Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Student Loan Debt a False Crisis that could easily be Solved

There is now $1.1 trillion in unpaid student loan debt in the United States, according to the U.S. Consumer Financial Protection Bureau. The debt is harming millions of Americans, including 706,000 older Americans who could have their Social Security payments garnished to pay off student loans.

Student loan debt harms younger people and the economy by eliminating their ability to buy homes and reducing spending power. In the worst case scenario, it can even drive people into poverty.

The worst part of the student loan debt crisis is that it would be easy to solve. Congress could end this nightmare quickly and easily by simply allowing people to write off student loan debt in bankruptcy. Part of the reason why student loan debt is so insidious is that it cannot be written off in a bankruptcy.

Student loan debt is like a zombie – it cannot be killed and it keeps coming back. Worse, it never goes away and often grows because of interest.

Since it is obvious that a large percentage of that student loan debt is probably uncollectable, allowing borrowers to get rid of it through bankruptcy would be the best solution. The problem is that colleges don’t want to do that because they don’t want to admit that their degrees are worthless.


The student loan debt crisis shows what is so wrong about the U.S. financial system these days. We have a legal system that rewards and encourages irresponsible lending, but punishes irresponsible borrowing. By making it impossible to discharge student loans, the system encourages colleges to issue worthless degrees and lenders to make irresponsible loans.

If colleges and universities knew students could not easily get loans, they might think twice about issuing degrees in Serbian literature or multicultural studies. If lenders knew they would never be able to collect, they would not write loans for questionable degrees in the first place.

Congress needs to take four steps to end the artificial student loan crisis right now:

  • First, it needs to amend the bankruptcy laws so student loan debts can be discharged by bankruptcy. Persons burdened by excessive student loan debt could simply extinguish it by declaring bankruptcy.


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  • Second, it needs to make it illegal to garnish any government benefit for student loan repayment, including Social Security, veterans’ pensions, and unemployment insurance. That way, low income people wouldn’t have to worry about bureaucrats taking their benefits to pay off a loan.


  • Third, it should put an expiration date on student loans. If the loan is over 20 years old, it should simply be written off and it should be illegal to collect it. That way, a person will not have to worry about paying off his student loan even as his kids are thinking about college.


  • Fourth, the practice of parents taking out student loans for children or grandchildren should be discouraged, if not banned. That way, student loan debt would not be a burden on two different generations.

America needs to stop rewarding irresponsible lending and start giving its victims a break. If we don’t, we could be heading for economic disaster that could destroy a lot of innocent lives.