The bill that Congress passed and that has been sent on to the Senate, has some troubling changes to income driven repayment plans, and cuts of some student loan forgiveness plans. I have laid out these changes elsewhere. Needless to say, extending payment plans from 20 years to 30 years and removing forgiveness from bilked student loan borrowers is reprehensible. However, the trouble with student loans run far deeper than cruel changes to a couple of student loan debt relief options.
Whether it is students who fail to graduate, career paths that are unprofitable (in many cases they have become unprofitable after the borrower has started their career) colleges that closed down or were frauds, or life changes that ruin an individual's earning potential. Crushing debt that no way to be alleviated is cruel. If you are an 18 year old considering considering $100,000 starting a landscaping business or going to college, the better debt is the landscaping business for the simple reason that you can get out of the debt with bankruptcy if things don't work out. If you use the $100,000 for college, you not only have to succeed at school, but you need to choose the right major to lead to the career path that will enable you to pay the debt and have the living you want to enjoy. This was not the paradigm that existed when student loans became widely available, but it is the paradigm that exists now.
Students who fail to succeed
Many student loan borrowers that struggle paying their debt are borrowers who simply failed to complete the attempted degree. My father was one of these types of borrowers. In his mid 40's he wanted to make a change and to be ambitious, so he enrolled with the University of Phoenix to become a licensed counselor. When he was 45, he suffered renal cancer. Later that same year, he injured his back at a military summer camp that led to chronic pain until the day he died. Student loan collectors did not let up until the day he received his approval for social security disability
A friend of mine commented on a family member who had a stroke in medical school which has damaged his motor skills enough to make practicing medicine an impossibility. He still works, but for far less than he anticipated when he started medical school, and therefore he is still being pursued by student loan debt collectors.
If the 18 year-old landscaper fails to succeed in his business, he can walk away with bankruptcy, a little damage to his credit, maybe the repossession of the business assets, but he walks away. The 18 year old student loan borrower is not so lucky if their educational endeavor fails. They will carry that debt until they die or become disabled.
Students who find the income after college is less than they anticipated
No one makes an investment without considering the return on that investment. When I was a child, going to law school was considered a sure path to economic success. Now the average starting salary for an attorney out of law school is $101,000 with the outliers ranging from $50,000 on the low end and $200,000 for the largest prestigious firms. In the early to mid 2000s there was a glut of law school graduates that could not find any work.
Physician assistants were in high demand in the 2010's with high salaries and very expensive graduate programs. Post-COVID the market for PAs and NPs (nurse practitioners) has become saturated with a glut of online NP graduates. The NP schools are relatively cheap, and with the advent of post-COVID online masters programs the NP programs are comparably simple. Demand is low, and salaries are dropping.
When Sallie Mae was established in 1972, the average cost of the 1971-72 school year at the University of Iowa was between 1,406 dollars and 1,500 dollars. The average starting salary for a lawyer at that time was between 12,000 and 15,000 dollars. The total cost of a legal degree at that rate was 10,500 dollars for all 7 years of graduate and undergraduate work. Therefore, the idea that student loans would not be dischargeable in bankruptcy did not sound unreasonable. The relatively small investment would yield a high rate of return.
Today, law schools range from 26,000 to 43,000 dollars per year. This makes the cost of a 3 year legal degree (not including undergraduate) 78,000 dollars on the low end and over 159,000 dollars on the high end. There is risk in that. Where as a legal graduate in 1972 might have made quick work paying off his small student loan for under 20,000, a 2025 graduate will pay more than 240,000 dollars on a 160,000 student loan with payments exceeding 2,000 dollars per month. That is a quarter of your pay if you are a lawyer making the median salary of 101,000 dollars a year. If you were not so lucky, as much as half your income will go to student loan payments for 10 years or more.
The long time guide for student loan debt was to never take more debt than you will earn in your first year working. The value of a college education has dropped enough that following this guidance is almost an impossibility for many career paths.
Students who had the misfortune to get loans through a crumbling or fraudulent university
In the1990's there started the rise of for profit corporate universities. They would target lower income individuals with easy admission and easy government student aid money. Universities like Devry and Corinthian Colleges were notorious frauds, while other educational institutions like ITT Technical Institutes collapsed under mismanagement. These are just to name a few.
In all of these cases, their students were left holding the bag of debt for easily obtainable student loan debt without a marketable degree.
The Obama administration started providing forgiveness programs to let these defrauded borrowers out of their student loan obligation as is right and just. However, the big beautiful bill promises to remove these programs and forcing these borrowers into 25-30 year income driven repayment plans on money that was stolen from them.
What should be done?
I am generally not a Trump fan, and I am not one on this. However, credit must be given for reducing the amount of money that can be loaned out. The loans of 200,000 to 300,000 for undergraduate degrees is unconscionable. But more needs to be done.
Simply forgiving all student debt is not is the best interest of society. It leaves a bad taste in the mouths of non-college graduates and college graduates who paid their student loan debt.
Crushing debt is painful, but crushing student loan debt can be torturous. The relief for crushing debt has always been bankruptcy. While the consequences now are not as painful as it may have been, there is still consequences for not paying debt in the form of bad credit, difficulties in obtaining mortgages or leases, and simply some embarrassment. However, the most important thing is they can move on after a bankruptcy to still lead successful financial lives.
Student loans on a large scale was conceived with a different paradigm than which we now live. An 18 year old kids cannot work all summer to pay all of their tuition and living expenses for the next school year, many careers are becoming obsolete an ever increasing rate with changes in technology, and the poor federal management of the student loan system left it open for fraud and abuse by for-profit universities who could make an easy buck and provide nothing in return.
If any group of people is entitled to financial mercy, struggling student loan borrowers are. Allowing them to qualify for bankruptcy relief of any kind is not only just, but it is merciful.
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