Forbes recently reported that there are more than 44 million borrowers with a combined $1.3 trillion in student loan debt, and the average student in the Class of 2016 owes $37,172 in student loans. Given the enormity of these figures, we now find more and more talk about “forgiving” student loans. In October, on the heels of Bernie Sanders’ vigorous primary campaign to make college tuition-free and debt-free, even Donald Trump opined: “Students should not be asked to pay more on the debt than they can afford … And the debt should not be an albatross around their necks for the rest of their lives.”
So why is the path to forgiveness so full of obstacles? Why is this specific kind of debt so “unforgivable”? Of course, lending money and repaying loans (with interest) is a central feature of just about any economy, but in the US, when loans go bad, debtors can usually seek relief under bankruptcy. They can’t do so, however, if the loans in question are student loans. How is it that students have been designated as a specific class of people who stand beyond the reach of “forgiveness”? And, given the intractability of student loan debt, might we not think of an altogether different way of looking at student loans that would remove them from this heavily moralistic language and be fairer to these particular debtors?
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Arguments for the Forgiveness of Debt
Progressive theologians have long argued that the Hebrew Bible and New Testament both offer frameworks for the mass cancellation of debts (Jubilee). A recent article in Christianity Today argues that “it is not accidental that when Jesus talks about the forgiveness of sins, his illustrations often involve the forgiveness of debt. ‘Forgive us our debts,’ he taught us to pray, ‘as we forgive our debtors.'” And Tikkun Magazine devoted an entire special issue in Winter 2015 to the idea of Jubilee and debt abolition, featuring theologians’ and activists’ ideas for putting into practice the biblical call for “the cancellation of all debts and the equal redistribution of property every fifty years.”
But beyond the spiritual arguments for debt abolition, there are pragmatic and economic arguments for it, too. The Brookings Institute acknowledges the pros of forgiving loans under bankruptcy: “Bankruptcy can have many benefits when used judiciously. Most consider it essential to credit market operations because it arbitrates creditor claims against the borrower. Bankruptcy also promotes debtors’ post-bankruptcy productivity by giving them the opportunity to start anew, unburdened by pre-existing debt.”
Indeed, beginning at the start of the 19th century, Congress began to enact and repeal bankruptcy laws in rhythm with the nation’s economic cycles, and debt forgiveness became a useful tool in managing the economy.
So what about student loans? Why can’t they be forgiven? And since obviously only students and their parents take out student loans, for the sake of getting an education and then becoming “contributing members of society,” why are they singled out as particularly unworthy of forgiveness?
The History of Punishing Student Borrowers
The exclusion of student loans from bankruptcy can be traced to a very specific time in US history — the mid-1970s. Some analysts believe Congress invented that exclusion to punish antiwar and anti-authoritarian protesters who were seen as spoiled middle-class kids. Finance expert Mitchell D. Weiss shares this view, writing, “The notion of ‘elitist,’ ‘ungrateful’ young borrowers became a part of the narrative.” For a while, though, some loans, under some conditions, still qualified for discharge. That came to an end when the Bankruptcy Amendments and Federal Judgeship Act of 1984 excepted all private student loans from discharge.
Then the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it so that no student loan — federal or private — could be discharged in bankruptcy unless the borrower could prove that repaying the loan would cause “undue hardship.” But this has been described as “a condition that is incredibly difficult to demonstrate unless the person has a severe disability. That essentially lumps student loan debt in with child support and criminal fines — other types of debt that can’t be discharged.”
Two Sets of Citizens
In this way, students are saddled with a special debt burden while others remain able to seek relief from debt under bankruptcy laws. Not only are those with student loans burdened by this special, unique vulnerability, however; to add insult to injury, some of those on the other side — those who can declare bankruptcy and erase their debt — routinely take on the identity of “bankrupt” as it plays to their advantage. This creates an extremely unbalanced and unfair system of “forgiveness”: our society is willing to tap into public money to bail out some and not others. Simply put, some are considered more valuable members of society. Investing in education takes a backseat to investing in real estate, for example.
Consider the president of the United States. According to The Washington Post, “Trump’s companies have filed for Chapter 11 bankruptcy protection [at least six times], which means a company can remain in business while wiping away many of its debts. The bankruptcy court ultimately approves a corporate budget and a plan to repay remaining debts; often shareholders lose much of their equity.” This kind of behavior is ironically relabeled as “responsible,” for Trump is portrayed as merely taking advantage of existing laws. The same thing happened during the debates when Hillary Clinton tried to shame Trump for paying no income tax. While she decried this fact, his campaign lauded it: “Mr. Trump is a highly-skilled businessman who has a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required.”
Two things stand out: Trump scored a point during the debate when he argued that he was not being “smart” rather than evil, and he turned the tables on Clinton — if she objected to the law he took advantage of, why did she, as a member of Congress, not change it? For that, Clinton had no answer, and probably for a good reason — she herself benefits precisely from the same tax code.
