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Charbonneau on the Debate over Discharging Student Debt

CORAL GABLES ­– Dec. 18, 2020 – With a new bill in Congress aimed at bankruptcy reform, this week the blogosphere along with major news outlets have been examining the student debt crisis in the United States. Most report that there are at least 45 million borrowers who collectively owe almost $1.6 trillion in student loans, and that U.S. Student loan debt is now the second highest consumer debt category – second only to mortgage debt, yet still higher than both consumer credit cards and car loans.

Today the average student loan debt for those who graduated in 2018 is $29,200, which is a 2% increase from 2017 according to the Institute for College Access and Success. The increase is the  continuation of a decade-long trend.

The proposed Warren/Nadler bankruptcy reform legislation that was introduced last week would make student loans as dischargeable as credit card debt.  Many are applauding the notion as long overdue. And there can be no argument that student loans, rather than being “the next financial crisis” are, in fact, a current and very real financial crisis.  But is making student loan debt so easily dischargeable a good idea? 

Some argue, “it’s not fair, I paid my student loans!”  So did I, and while there is a certain visceral appeal to that argument it is a little thin from a public policy standpoint.  Others argue that it is inequitable for recent college graduates to discharge taxpayer-subsidized student loans when their income is likely to rise in the near future. 

But perhaps there’s a middle ground: Discharging private student loans, but limiting the discharge on taxpayer guaranteed loans, providing a waiting period to discharge these obligations 10, 15 or even 20 years after incursion of the debt.  What do you think? Leave a comment below.

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