I can't see forgiving some portion of student loans in a blanket manner because many, many people took less prestigious degrees precisely to avoid debt. This trend of punishing people in our country for doing the right thing has got to stop. And there can be no question - going forward, student loans should be bankruptible. We will see an immediate and long overdue tightening in lending standards.
It's my personal belief that retroactively, at least some portion of outstanding student loan debt should be bankruptible, which I suppose will leave taxpayers on the hook. While people took out student loans voluntarily and foolishly, most of those loans were taken in times where job prospects were much brighter. Having people declare bankruptcy still allows them to get out from a very bad decision, but it is a path that would not be taken lightly and would have repercussions.
I'm not sure that making student loans more readily dischargeable in bankruptcy would cost taxpayers as much as one might think.
The only loans, if discharged in bankruptcy, that would directly affect taxpayers are federally-guaranteed loans. Since 2010, only the federal government can make these loans. As well, for a long time, there have been limits on federally-guaranteed and direct federal loans. The current limit for dependent undergrads is $31,000, for independent undergrads is $57,500. These are not the loans of horror stories. For most folks, even declaring bankruptcy isn't going to result in the discharge of much, if any of this debt. A $30K debt may run $400 per month, and a bankruptcy court may readily extend the payments to reduce the payment. We're not even talking about the payment for a new, near=luxury car.
I suspect that the bulk of student loans guaranteed by the federal government is tied up with folks who attended undergraduate studies, most of whom have less than $30K in federally-guaranteed debt. When I look, it appears that average student loan debt is around $30K, but that's a combination of federal and private debt, meaning taxpayers are not on the hook for some part of that total.
Graduate students may borrow more - up to $138K, or up to nearly a quarter million for veterinary school. However, there probably aren't that many veterinary students in the US.
Undergraduates with $100K or more in debt mostly have debt from private student loans. There, a little tweaking of bankruptcy law to make student loan debt a bit easier to discharge (or at least, to cut interest rates and payments, if not to reduce principal) will have the largest effect, and that effect will be felt mostly by the lenders, as private loans that were federally-guaranteed are aging and rolling off the books.
This simple fix - making student loan debt somewhat easier to work with in bankruptcy - will enable those borrowers who truly got in way, way over their heads to get out from under the burden, will continue to force those who can pay to pay, will assure the maximum repayment of original principle, will go the furthest to protect the taxpayer, and will hurt most the party that legally is actually at risk - the lender.
It will also cause a major tightening of credit standards, force folks not to pay obscene tuitions that they can't find, and thus, put downward pressure on college tuitions and fees.
Couple this with an end to federal loans - privatize the whole thing without any federal guarantees - and the problems associated with student loans will work themselves out over time.
Of course, following this prescription would cause massive dislocation in the higher education industry. Large numbers of four-year, residential programs would just wither away, cease to exist. Community colleges and commuter colleges would see enrollments soar. Some colleges would be pushed toward radical innovation to use technology to radically reduce the cost of higher education. It would be much harder for research universities to fund basic research.
I suspect that we'd see a large rise in “technical universities” that grant a three-year “baccalaureate” that would look more like a European degree, with much of the liberal arts content trimmed out. Fewer folks would have a classical, four-year liberal arts-based degree (which includes even most science and engineering degrees in the United States, currently).
So, some pluses, some minuses, but on the whole, I think it would be a net plus.
All we need to do is make student debt more easily discharageable in bankruptcy while allowing the results of bad lending to fall primarily on those who made the bad lending decisions - the actual lenders.
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