Here is where we reach an important divergence in our sense of who is worthy of forgiveness and who is not in terms of our sense of civic duty. Trump won in part on the idea that he was a businessman, not a politician. His reputed success in business could be transferred into politics. At that moment, an entirely new mindset was implanted into the body politic: the ability to imagine a presidential candidate not as an elected representative but as a “fiduciary.”
It’s important to note that fiduciaries are responsible not to the citizenry but to the business elite. Fiduciaries are responsible for the wellbeing of their corporations — and this prioritization is now an alibi for exploiting every loophole possible. But even more than that, in the political realm, this means creating loopholes that will perpetuate the wealth and wellbeing of corporations, regardless of the cost to the nation. Banks are deemed “too big to fail” and bailed out, while those with student loan debt are left unforgiven and unforgivable.
During the campaign, Trump did come forth with a proposal, which he has yet to present as president. Essentially, his proposal was to raise the cap on the amount of student loan payments for those unable to pay their loans. Currently, under the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) income-driven repayment plans, debtors must pay 10 percent of their discretionary income toward loan servicing. After 20 years of payments, the remaining balance of a federally insured student loan is forgiven (for graduate students, the time period is 25 years). Under Trump’s pre-election proposal, the cap would be raised to 12.5 percent of monthly income, and after 15 years of payment the loan would be forgiven. This proposal does not, however, take into account that many people suffering under debt have difficult enough lives in the short run, and that depriving them of more money now can have devastating effects on their ability to live day to day.
Meanwhile, this works to the lender’s benefit.
Even at present, without Trump’s plan, The Hill notes:
The Department of Education is sitting on well over $1 trillion in loans, and is booking some $50 billion in profit per year on the program, probably far more than that in more recent years. What is worse: In the absence of bankruptcy protections, statutes of limitations and other bedrock consumer protections, the federal government is actually making a profit on defaulted student loans — something that no other lender for any other type of loan can claim. And make no mistake: The department fights tooth-and-nail behind the scenes to keep bankruptcy gone from student loans.
And it gets even worse, with the Washington Post reporting that “days after a report on federal student loans revealed a double-digit rise in defaults, President Trump’s administration revoked a federal guidance Thursday that barred student debt collectors from charging high fees on past-due loans.” This news thus casts light on the aspect of Trump’s plan that raises the amount of disposable income an individual with a student loan has to pay out each month in debt service. There will be no mercy here, and one should note that the shortened path to forgiveness is by no means guaranteed. It’s a plan basically to get more money into the hands of lenders more quickly.
And whom is it taking money from, more precisely? The fact is that those most in debt are lower-income students who have been exploited by for-profit schools. This point cannot be emphasized enough — lenders and the federal government itself are profiting off student loans taken out by poor people who are trying their best to improve their situations and succumb to the marketing of for-profit schools that promise much more than they offer.
Education Should Be a Public Good, Not a Private Investment
Some conservatives, as well as liberals such as Elizabeth Warren, argue for forgiveness of student loans. Most venture the same kind of reasoning as Ike Brannon of the Cato Institute, who has argued that “The bankruptcy exclusion for most student debt is bad policy and leads to lousy outcomes.” The solutions suggested by conservatives like Brannon, however, would result in schools selecting students based on their likelihood of repaying their loans.
Forgiveness of student loans, in and of itself, is not enough to remedy the current inequalities and injustices of our education system. We also need to make public education free. Robert Samuels, author of the book, Why Higher Education Should be Free and someone who helped influence Bernie Sanders’ free college proposal, argues that forgiveness of student loans and free public higher education are affordable. He told Truthout, “We are currently spending enough federal and state funds to make public higher education free for all students; the problem is we are spending so much on for-profit colleges, wealthy private universities, and tax breaks and credits for the upper-middle class. It is not a question of money: it’s a question of priorities.”
Those priorities become clear when we change our view of student loan debt and remember what education is all about in the first place. Rather than trying to square the issue of student loan forgiveness with economics, or the morality attached to forgiving debtors, it makes better sense to think of higher education as a public good and a human right. This point is made by Laura Hanna and Ann Larson, the founders of the Debt Collective, a group that, in 2015, led the resistance against schools run by the for-profit Corinthian Colleges company. “The right thing to do would be to issue a classwide discharge,” Larson told Bloomberg, arguing that the millions of Americans who are severely late on their student loan payments should “revolt” and seize power by refusing to pay.
Hanna and Larson have argued that in order to expand their political power, people need to start framing higher education as a public good, making the case that a well-educated citizenry adds to the health of not only the economy but also of the social and political worlds in general.
Article 26 of the Universal Declaration of Human Rights includes this language: “Everyone has the right to education … Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms.”
In this vision of education, we find a common interest in building a society, and improvements in individual lives are inseparable from the enhancement of social good. Why then, should individual students, in seeking to improve their situation, be the only ones responsible for paying for this indispensable right?