The high cost of higher education and the non dischargeable nature of student loans have the capacity to ruin lives just as much as to improve them. We encourage kids to go to college and we make loans freely available to pay for it. We don’t tell them that this choice, made before they get educated, will be with them for the rest of their lives as the Supreme Court recently decided that Social Security can be garnished to repay student loans.
There are few other choices we allow 18 – 21 year olds to make with such inescapable consequences. Tuition alone at the University of California is $9,000 a year. Add books, health care, room and board and the figure is probably close to $20,000. Private schools are double or triple that number. Student loan balances of $60,000 to $100,000 are not uncommon.
In 1998, Congress decided that there would be no statute of limitations on government guaranteed student loans and no discharge of these loans in bankruptcy except under the direst of circumstances.
In 2005, Congress added privately funded student loans to the list of debts that could not be discharged in bankruptcy.
As the commercial says, “diamonds are forever”. So are student loans.
I understand the policy arguments: student loans can be made without regard to present ability to repay if there is no option but to repay them. Education becomes more widely available to all.
I don’t believe we are adequately advising our children before they take on huge debt. Payments on student loans can equal or exceed a typical mortgage payment. Defer payment on the debt and the interest is added to the principle of the loan, on which more interest is charged. Employment choices and family choices are dictated by the need to repay the loan.
Our current legal standard for discharge of student loan debt, the Brunner factors, permits only the most minimal standard of living if the borrower wants to discharge the debt. There is something perverse about encouraging graduate education, then telling the borrower that if he and his family live at anything much above the poverty level, they can afford to repay the student loan.
One of my clients was a recent graduate of a very expensive private university; her degree was in art history and her debt in today’s dollars was $150,000. She was finding it difficult to get a job that would pay her $30,000. She probably hadn’t made a very good economic choice when she chose either the school or the major. Yet she was stuck with that loan for the rest of her life.
Another client was a psychologist, with a doctorate, working in his field at 52. His student loans were approximately $250,000. When he chose his field, psychologists were typically self employed, fee based professionals with earning capacity akin to MD’s When he got out of school, the field had dramatically changed; managed care had replaced private practice and annual incomes cut by 75%. Yet he was obligated to pay for an education in a field that for all economic intents and purposes was not the one he selected as a freshman.
We owe our kids more flexibility in their lives. Whether it is the kid whose interest changes over a lifetime or the economy that changes, student loans should not shackle them for the rest of their lives.