Allow student loan bankruptcies, but hold colleges accountable?

Compiled by Eric Schulzke, Deseret News National Edition

Published: Tue, Aug. 19, 2014, 4:20 a.m. MDT

 Can student loans be bankruptcy friendly?

Can student loans be bankruptcy friendly?

(Getty Images)

While making student loans bankruptcy-friendly became a cause célèbre on the left in the wake of Occupy Wall Street, in recent weeks the notion has found some support on the right as well. The catch is that some voices on the right suggest that the schools should be held accountable for the debt, not the taxpayer.

Sen. Elizabeth Warren, D-MA, has been a leading advocate for student debt reform, most recently proposing that older, debt-ridden former students be allowed to refinance their loans at lower rates, paying the bill by raising taxes on the wealthy. That bill stalled in the Senate earlier this summer.

But a few voices on the right now are sounding a similar theme, albeit with differences and provisos.

"Lending a student $60,000 to attend a private school he may have little chance of graduating from is not terribly different than the mortgage lenders who gave imprudent loans to people buying homes they could not really afford," writes Ike Brannon at the conservative Weekly Standard. "Both the school and the company that made the student loan get their money regardless of what happens to the student, and as a result neither has any compunction about helping a student attend a school where his prospects are poor."

Brannon goes on to to suggest that taxpayers needn't be left holding the bag. We could, he argues, "make the institution of higher learning assume their loan payments after a bankruptcy. That might make schools think twice before they admit a marginal prospect and charge them thousands of dollars for an education that might not do them much good, and it might make students think twice about disdaining lower-price options, such as the junior college near their home."

The notion that schools might respond to the risk of bankruptcy by being more selective in their admissions policy is not, of course, something likely to resonate with Warren, since it would tend to limit admissions and economic mobility for the highest risk students.

In any case, George Leef, writing at the Pope Center for Higher Education Policy, the heightened selectivity would be a feature, not a bug.

"Instead of trying to recruit any warm body who can use government loans to cover the tuition, schools would have to think about each student’s academic ability and future prospects," Leef writes. "Those who can scarcely read and show no evidence of interest in learning anything of value would be risky to admit. Instead of obsessing over students’ “diversity” or sports prowess or legacy status, admission committees would have to think about the likelihood that an applicant would later declare bankruptcy and stick the school with a large bill."

Leef argues that the accountability for debt would encourage schools not only to be more careful in who they admit. "They’d also have stronger incentives to ensure that those they do admit can’t just coast along without learning anything," he notes.

Email: eschulzke@desnews.com

1. humbug
Syracuse/Davis, UT,
Aug. 19, 2014

I agree that colleges need "some skin in the game." They do need to be held accountable for certain things. They might want to address the issue of why college costs so much in the first place. The teachers aren't getting the income (mostly.) There are a lot of adjunct professors out there. Is there too much administrative cost? Not sure.

2. Liberal Ted
Salt Lake City, UT,
Aug. 19, 2014

Colleges should have some skin in the game. However, the student is the one who chooses to take out a loan to begin with. I chose to pay as I went through the University. Graduated debt free. I don't think the school should be responsible for students who take out loans to buy a car, fast food, gaming systems, TV's, trips etc. Ultimately it will be the other students who get to cover irresponsible students.

3. Mom of 8
Hyrum, UT,
Aug. 19, 2014

Liberal Ted, I'd be interested to know when you went to college. What it cost in the 1970s and 1980s is nothing to what it costs now.

Students have no clue if, as they're attending college, they'll land a job that will allow them to repay the loan. Thirty years ago the assumption was that the degree was a fast-track to financial security. Now, a bachelor's degree earns you $30k if you're lucky, and only in about two decades will you be making enough to afford both a house and the student loan payment.

Colleges have exploded their costs because they know naive students can get loans to cover their expenses. Look at the building projects on campuses now a days. They border on the luxurious.

It's an out-of-control mess, and universities should stop using students and start serving them.

4. Liberal Ted
Salt Lake City, UT,
Aug. 19, 2014

@ Mom of 8- Finished my undergrad in 2005. It wasn't that long ago. Working on my Masters and I am paying as I go. No student loans. That is in addition to working full time and running a business.

There is nothing I have done, that anyone else couldn't have done themselves. It's a matter of actually going out and putting in the long hours of work and study. Yes it's hard to give up playing video games and going to the mall with friends and whatever other nonsense concerts etc people like to go to. But, if you want to make it debt free you can.

If the students are clueless going into college or a university of what the value of the education is or will be. It sounds like their parents need to explain that a ceramic arts, psychology, sociology, English, communication degrees will not pay the same as an engineer or doctor. Schools should give the students the tools to make an educated decision. Such as actual pay rather than taking the top 10% in each field and hinting that is the way for everyone.

5. Liberal Ted
Salt Lake City, UT,
Aug. 19, 2014

@ Mom of 8

If you have 8 kids. I'm sure you'll qualify for pell grants. They will give your kids money to attend college. Buy your books online and shop around. Don't waste time taking classes that you don't need. Figure out where you are going first, that will save you a lot of money. Go to school close to home, if I could have lived with my parents that would have saved me a lot of time and work. Have a cheap car, don't bother with a tv, spend the weekends in the library, take 3 classes and work to pay.

College isn't just about partying or hanging out. The main focus is to get that degree and move on. It's a tough balancing act. But, hopefully kids learn in their youth (something parents and public education has failed at doing) that you have to work for what you want. Even with good grades, you may not be accepted into a program. Keep your options open.