loans should be fully dischargeable in bankruptcy. And no way should be the taxpayers be making the loans!

Interest rates would shoot up. Tuition would necessarily come down. And the effect would be to bring college costs back in line with inflation, cut the deadwood out of university administration, and eliminate seven-digit / year college presidents.

47 posted on 07/26/2014 2:22:58 PM PDT by cynwoody
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