Since 2010 the Federal Government (Department of Education) has been making nearly 90% or more of all student loans. Yet tuition and student debt has continued to skyrocket. Contemporaneously, The Education Department’s for-profit servicers of choice Navient f/k/a Sallie Mae have been sued multiple times for cheating student borrowers. (So much for government control and oversight). Private lenders have, in the past, engaged in predatory overreaching and abuse as well.
Yet amid such abysmal failures (private AND Federal) politicians and pundits myopically persist in attempting to find the right mix of funding (federal v. private) while ascribing to one of two disingenuously expedient political philosophies — “free market” competition (i.e. “Banks! If you loved what we did with the housing market, just wait til you see what we do with education.”) vs. unfettered “access to education for anyone who wants to go to college.” (i.e. “Give us your tired, your poor, your huddled masses yearning to be slaves to student loan debt forever and we will fund their education however unlikely their future success”).
Both points of view (conservative and liberal) willfully ignore the obvious solution to the student loan problem, and to their own detriment, an opportunity for political gain. The student loan industry , whether run by the Education Department, big banks — or both, is proven to be a failed market — failed because it is a false market, devoid of the type of true economic accountability needed to sustain any micro-economy. Until economic accountability is restored, this false market will continue to fail.
The only way to restore economic accountability in this false market is to require the lender to truly share in real market risk. CONGRESS should repeal 11 U.S.C. 523(a)(8) as to private AND federal student loans. The ability of student borrowers to more easily achieve a Fresh Start from their student loans in bankruptcy will cause lenders — whether private or federal to be more selective in terms of the students and programs of study they choose to underwrite. Fewer people will go to college and graduate school and that is a GOOD thing. (We have 95 Million eligible workers out of the labor force already). Obviously, not every student who seeks bankruptcy relief from their student loans post repeal would qualify but repealing 11 U.S.C. 523(a)(8) could serve to facilitate the only meaningful market correction sufficient enough to right the ship before it sinks.
Of course, the self-righteous “access” crowd will likely claim that heightened lending standards will only serve to squeeze out low income borrowers and prevent them from getting a college education. The flip side is that lending $50–200 K to a low-middle income student may actually work to ensure that millions of such students, burdened by massive debt, never improve their financial outlook.
At the end of the day, Trump (as President) would not have the power to ‘get rid of Federal loans,’ unless he intends to govern via the same extra-constitutional means as has President Obama, i.e. executive order, and Hillary has done NOTHING to help the plight of student borrowers. Given her unsavory ties to Wall Street, HRC is more likely to facilitate private lending notwithstanding her socialistic tendencies.