As a part of the bankruptcy process, debtors may typically shed financial burdens that they are unable to meet. But the law treats education loans differently based on the lender, and as a result only about 40 percent of student loans are currently dischargeable. However, back in February, Democratic congressmen Steve Cohen of Tennessee and Danny Davis of Illinois introduced a bill that would allow borrowers to drop all types of private educational debt in bankruptcy. The Consumer Financial Protection Bureau estimates that private loans make up $150 billion of the $1 trillion total student debt in the US. The bill doles out no special treatment, nor does it create any new entitlements; rather, the act rectifies an inequity. Why should education loans be viewed differently from credit card debt, home or car loans?
Student loan rates are set to double in June, leaving borrowers to face the specter of $5,000 in additional debt. Students won’t absorb the blow in a vacuum — this money is removed from the economy and people’s life savings. Representative Karen Bass, a Democrat from California, offers a comprehensive solution that Congress should, but has yet to, pass. The Student Loan Fairness Act limits federal interest rates at 3.4 percent, forgives a large portion of college debt accumulated by public servants and caps monthly payments to 10 percent of discretionary income. Additionally, the law forgives remaining debt for students who make every payment for 10 years.
Critics of Congresswoman Bass’s bill cast the act as yet another government dispensation for a spoiled generation. But this is nothing more than fresh paint slapped on a trite claim: Past measures have overcome generational condescension to later better the lives of millions. Proposed student loan alterations, like the benefits in the GI Bill, are predicated on demonstrated commitments from citizens, which differentiates the measures from entitlements, like social welfare programs. Each bill would rectify inequalities that students face before the law. That said, concerns still remain about depleting a contract’s symbolic value. Students, though young, are adults; in signing their names, they agree to certain conditions.
But institutionalized hurdles deter students from making good on their obligations. Back in October, the CFPB issued a scathing critique of lenders’ behavior toward student borrowers that found parallels to impropriety in the housing market prior to the Great Recession. Borrowers seeking forbearance — which, in the context of mortgages, delays foreclosure — incur monthly charges. Ironically, this forces students to pay extra fees just to go through a process designed for those with depleted funds. Apart from sparse options to refinance, many students also reported that the legal language in their agreements was esoteric and difficult to navigate. The loan and repayment process must fundamentally change in order to restore students’ ability to hold true to their agreements.
According to new research by the Urban Institute, the income inequality that has plagued the country for decades has compounded into a generational wealth gap. Annie Lowrey of The New York Times writes, “The average net worth of someone 29 to 37 has fallen 21 percent since 1983; the average net worth of someone 56 to 64 has more than doubled.” With the average student facing about $26,000 in loans and the interest rate set to rise, millennials will be delayed for decades from saving. All told, the $1 trillion in outstanding student loan debt will accelerate the first American generational decline in wealth in modern history.
Student loans are a clear and present danger — any system that contributes to the take-down of the world’s largest economy is due for radical change. None of the proposed measures carve out special exceptions that could be abused by irresponsible parties in the future. Rather, the bills before Congress both correct past injustices and guard against future crises by making the law more transparent and fair. As Princetonians, we are future leaders who must anticipate and diffuse this coming, if not already present, crisis.
David Will is a religion major from Chevy Chase, Md. He can be reached at dwill@princeton.edu.
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