The Associated Press takes a good look at how a 2005 law traps borrowers in private student loans—upending the whole point of the bankruptcy code.
Back in 2005, President Bush signed the misleadingly named Bankruptcy Abuse Prevention and Consumer Protection Act, a giant giveaway to the banking industry that included a provision making it nearly impossible to discharge private student loans in bankruptcy. The justification was that lenders needed protecting because, as the AP puts it, “a bank can repossess your car but not your brain.”
But that, of course, makes no sense. Using that logic, you shouldn’t be able to discharge credit card debt in bankruptcy. Wouldn’t the banks love that?
As college education has become more and more important to survive, much less thrive, in the economy, we’ve shifted more and more of the costs of education onto 18 and 19 year olds who have no idea how much money they’ll make in ten or twenty years. Now even if your student debt is crushing you, you can’t get out from under it.
My wife and I, for instance, have six figures in student loans, much of them from private loans she got for grad school here at Columbia (the university giveth to the Chittums and it taketh away). We’re able to afford them, but if one of us lost a job for any length of time, our payment would be just about impossible to cover. We’re lucky, and we went into most of that debt with eyes wide open, but there are many, many borrowers out there who aren’t and who didn’t.
This has broader economic implications too. A class with heavy debt loads they can’t discharge when they get into trouble is going to take fewer risks—start fewer businesses, take riskier jobs—the kinds of things that are good for economic growth.
The bankruptcy problem isn’t just with private loans, though their higher interest rates make them individually more troublesome. Federal student loans outnumber (in dollars) private loans nearly six to one, and they can’t be discharged either.
And why is that, exactly? The AP is good to give us an eye-opening little history of student loans and bankruptcy. Until 1976, you could discharge any student loans, including government ones, in bankruptcy. A law passed then made you wait five to seven years. By 1998, President Clinton signed a law making it nearly impossible to discharge them at all.
The tiny benefits for taxpayers mean a lot of hardship for the small minority who get into trouble financially. The AP tells us just how small that group was before the bankruptcy laws started to get stricter:
Before 1976, when student loans were dischargeable in bankruptcy, there’s little evidence borrowers abused the practice. A federal study from that time estimated less than 1 percent of all matured student loans were discharged in bankruptcy.
That data is part of the AP’s nice pushback against industry spin that allowing loan discharges would raise rates and reduce lending, a line it says “swim upstream against a lot of historical data.”
I would have liked a bit more on how the law affected private student lending. Did interest rates go down or did lenders just pad their profits?
But this is a good effort on an important issue.
Glad to see this information put forth. This is why H.R. 4170, The Studentloanforgiveness Act of 2012, must pass. Education is not a commodity, and banks and even the educational bureacrats have chosen to use it as such, since Mr. Bush put the final nail in the consumers coffin. Now we are fighting back to reimplement the justice that was robbed from the American people. Pass H.R. 4170, and this nonsense will begin to be addressed. When colleges can no longer profit and pillage and lenders can't rake Americans over the coals, and bankruptcy, and lending practices are reformed, this nonsense is going to stop. For those students who have been duped, raped and pillaged by the Wallstreet money changers and the College Corporatocracy, help is on the way. Thanks to H.R 4170! And millions of students who are Occupying Student Debt and taking back their rights! Let us legislate in a just manner and remove the dysfunction. Congress is mostly Bought by these educational bureaucrats, and the Banks.. and it's time this stopped!
#1 Posted by Jofbow, CJR on Sun 29 Apr 2012 at 03:01 PM
A nice little anecdote about student debt:
http://www.alternet.org/story/153311/i_said_no_to_my_student_loan:_one_borrower's_decision_to_stop_paying?page=entire
And the nice little slice of reality about student loan statue of limitations and your social security entitlements.
http://rortybomb.wordpress.com/2011/10/26/student-loans-social-security-and-debts-you-carry-for-life/
What's the figure of outstanding debt up to again? A trillion? Yeeesh.
