Bring Back Bankruptcy For College Debt

Yale College

by Richard McCarty: For generations, the Republican Party has struggled with the youth vote and much time has been devoted to hand-wringing over this fact. One thing that does not help is when conservatives are unable to empathize with college graduates staggering under the weight of student debt. Some solely blame these students for their debt, ignoring the roles that other people and the government have played.

One way that conservatives might begin to make some appreciable progress with Millennials and now Generation Z would be to advocate for reforming bankruptcy laws to make it easier for students to discharge college debt — legal changes over the past few decades have made it very difficult to do so.

After all, why should college debt be treated any differently than credit card debt? In the past, credit card companies received substantial criticism for luring young people into applying for credit cards with high interest rates. But which is worse, giving students a high-interest credit card with a $500 limit or selling them on a four-to-six-year education at a third-rate school that costs $35,000 a year?

While making it easier to discharge college debt, other policy changes should be made as well. Of course, there should be limits on bankruptcy to discourage students from acting in bad faith; but when graduates cannot find decent jobs seven to ten years after leaving college, then maybe the college either made a mistake in admitting the students or failed to adequately educate them. Furthermore, college loans should be reprivatized, and colleges should be forced to share losses with lenders when a former student discharges debt.

By making these changes, colleges and lenders would be incentivized to change their behavior. Colleges would likely rein in unnecessary expenditures, offer fewer frivolous majors, and raise admissions standards. Lenders would likely take a greater interest in students’ academic backgrounds, college selections, and choices of college majors. Rather than wave as many students through the campus gates as possible, colleges and lenders would suddenly have a reason to make sure that students are a good fit for the school and are pursuing a degree that will likely enable them to repay their loans.

To be sure, students do deserve some responsibility for their poor choices, and even if college debts were dischargeable under bankruptcy law and lenders were privatized, they would be. The choice of what to study, whether they completed their degree program are all decisions that employers will hold them accountable for later when they apply for a job.

But there is plenty of blame to go around. Students do not make their unwise decisions in a vacuum. Too often, these students have been ill-advised by parents, grandparents, peers, teachers, guidance counselors, academic advisors, politicians, etc.

Beyond changes in government policies, society should change the way it treats young people.

• Schools should stop assuming that virtually all students should go to college and pressuring them to do so. For example, when you talk to high schoolers, ask them about their plans for the future — not which college they plan to attend.
• Students should be given time to make college and career decisions. If they are unsure of what they want to do, students should be encouraged to get a job, acquire some experience, figure out where their talents lie, and then, perhaps, further their education.
• High school graduates who start their own businesses, take apprenticeships, or pursue vocational educations should be applauded too, not just those rushing off to college.
• Employers should be more willing to consider non-college graduates for entry-level jobs. This is critical to changing the culture pushes young people into colleges. The unemployment rate for those with college degrees 25 years old or older in June was 2.1 percent, 3.0 percent for those with some college and 3.9 percent for those with no college. Yet many of the jobs being applied for do not require a college education.

College is a major decision for young people, and we should not be surprised when they sometimes make a mistake. Just as the law allows people to discharge credit card debt after foolish spending binges or business debt after a business fails, the law should allow graduates to discharge college debt if they are unable to find a decent job years after graduation. Advocating for such reform just might help conservatives win Millennial votes — and keep them from embracing the socialist promises of “free college.”
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Richard McCarty is the Director of Research at Americans for Limited Government Foundation.

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