Should students be allowed to file for bankruptcy to discharge student loans?

Question

Even after adjusted for inflation, the average cost of college tuition in the U. S. for undergraduate students has more than tripled, multiplying by 3.08 times over the last 58 years, according to data from the National Center for Education Statistics (NCES). It rose from $4,648 in 1963 to $14,307 in 2021.

A primary reason is the huge increase in administrative salaries and staff as a result of colleges being able to increase tuition with all students being able to obtain student loans. If student loans could be discharged through bankruptcy, banks and other lenders would not make student loans without adequate collateral and other means of guaranteeing that the loans would be paid.

Then in order to attract students colleges would be forced to cut useless administrative staff and greatly reduce tuition.

Updates

3 mo

One objective of filing Chapter 7 or Chapter 13 bankruptcy is obtaining a discharge of consumer debts. However, student loans are non-dischargeable.

Bankruptcy provides serious debt relief for people who are struggling with large credit card balances, underwater mortgages, defaulted car loans, unpaid medical expenses and many other types of secured and unsecured debt. People can eliminate all of these through bankruptcy, but not student loan debt.

GuyAnswersGirls123 · Accepted Answer

I love that idea provided that those who provide these loans have incentives to become risk-averse themselves and aren't bailed out by tax dollars. I lack expertise in economics but this always made sense to me just from a behavioral standpoint:

I figure any potential solution to the skyrocketing costs of things like education and healthcare must, first and foremost, acknowledge this fundamental problem of the lack of incentives for spenders (consumers as well as any who loan money) to invest wisely with costs to themselves if they fail to do so.

Billlewis · Accepted Answer

I would say no, but I'll go with whatever you think is the right call.

BoopBoopBeep · Answer

Absolutely. Colleges have gotten drunk of student aid to the point that they are no longer concerned about whether or not the student will be going into a field to pay it off. Want a degree in histroy of modern theater? Sure, gimmie 150k. Won't ever work for more than 32k/year? Don't worry about THAT, you're doing something edgy!

Make college debt dischargeable and colleges will self-police all the worthless shite out of the mix because it'll be a bad investment to have 1 out of 4 kids graduating with a "but working at 7-11 is only temporary" degree.

exitseven · Answer

This was done years ago. It became a widespread practice so the government passes a law prohibiting it. It is true about the administrators. I teach at a local college and there are layer upon layer of administrators that all make good money. Most of them have an assistant too. A lot of these jobs are to manage useless social programs that have no business in a college. We had somebody who was in charge of the golf tournament the college ran to raise money for scholarships. He made more money than I did and all he did was run the tournament once a year.

Avicenna · Answer

Since the underlying problem is the exorbitant price of university education, that's what needs to be solved. Constantly forgiving student loan debt and/or discharging it in bankruptcy continues the process of subsidizing the huge waste at universities, which are hugely overstaffed with administrators, and gives them no incentive to do anything about the excesses of the system.

Tax the endowments, for starters. Use the lever of federal research grants and other federal monies to force change.

CozyCoffin · Answer

That's not fully accurate, federal loans can be discharged in “undue hardship,” which is incredibly difficult to demonstrate except with severe disability.
Loan forgiveness programs are also offered to teachers, servicemembers, police and others under certain conditions. Many situations newly added by the department of Education in 2022 and 2024 (I really don't want to go through them all) are now offered. There are also many ways for students to get lowered monthly payments under federal loans, including the new SAVE plan and other income based repayment plans.

Private loans are horrible, but when used for educational purposes can be discharged in a normal bankruptcy proceedings if they are direct to the student loans which can be technically used for anything. Many companies may not follow the judgment, making the borrower keep records and take them to court.

rigmarole · Answer

They are already allowed to do that... Under section 523(a)(8) of the Bankruptcy Code, a discharge of student loans is available if not allowing the student loan debts to be discharged would impose an undue hardship on the debtor and the debtor's dependents. Undue hardship is up to interpretation depending on specific circumstances. You use to be able to get them discharged if the loans became due more than seven years before you filed bankruptcy, but the Democrats weren't having that and under Bill Clinton that option was stripped from bankruptcy law. Democrats love to keep the poor under their thumb...

D_Bone_Steak · Answer

Gotta love a system that talks kids into debt and now here we all are with degrees and would be lucky to swipe a job from McDonald's because some migrants took those jobs already.

I was lucky and got a BS accounting degree... so I do okay selling drugs. Plus I did the military thing and paid for school through the GI bill. No debt, just as educated, and I sell drugs. I buy hookers with the extra money.

Why should I care when I have it this good?

Amy10223 · Answer

This is never a good idea, especially if you are young and just getting to try and improve your credit or FICO score. It sounds like an easy way out to not have to pay off debt, but It takes 11 years to sealer off that bankruptcy report. It's better to accumulate your debt and pay off as much as you can in a span of some years. Once they see a bankruptcy record, banks and companies will not give you loans for cars, homes, or other big ticket items. Never do this!

HighValue · Answer

I think that after getting a degree, if the graduate can't find employment in the field they trained for within 2 years, the college should have to cover/repay half the tuition/loans. That way, colleges wouldn't be incentivized to lie and make false promises to students just to extract money from them.

RavVid · Answer

Colleges should cut useless degrees that don't lead to jobs. e. g. psychology, feminist studies, woke studies etc.

Or provide transparency on what percentage of graduates obtain employment in the studied area, how long it took to get the job and the initial pay rate.

AngryCarl · Answer

If the loans were dischargeable by bankruptcy wouldn't that make them much more expensive? Surely lenders would have to consider the risk of default?

Zestyassmf1997 · Answer

I can’t imagine why they wouldn’t be allowed to file for bankruptcy, really.

Charliefretz329 · Answer

Yes. Why is this debt different?  Maybe the loan companies will stop issuing monies for dumb degree plans and raping the American taxpayers when the students default.

andreasderjuengere · Answer

To start ones career with a bankruptcy... ... well - one can still run for President, can't one.

docster · Answer

No, people should pay back what they borrowed with interest. That's part of being an adult.

LiamJHayden · Answer

That and removing federal guarantees would go a long way towards lowering the risks that banks take, which would mean less money in the system, and eventually lower university costs.

Kelly6 · Answer

they should be.

Anonymous · Answer

Yes.

Should students be allowed to file for bankruptcy to discharge student loans?

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