#2 Posted by Thimbles, CJR on Sun 29 Apr 2012 at 05:09 PM
Sorry, but I read sob stories like this and the only two words that flash in my mind are “tough shit”. These folks knew what they were getting themselves into. I don’t see how anyone can realistically expect to pay off a mid five figure student loan with a degree in english lit or social work, and quite frankly I don’t care.
#3 Posted by Mike H, CJR on Mon 30 Apr 2012 at 11:39 AM
So now "somebody else" should pay for higher education.
Ryan writes: "We’re lucky, and we went into most of that debt with eyes wide open, but there are many, many borrowers out there who aren’t and who didn’t."
Same stupid leftist BS schtick.. The average American slob (but not me or my wife - we're more equal than them) is too stupid to be permitted to commit to a student loan, or buy a car, or a house, or a health insurance policy on his own... He needs the Gubmint looking after him.
Such an arrogant contempt for fellow citizens belies any claim to a democratic motion - certainly it shoots down the lefties silly claims that the "poor" are entitled to more political and economic power - WHY should the people these leftists (who can no longer be called "commies" under Pravda's... er, I mean CJR's comment censorship policy) believe to be too stupid to buy a used car or to borrow money for school be given more power?
The answer, of course, is that the LAST thing the lefties want is "power to the people". They want to divide, as Ryan does, our country into classes... Leaders and followers. People who deem themselves smart enough to borrow money get the run things (as Ryan deems himself and his wife to do so), and the people these self-annointed leaders deem too stupid to borrow money or buy cars live off of the Gubmint's crumbs.
Any political school based on such class envy and segregation is doomed to failure. Any plan predicated on snatching the property and labor from "somebody else" (productive citizens) and transferring this wealth to a "deserving class" (mooches) can only result in famine, misery and oppression if executed.
#4 Posted by padikiller, CJR on Tue 1 May 2012 at 09:37 AM
And another thing..
Who (besides Ryan) claims that the "whole point of the bankruptcy code" is to let debtors out of student loans?
HUH?
As a matter of fact, the bankruptcy code exists to protect BOTH debtors AND creditors - it gives both parties rights and obligations in cases of claimed insolvency.
And the FACT is that the code specifically renders student loans nondischargeable.
Like taxes and child support.
And the FACT is that bankruptcy law was originally created to protect creditors, not debtors.
But, hey!... Why get the mere truth hinder the latest call to leftist arms, right?
Such one-sided, mindless drivel is what passes for "professional journalism" in Chittumland.
#5 Posted by padikiller, CJR on Tue 1 May 2012 at 11:09 AM
"So now "somebody else" should pay for higher education."
Somebody else has ALWAYS paid for higher education, during the majority of the 20th century.
Paying for education is a JOBS program, one that enables states to have the intellectual infrastructure to carry out big ventures and projects. Education is a national investment which, looking at silicon valley, pays off.
But we're letting educational inflation, state finance depletion, and stupid policies during the Great Recession eat the national seed corn.
http://www.nytimes.com/2012/04/30/opinion/krugman-wasting-our-minds.html
"I mean, “get the education”? And pay for it how? Tuition at public colleges and universities has soared, in part thanks to sharp reductions in state aid. Mr. Romney isn’t proposing anything that would fix that; he is, however, a strong supporter of the Ryan budget plan, which would drastically cut federal student aid, causing roughly a million students to lose their Pell grants.
So how, exactly, are young people from cash-strapped families supposed to “get the education”? Back in March Mr. Romney had the answer: Find the college “that has a little lower price where you can get a good education.” Good luck with that. But I guess it’s divisive to point out that Mr. Romney’s prescriptions are useless for Americans who weren’t born with his advantages.
There is, however, a larger issue: even if students do manage, somehow, to “get the education,” which they do all too often by incurring a lot of debt, they’ll be graduating into an economy that doesn’t seem to want them...
