Tuesday, May 12, 2015

Should student loans be dischargeable in bankruptcy? (Michael Simkovic)

In the Wall Street Journal, Professor Adam Levitin of Georgetown argues yes for private student loans and no for federal student loans, since the latter have debt forgiveness options already built in.  More discussion at credit slips. Those  interested in student loan issues may also enjoy Risk Based Student LoansPhilip Schrag's work on Income Based Repayment (here and here), or Rafael Pardo's work on undue hardship discharge, and a related empirical study by Jason Iuliano.  Jake Brooks also has an interesting new article coming out on student loan debt forgiveness as a pseudo-income-tax for funding higher education.

The classic argument against discharge of student loans in bankruptcy is Thomas Jackson in the first edition of The Logic and Limits of Bankruptcy Law.  Jackson wrote:

As a general rule, college and graduate students have few current assets but large future income streams. Using bankruptcy is relatively painless to them, as they have few assets to lose, and obtaining a discharge offers a substantial benefit, as it frees up the future income stream from the substantial obligation of repaying a student loan.


Guest Blogger: Michael Simkovic, Of Academic Interest, Weblogs | Permalink