The author states several arguments that are so easy to poke holes in, its like trying to make a damn out of Swiss cheese.
1) “Bankruptcy could be a trap for young borrowers who unwittingly trade the appeal of immediate debt relief for an underappreciated cost: a 10-year stain on their credit profile that makes other borrowing virtually impossible.” I suppose the 7 year stain of defaulting and/or the similar 10-year stain of a judgement for the default loan is better? Lets not forget that unsatisfied judgments are renewable based on State law, often for 20 years. Bankruptcy takes that cloud away. Bankruptcy wins here!
2)”Another unintended consequence is a likely increase in the cost of debt for private student loan borrowers.” Like we care? Private student loans are just a bad choice. Go ahead and raise the interest. Strengthen the argument that private student loans are a dumb move. Of course that means many will not be able to afford the more expensive schools – let the Universities deal with the fallout of overpriced education, as they should. Another point for bankruptcy.
3) “Some policymakers seek to strip non-dischargeability from private loans while maintaining it for federal loans. Decoupling identical bankruptcy protections will create confusion for borrowers.” I’m fairly sure people aren’t confused. Federal loans offer workable affordable repayment options; private loans do not. Translation: we’ll keep paying our affordable Federal loans and discharge the inflexible Private loans. Go Bankruptcy!
4) “Why permit the discharge of a tiny percentage of the most creditworthy student loans while leaving the vast majority and least creditworthy loans subject to non-dischargeability?” Um, read above – Federal loans have affordable repayment options, Private loans do not. Point for bankruptcy again.
5) “Finally, private loans are dischargable today. Under current law, private student loans may be discharged when borrowers demonstrate economic hardship. The bar for judges to grant economic hardship and discharge is rightfully high to protect borrowers from the moral hazards and negative consequences of bankruptcy early in their lives as independent consumers. Importantly, the very small group of borrowers who truly need immediate relief can get it.” I’m not even sure where to start on this. Perhaps if the author was familiar with case law, he could see how idiotic this argument is. The people who most need the relief are not those who meet the (Brunner) test, it is those who do not; those who are employed and can’t maintain a reasonable standard of living because Private lenders refuse to offer affordable repayment options. Bring back bankruptcy discharge and perhaps lenders will wise up. Bottom line, borrowers want yo pay their loans, give them affordable options and start limiting how much they can borrow WITHOUT co-signers. If they can’t afford a particular school, too bad. It’s time schools start competitive pricing for the middle income students. Checkmate bankruptcy!
My formal response left on the opinion’s website was this:
This is by far the dumbest piece I’ve read against bankruptcy discharge for private student loans. My clients are drowning, bankruptcy discharge is the only option. no one wants to file bankruptcy, but the negative consequences outweigh an unaffordable debt hanging over their head for the rest of their lives. how is a bill of $500 to $1,000 ever affordable in this economy? Ten years of credit damage (another false statement in the article) is worth it to many for the hope of eventually normalcy. Perhaps if lenders stopped overextending credit, payments could be manageable. But when a lender loans $100k to a student majoring in physical fitness, who upon graduation barely makes $30k a year working in his field, bankruptcy is the only option – because the lender REFUSES to offer affordable payments.