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What Should Be Done About the Student Loan Crisis

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I have written here before about student loans, how next to impossible they are to discharge in bankruptcy, and how something just has to give.  Young people are graduating every year with six figure student loan balances and no job prospects sufficient enough to pay it back.   This continues to be a problem, as the cost of education goes up, the jobless rate continues to hover at over 9%, and people in dire financial straits have nowhere to turn.

A recent article on the Bankruptcy Law Network site makes some interesting points about the situation.  It sets forth the following facts:

  • There is currently over $1 trillion in unpaid student loan debt out there
  • The jobs these graduates were told would be there are not
  • There are more and more degree programs out there
  • Tuition continues to increase out of step with the actual cost of the education to the college or university
The article makes the case that schools continue to hike tuition because they know the market will bear it due to the banks' open wallet.  The writer states: "Nearly seventy universities in the U.S. have endowments of over a billion dollars."  To what extent do they really need to increase tuition?

Keeping these graduates enslaved by debt does not help the economy, and is not good for America as a whole.  But what do we do about it?  Here are some ideas.

Force Banks to Adopt Realistic Lending Policies Towards Borrowers.  Should education debt be treated like any other kind of loan, like a mortgage or car finance?  Lenders need to be realistic, but in this world today you cannot expect to get ahead without a post-secondary education.  Would this lead to a more "have v. have-not" society where lower income families cannot educate their children because they cannot get approved for the financing?  Or would it be a matter of students going to the school they can afford, not the high priced one that accepted them?

Make Schools Responsible For Their Own Fraud.  Far too many students are being sold a bill of goods on the value of the education and training by some institutions.  Employment rates are over-inflated, along with the demand for graduates of the degree programs they are touting.  There are many stories on the Net about law school graduates suing their law schools for fraud because they were promised jobs that weren't there upon graduation.  What if the student, or the bank on their behalf, could go after that school for payment?

Make Non-Government Backed Student Loans Dischargeable.  Banks now lend money more freely for the very reason that they know that they can't get stuck with the bill.  On the one hand, they aren't getting paid now anyway, whether or not it can be discharged.  On the other, making them dischargeable could lead to the problem with the first solution, unless lending regulations for guaranteed student loans made it more likely that those still in need would get the money necessary for a good education.

Personally, I like the last option.  It would force banks to be more realistic about lending, and universities to be more realistic about what they charge, without more regulation and litigation.  What do you think?  What is the solution to the student loan debt crisis in this country?  Post a comment below and let me know!

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