A reform plan for the student loan mess

May 19, 2022 4:33 p.m. ET

Student borrowers demonstrate for debt cancellation near the White House on May 12.


Photo:

Paul Morigi/Getty Images

Regarding Richard Shinder’s op-ed “Student Loan Relief Should Happen in Bankruptcy Court” (May 11): I propose the following adjustments: The federal government stop providing student loans. Congress changes bankruptcy laws to allow student loan forgiveness. Thereafter, each college will fund all student loans from its endowment.

This will serve at least two purposes. First, colleges will no longer be able to raise tuition fees by the amount of the government grant with impunity. Second, a student’s ability to repay a loan should increase a college’s due diligence when determining how much and at what rate to lend a prospective student. It is only when colleges suffer the consequences of their indiscriminate spending and are faced with the possibility of student default that some sense of sanity will return to the college cost structure.

Michael W. Keable

Harrisville, RI

The presumption of non-discharge of student loans in bankruptcy dates back to the 1976 amendments to the Higher Education Act, which first established the requirement, in certain cases, that the borrower demonstrate a “undue hardship” before being allowed to pay his debts. The promulgation of the bankruptcy code of 1978, which considerably relaxed the conditions for filing for bankruptcy, led to a wave of bankruptcy filings (especially by holders of a higher education degree) and a subsequent strengthening of the undue hardship requirement to make it more difficult.

Mr. Shinder writes that changes to the bankruptcy code in 2005 “greatly increased the difficulty of paying off student loans in bankruptcy.” Not so. The main effect of the 2005 amendments was to extend to private lenders of student loans the same protection from bankruptcy discharge as government-guaranteed student loans. According to a 2021 report by MeasureOne consulting, private student loans account for less than 10% of outstanding US student debt, a figure that has actually declined over time, which does little to explain Ms. .Shinder.

Professor Todd J. Zywicki

George Mason Scalia School of Law

Washington

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Appeared in the print edition of May 20, 2022.


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