What the young need most of all, then, is a better job market. People like Mr. Romney claim that they have the recipe for job creation: slash taxes on corporations and the rich, slash spending on public services and the poor. But we now have plenty of evidence on how these policies actually work in a depressed economy — and they clearly destroy jobs rather than create them.
For as you look at the economic devastation in Europe, you should bear in mind that some of the countries experiencing the worst devastation have been doing everything American conservatives say we should do here. Not long ago, conservatives gushed over Ireland’s economic policies, especially its low corporate tax rate; the Heritage Foundation used to give it higher marks for “economic freedom” than any other Western nation. When things went bad, Ireland once again received lavish praise, this time for its harsh spending cuts, which were supposed to inspire confidence and lead to quick recovery.
And now, as I said, almost a third of Ireland’s young can’t find jobs.
What should we do to help America’s young? Basically, the opposite of what Mr. Romney and his friends want. We should be expanding student aid, not slashing it. And we should reverse the de facto austerity policies that are holding back the U.S. economy — the unprecedented cutbacks at the state and local level, which have been hitting education especially hard.
Yes, such a policy reversal would cost money. But refusing to spend that money is foolish and shortsighted even in purely fiscal terms. Remember, the young aren’t just America’s future; they’re the future of the tax base, too."
The nation has always helped people pay for education through subsidy and investment. When it doesn't, the nation will pay in lost economic opportunities and innovation to China, India, and a host of other countries who are.
The decision Americans have to make is "Do we want to be a strong nation, or a McNation?" Because cheap labor conservatives are always pushing for a burger flipping economy since any other kind demands investment - which is good money which could be used for more wars and more
#6 Posted by Thimbles, CJR on Tue 1 May 2012 at 11:22 AM
"Who (besides Ryan) claims that the "whole point of the bankruptcy code" is to let debtors out of student loans?"
Troll Alert. Claim not made.
"And the FACT is that the code specifically renders student loans nondischargeable."
Troll Alert. Claim not disputed.
"And the FACT is that bankruptcy law was originally created to protect creditors, not debtors."
Troll Alert. Claim incorrect.
Maximum idiocy achieved.
In other news, the evolution of Free to Fail:
http://www.project-syndicate.org/commentary/re-capturing-the-friedmans
"In 1979, the Friedmans could confidently claim that, in the absence of government-mandated discrimination (for example, the South’s segregationist Jim Crow laws), the market economy would produce a sufficiently egalitarian distribution of income. After all, it had appeared to do so – at least for those who did not suffer from legal discrimination or its legacies – for the entire post-WWII era.
So the Friedmans argued that a minimal safety net for those whom bad luck or a lack of prudence had rendered destitute, and elimination of all legal barriers to equality of opportunity, would lead to the most equitable outcomes possible. Profit-seeking employers, using and promoting human talents, would bring us as close to a free society of associated producers as is attainable in this fallen sublunary sphere.
Here, too, the Friedmans’ hopes have been disappointed. The end of American preeminence in education, the collapse of private-sector unions, the emergence of a winner-take-all information-age economy, and the return of Gilded Age-style high finance have produced an extraordinarily unequal pre-tax distribution of income, which will burden the next generation and make a mockery of equality of opportunity.
It would have been nice if the political program laid out a generation ago in Free to Choose had lived up to the Friedmans’ billing. It would have been nice if a relatively equal and prosperous society with full employment and equal opportunity had followed from a government that stood back from the economy and provided nothing but a minimal safety net, courts, and a constantly growing money supply.
Alas, that did not happen. And it did not happen because the world described by the Friedmans is not the world in which we live."
http://www.alternet.org/economy/154821/capitalism%27s_dirty_secret%3A_corporations_don%27t_create_jobs%2C_they_destroy_them/
"[T]here are real costs to ignoring the environment and keeping workers in a state of misery. If you want job growth, you have to have demand growth: profits and consumption go hand in hand...
