Since 2000, U.S. student loan debt has grown to overwhelm all other categories of non-housing consumer debt in this nation. The lending instrument is uniquely predatory in that student loans have been stripped of the most fundamental consumer protections, such as bankruptcy rights, statutes of limitations and many others.
{mosads}This has created a massively inflationary market place, exploding debt loads and has wreaked economic havoc upon tens of millions of citizens who borrowed or cosigned student loans. This problem currently affects 44 million borrowers, a majority of whom are currently unable to make payments on the debt. It threatens untold millions more as this problem really begins to hit home in living rooms across the nation.
The human cost of this phenomenon cannot be understated. Families and individuals are being financially destabilized and wrecked. Family formation, home and other purchases are being delayed or cancelled, people are actually fleeing the country and even committing suicide as a result of this predatory debt.
In this century, the problem traces back to the Clinton years, when bankruptcy discharge was made permanently impossible, for all intents, through the Higher Education Act amendments in 1998, but was exacerbated in 2005 when bankruptcy rights were similar deleted for private student loans.
While George W. Bush, John Boehner, Lindsey Graham and their allies in Congress—having been showered with support by the lending industry—made this problem worse by extending the bankruptcy exception to private loans, it was expected that President Obama and the supermajority Democratic Congress would at least return the standard consumer protections that should never have been taken away.
Neither Obama or his Congress even tried. In fact, it was the the Blue Dog Democrats in the House who were key in defeating a bill that would have returned bankruptcy protections to private loans in 2007. Obama kicked the private banks out of the lending program, but this did nothing to make the lending system better for students. In fact, interest rates went up slightly.
What this did achieve was to make the Department of Education astonishingly profitable. The agency now books some $50 billion in profits on the lending system annually and continues to astonishingly make a profit on defaulted loans.
The Department of Education, which is run largely by people brought in from the lending industry, now busies itself protecting its cash cow and fights tooth and nail behind the scenes to ensure that bankruptcy, statutes of limitations and other bedrock consumer protections remain gone. It is worth noting, here, that under Barack Obama, nearly $1 trillion was added to the nation’s student debt tab.
What is worse, the various “forgiveness” programs that have been put into place over the past decade are not working, and will never work, because the Department of Education has no desire or intention of forgiving anyone’s student loans (the agency abandoned any pretense of serving the public interest years ago, but that is another story).
Already a whopping 57 percent of the people in the Income Based Repayment (IBR) program have been kicked out of the program on just one of the many premises available to the Department of Education for expelling people from the program, which is failing to verify income.
This is something that the agency could and should verify independently through the Internal Revenue Service, but doesn’t because it would hurt its bottom line. It would be surprising if more than 15 percent of the people applying for these forgiveness plans actually make it through.
The most recent presidential campaigns were cruel jokes when it came to the student loan issue. Hillary Clinton and Bernie Sanders touted “free tuition” plans that, even if they worked, would only have affected undergraduates at public colleges, or about 5 million of the 20 million students in the country.
These plans would have done nothing for the 44 million citizens now trapped under nearly $1.5 trillion in debt, and would have done nothing to bring down the price of college. Clinton’s refinancing plan was so inconsequential as to deserve no more discussion beyond the completion of this sentence.
Donald Trump’s initial comments on the student loan problem, where he decried the obscene profiteering by the Department of Education, were encouraging, but his student loan plan was a cowardly refinement on Obama’s “Pay As You Earn” forgiveness plan.
While this issue is absolutely teed up for Trump, he whiffed it during the campaign. Hopefully he will take the time to actually think about this problem going forward.
Trump would do well ignore the student loan swamp people like David Bergeron, Jason Delisle and many others who are undoubtedly laying the groundwork to perpetuate this predatory lending system.
The swamp must be drained, not listened to. Trump should talk to Ike Brannon, Robert Reich, David Brooks or even Jeb Bush on this. Conservatives and liberals like these are now stating the obvious: That bankruptcy protections must be returned to student loans.
Better yet, Trump should simply heed the wisdom of the Founding Fathers, who demanded a “uniform system of bankruptcies” when they gave Congress its powers.
The first 16 years of this century have been a display of political cowardice, crony capitalism, the worst sort of big government and neglect of citizens when it comes to student loans.
If Trump doesn’t want to preside over the evaporation of the entire student loan system into a mist of illegitimacy, he must command his Congress to, at a minimum, repeal part of the U.S. bankruptcy code dealing with the “undue hardship” of student loans.
He must make bankruptcy the same for student loans as it is for every other type of loan in the country. Any other action, short of canceling all student loan debt, will absolutely result in disaster.
Alan Collinge is the founder of StudentLoanJustice.org and author of The Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back.
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