As the student loan crisis looms, many proposals to this crisis are being presented in anticipation of the next presidential election. Various presidential candidates are presenting their own solutions. Questions come quickly into play – such as are these solutions constitutional? Is bankruptcy or something else the best solution?
Elizabeth Warren, a former law professor and current Democratic candidate for president, has proposed canceling $50,000 in student loan debt for individuals whose household income is below $100,000. This process would be automatic and apply to both private and government-backed student loan debt. This could effectively cause the forgiveness of up to 75% of those currently holding student loan debt in the United States. The process will happen directly with current credit information and former tax returns.
Although this proposal appears to be very powerful and desirable to many Americans, it appears to be blatantly unconstitutional. Without full government compensation (which would be devastating to the Treasury and tax burden), this proposal would directly violate the contracts clause and takings clause of the Constitution. To make matters worse, this proposal would relate the debt-forgiveness to income. The people paying the most taxes would likely receive the least benefit from the forgiveness program. They would also possibly be required to “pay the bill” dependent upon the method in which the loans are “forgiven.” Interestingly, many other programs proposed also follow Warren’s lead, making them income driven and a full, forced forgiveness.
There is an obvious long-term solution to the student loan crisis. This obvious solution is to allow student loans to once again be fully dischargeable in bankruptcy. This would return to the root of the problem and fix it at its source. The entire student loan problem originated with “student loans” being put into a separate class in the first place.
Student loans are not the usual loan situation: they are heavily protected and easy to generate. What other unsecured loans can you generate in large amounts right when you reach the age of 18 for college? Student loans have turned education into big business. They have breached the sacred nature of education and turned everything into a big-business type model. The schools, even the best of them, have become predatory by aggressively seeking to fill up their rosters at the highest cost possible. All of the schools have systems for easily coupling each student with future, burdensome student loans
This can be seen the clearest by examining the recent wave of “for-profit” schools that have recently been shut down. These schools were enrolling the least qualified of students for meaningless educational programs. The predatory nature of these schools was obvious. They had entire classes of students burdened with high student loan debts with virtually no value received for their “educational” program. The one thing most of these schools had in common was an eager and convincing enrollment officer. Everything was set up for the young student to sign easily on all lines necessary for a student loan to pay for the school’s programs. Are the rest of the public and private schools honestly much different?
Student loan debts should have never been made non-dischargeable in bankruptcy. Returning student loans to a “dischargeable” status in bankruptcy would be the great equalizer. Over time, student loans would no longer retain a special, “god-like” status to oppress young people eager for higher education. Student loan decisions would be made like all other loan decisions: they would be based on the likelihood of the person actually to pay the loan back. Education would no longer be big-business funded by never-ending supplies of debt-based “funny-money.” Education instead would be about actually educating those who are best qualified and dedicated to receiving advanced education or training. The College and University system was just fine before student loans were made non-dischargeable. It will adapt to find the same balance after student loans are dischargeable in bankruptcy once again.