To get corporations working for the 99 percent on the job front, we have three major challenges:
1) Education: Young people from low-income groups (especially blacks and Hispanics) need schooling and training to move to good career jobs.
2) Incentives: Corporations must have incentives to retain educated and experienced workers instead of laying them off or off-shoring their jobs. (To do so forces valuable workers into low-skill jobs and wastes their human capital, which was expensive to acquire.)
3) Investment: Executives of financialized corporations who want the government to invest in the knowledge base have to make complementary investments in people that can keep the U.S. economy innovative and generate good jobs. That would mean changing the single-minded focus on boosting company stock prices through buybacks and other financial manipulations that serve the 1 percent but no one else."
The old idea that "The Social Responsibility of Business is to Increase its Profits" doesn't work. The old
#7 Posted by Thimbles, CJR on Tue 1 May 2012 at 01:47 PM
>:(
Just so you know, both the above comments were under 600 words and 4000 characters. (My tabulator claims the above snipet was 547 words, 3592 characters)
I hate it when I get cut off mid-punchline.
#8 Posted by Thimbles, CJR on Tue 1 May 2012 at 03:11 PM
padikiller wrote: "And the FACT is that bankruptcy law was originally created to protect creditors, not debtors."
Thimbles blithered: Claim incorrect.
Time to toll the Reality Bell again!
Some form of law for bankrupts can be seen tracing back to Ancient Babylon. In England, the first recognised piece of legislation was the Bankruptcy Act 1542. Bankrupts were seen as crooks, and the Act stated its aim to prevent "crafty debtors" escaping the realm. A more humane approach was developed in the Bankruptcy Act 1705 The Lord Chancellor was given power to discharge bankrupts, once disclosure of all assets and various procedures had been fulfilled. In Fowler v Padget Lord Kenyon reasserted the old sentiment that,
"Bankruptcy is considered a crime and a bankrupt in the old laws is called an offender."
The bankrupt was seen bonded to his creditors. Under the Insolvent Debtors Act 1813, debtors could request release after 14 days in jail by taking an oath that their assets did not exceed £20, but if any of their creditors objected, they had to stay inside...
Padikiller 1, Thimbles 0
#9 Posted by padikiller, CJR on Wed 2 May 2012 at 10:29 AM
Bankruptcy is a part of a larger set of laws regulating the practice of usury. Those laws over history were crafted to protect both creditors and debtors, in the case of biblical law, debts were discharged to prevent the permanent burden upon individuals and family generations.
Indentured servitude and debt bondage used to be accepted practice. With the creation of bankruptcy, debts could be discharged, laws were created to allow multiple creditors to make satisfactory claims, and the debtor was put into the charge of the legal system (debtor's jail). Claims were restricted to the individual who applied for credit (and the estate thereof) and not individuals (and their property) unconnected to the debt such as family members.
Since then bankruptcy evolved to be even more debtor friendly. Why? Because creditors tend to abuse their usury relationship with debtors. Unless the claims of creditors are put at risk by restrictions on behavior and allowable claims, creditors will exploit debtor desire and lack of financial knowledge to maximize their rent income. At one time, economists and policy makers looked at rent income as a necessary evil since it's income not derived from productive labor. That changed in the 1970's.
http://www.fdic.gov/bank/analytical/bank/bt_9805.html
Now we've decided to make the law governing credit and usury mostly null, the ability to discharge predatory credit and excessive debt more difficult and costly, and - in the case of student debt - we've even lifted debt collection restrictions on social security income.
And how has that worked out for you?
PS. Why do you even care who the bankruptcy law was crafted for? Why does it matter if Hammurabi made creditors masters of the debtor's harem according to the ancient cuneiform texts of Babylon? What was your point again?
Troll Alert. Point unnecessary. Desire to turn discussion into a Jackson Pollock painting requires no point, just a bunch of paint and a wall to throw it against.
