Bring back bankruptcy for school loans and watch the education system change on its own as lending institutions turn off the spigot of free money.
The reason why school loans were exempted from bankruptcy was because some people went to professional schools (law and medicine) then filed bankruptcy to get out of paying for their loans. If you simply let school loans be subject to bankruptcy without some qualifying restrictions, the abuses are guaranteed to happen again.
Larry, why were those students given loans in the first place
In most sectors, lenders are pretty good at filtering out likely bankruptcy cases. But in the case of student loans, those loans are guaranteed by the federal government. So there was far less incentive to consider the risk of the student because Uncle Sam would pick up the tab. And that also is why there’s such a perversion of bankruptcy law concerning student loans.
Because there’s this huge incentive from the students, lenders, and schools to create massive loans that students can’t possibly pay back, the federal government was on the hook for a massive amount of unbudgeted liability. The band aid was to make student loans non-dischargeable in bankruptcy court. The rest of the mess remains.
Bring back bankruptcy for school loans and watch the education system change on its own as lending institutions turn off the spigot of free money.
The reason why school loans were exempted from bankruptcy was because some people went to professional schools (law and medicine) then filed bankruptcy to get out of paying for their loans. If you simply let school loans be subject to bankruptcy without some qualifying restrictions, the abuses are guaranteed to happen again.
Larry, why were those students given loans in the first place
In most sectors, lenders are pretty good at filtering out likely bankruptcy cases. But in the case of student loans, those loans are guaranteed by the federal government. So there was far less incentive to consider the risk of the student because Uncle Sam would pick up the tab. And that also is why there’s such a perversion of bankruptcy law concerning student loans.
Because there’s this huge incentive from the students, lenders, and schools to create massive loans that students can’t possibly pay back, the federal government was on the hook for a massive amount of unbudgeted liability. The band aid was to make student loans non-dischargeable in bankruptcy court. The rest of the mess remains.