In a recent Wall Street Journal (“WSJ”) (@WSJBankruptcyBeat) series on the Great Student Loan Debt Debate, several of their examiners discussed what to do about student loans in bankruptcy. Let’s start with the goal of bankruptcy, which is to help the HONEST BUT UNFORTUNATE DEBTOR, see the WSJ article here. This is a person who has more debt than they can handle and are overburdened due to medical issues, job loss, or the need to care for family members creates a financial hardship. Many, but not all debts are discharged in bankruptcy and student loans seem to be the hot topic lately because more than 40 million Americans have a total of more than $1.2 Trillion dollars of outstanding student loan debt.
The WSJ Examiners recently debated whether the bankruptcy code should be amended to allow for the forgiveness of student loan debt in bankruptcy. There were many viable solutions made. Some, taking back the bankruptcy limitations set out in the 2005 BAPCPA Amendments, which allowed student loans to be discharged after a 7-year repayment period had elapsed.
I propose that we start with cutting the ridiculous salaries at colleges and universities throughout the country who have been soaking up Title IX funds for decades without anyone blinking an eye. Next, we go after the likes of the lending industry because they have had the comfort of knowing their loans would survive bankruptcy for the past 10 years, so they have been loaning without limit like a crack dealer to a drug addict. I believe that simply limiting the total amount a student may borrower without forcing schools to cut their costs and lenders to reign in their underwriting, this mess won’t stand a chance. Also, if all the parties involved don’t take corrective action, America will continue to lose its world education ranking.
In bankruptcy, I fight these issues and see that some of my clients could benefit from a hardship discharge, but simply do not have the resources to hire me to litigate an adversary proceeding to prove it. The creditor push back is enormous and we must take these cases all the way to trial, or have the matters heard on summary judgment. This is cost prohibitive for our overburdened debtors. We also have some debtors who may be forced into continual Chapter 13 bankruptcies only to keep hundreds of thousands of dollars in student loan debt under control until their death, which doesn’t seem like a solution at all.
Here is the follow-up to the WSJ Student Loan debate and what its readers thought, here. Tell me what you think? Do we need student loan forgiveness in bankruptcy?