#10 Posted by Thimbles, CJR on Wed 2 May 2012 at 02:32 PM
An article focused on social security garnishees in the 2007 economy:
http://www.washingtonpost.com/business/economy/senior-citizens-continue-to-bear-burden-of-student-loans/2012/04/01/gIQAs47lpS_story.html
And some new debt options given as a quick answer to a question posted on a money focused 'dear abby' column:
http://articles.latimes.com/2010/apr/04/business/la-fi-montalk4-2010apr04
"By "programs to help young, single people," you're probably referring to the various forgiveness programs that reduce or erase federal student loan debt when the borrower teaches in inner-city schools, serves in the military or volunteers for the Peace Corps, among other options.
But Congress recently created new possibilities for federal student loan forgiveness. People in public service jobs -- teachers, police officers, firefighters, social workers and others -- can have their remaining debt erased after 10 years of on-time payments. Even people who don't work in public service can get forgiveness after 25 years.
The people most likely to benefit from these programs are those with low incomes and high debt who opt for income-based repayment plans, which cap payments at 15% of your monthly discretionary income.
The financial aid website FinAid.org has information. (The recent student loan overhaul will reduce required payments to 10% of monthly discretionary income and allow loan forgiveness after 20 years, but only for students who take out new loans after July 1, 2014.)
If you have private rather than federal student loans, forgiveness is not an option and your choices for affordable loan plans are fewer."
Something the press should report more on, if you ask me.
#11 Posted by Thimbles, CJR on Wed 2 May 2012 at 02:54 PM
According to this:
http://rooseveltinstitute.org/in-the-news/student-loan-debt-leads-despair-protests-and-defaults
"Because no payments are required on income below 150 percent of the poverty line, income-based repayment is helpful for such borrowers as 28-year-old Jennifer Sandella. She earns so little that she doesn’t need to pay anything on her $45,000 in graduate school loans. For a single person, 150 percent of the poverty line is $16,335; for a family of three, it's $27,795.
Two years after the program was introduced, few borrowers know about IBR. Only about 1 percent of federal borrowers — out of the 10 percent who could benefit — are enrolled, Kantrowitz estimates. The U.S. Department of Education has been offering information about IBR on its website, through customer-service representatives, and to students when they exit school. It now plans to contact current borrowers to inform them about the program, says spokeswoman Sara Gast."
#12 Posted by Thimbles, CJR on Wed 2 May 2012 at 03:14 PM
Brutal little follow up:
http://www.policyshop.net/home/2012/5/1/could-your-student-loans-make-you-unemployable.html
"One major reason people pursue a college degree is to get a better job. But what if the debt accrued to finance an education itself becomes an obstacle to employment? That’s what happened to Latoya Horton...
"just a few weeks after starting in my new position the company fired me because my debt-to-credit ratio was too high. I later learned that 60% of employers now check credit reports, which typically include student debts. How are you supposed to pay off your student debts if you can’t get (or keep) a job BECAUSE of your debts? And what do my student debts have to do with my ability to do a job well anyway?"
Reminds me of how some employers are asking for facebook id's and passwords. Employees should be able to have private information and a private life without worrying too much about work retaliation, no?
#13 Posted by Thimbles, CJR on Mon 7 May 2012 at 02:29 PM
I agree , college education is extremely important now, some young people see in it a guarantee of a good life, successful career and well-paid job. The US always have set an education as a priority, but where do we go now, if some people graduate with huge debt and stay unemployed, because there’s not much work for people who has recently graduated and has no job experience. There’s no guarantee that you will find a job that will allow you to pay off your debt ,or you will have to apply to cash advance agency and ask about financial assistance. Despite all the importance of the higher education, it becomes less and less affordable, lots of young people are just drowning in their debts and do not know if they will ever have a chance to get out.
#14 Posted by Nick Adams, CJR on Sun 24 Jun 2012 at 06:00 AM