Special Report from Money Morning
by Shah Gilani, Wall Street Insights & Indictments
Beleaguered and desperate student loan borrowers need immediate help.
There is a way out for them. That same way out could also rein in college costs. But it’s blocked by law. Obviously, the law has to be changed.
It can be done in just one step. And today, I’ll tell you how we can get there…
Bad Law
The wrongheaded law, which the financial industry pushed hard for, of course, is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
BAPCPA basically says the courts cannot wipe out any student loan debt – federal or private – in bankruptcy unless the borrower can prove repaying the loan would cause “undue hardship.”
And you can pretty much forget demonstrating undue hardship unless you suffer from a severe disability.
BAPCPA lumps student loan debt in with child support and criminal fines as types of debt that can’t be discharged in bankruptcy.
While the “Bankruptcy Abuse Prevention” part of the law is obvious, one wonders where the “Consumer Protection” part of BAPCPA resides.
It’s in there, but to find it, you have to understand how bull(you know what) is spun into colorful yarn and woven into legislation.
Financial industry lobbyists pushed BAPCPA by promising cheaper student loans and more of them.
“Cheaper” didn’t happen, but “more” certainly did.
In 2010, student loan debt in the United States surpassed credit card debt for the first time. And thanks to BAPCPA – let’s call it the “Protection Racket Act” – lenders are sticking it to students for life.
Student loan debt now exceeds $1.3 trillion, according to the U.S. Federal Reserve.
Private lenders, however, say they’re only a small part of that big number and are wrongly being pummeled. That’s not exactly true.
It is true that only about 10% of the $1.3 trillion of student loan debt is strictly private. But according to the U.S. Department of Education, about 33%, or $403 billion, of the total is private debt backed by government guarantees.
It doesn’t matter what form student loan debt takes – BAPCPA says it cannot be wiped out during bankruptcy.
First Step
Obviously, the law is a bad one, foisted on us by bad actors – the usual suspects.
BAPCPA has to be changed or struck down.
Declaring personal bankruptcy is not an easy or desirable path for beleaguered borrowers. But it is a way out of indentured servitude to lenders who have no legal obligation to work with borrowers.
If lenders had to write off bad loans discharged in bankruptcy, no doubt they’d be less inclined to shovel out money to borrowers without doing better repayment calculations.
That would reduce the amount of easy money flowing into the student loan borrowing arena. And that would be a good thing.
Not everyone who borrows a fortune to get a degree ever gets a degree. And those who do get degrees lately, for almost the past decade, can’t find work.
As long as there’s money to spread about because BAPCPA requires lenders get paid back, college costs will keep rising.
Have you priced an education lately?
It sure looks like colleges, universities and, especially, for-profit schools of almost every stripe are in cahoots with lenders. It’s become a nationalized, legitimized duplicitous and ruinous Ponzi scheme.
It’s got to stop. Making student loans dischargeable is the first step.
