A college diploma has become the necessary-but-not-sufficient ticket to the middle class. But the cost is up (in-state tuition and fees have increased by 35% in just five years — inflation adjusted) and grant aid hasn’t picked up the difference. That combination pushes hundreds of thousands of students deep into debt to get their chance at the middle class.
Any notion that the student loan industry works for students and their families vanished in the scandals over lenders’ giving money to college loan officials to steer business their way. Now education policy specialist Bob Shireman exposes another ugly side of the student loan industry: Leaked documents show what the private student loan businesses have been squeezing out of Congress. Unwilling to settle for lending money in a competitive market, the student loan companies have lobbied Congress for a special one-two punch — guarantees if student borrowers default on their loans and special exceptions to make the loans bankruptcy-proof.
The 2005 Bankruptcy Bill was a feeding frenzy for much of the credit industry, with credit card lenders, car lenders, and rent-to-own outfits all advancing their own interests. In the midst of the chaos of a very long and complex series of amendments, an unnamed politician slipped in a provision so that for-profit student loan companies could have their loans declared non-dischargable, which means the companies can continue collection efforts forever. These for-profit companies got a benefit that had once been reserved for child support recipients, victims of criminal fraud, and the government.
Ultimately the nondischargeability decisions boils down to two simple policy questions: Why should students who are trying to finance an education be treated more harshly than someone who negligently ran over a child or someone who racked up tens of thousands of dollars gambling? And why should a for-profit lender should receive the kind of extraordinary protection that is usually reserved for those who don’t make profits from lending and have no capacity to spread their losses?
Politicians are scrambling to distance themselves from student loan companies, so it is no surprise that no one wants to claim credit for insert the nice bonus for for-profit student lenders into the bankruptcy bill. If Congress is serious about cleaning up the student loan industry, perhaps special-interest bankruptcy amendments should be on the clean-up list.
