During the presidential campaign, then-candidate Donald Trump promised to “negotiate” a solution to the student loan debt crisis. “This debt should not be an albatross around their necks for the rest of their lives,” Trump said. “It’s not fair and we are going to fix it!”
Trump is right. Student loan debt is thwarting the creation of young families. It is delaying marriages and putting off the raising of children. It means that first homes and new cars are purchased much later, if at all.
The family is the key to American life, the American middle class, and the American economic engine. Trump’s choice of metaphors is an apt one; like the albatross in Coleridge’s “The Rime of the Ancient Mariner,” student loans are the burden that becomes a curse when hanging around the necks of millions of young Americans.
It would be wise for the new White House and Congress to move quickly to convert Trump’s enthusiasm for providing student loan debt relief into policies that will ease the pressure of rising tuition costs for future students. But the help shouldn’t stop there. Even before they address student loan costs for future generations, President TrumpDonald TrumpCapitol fencing starts coming down after 'Justice for J6' rally Netanyahu suggests Biden fell asleep in meeting with Israeli PM Aides try to keep Biden away from unscripted events or long interviews, book claims MORE and members of Congress can provide relief to today’s millennials, their families and older student loan borrowers by enacting legislation to restore bankruptcy protection.
My colleagues and I in the world of bankruptcy law witness the plight of student loan borrowers in trouble every day. We witness firsthand the cumulative effect of the fees, interest and penalties that push loan balances to several times the original amount.
Unlike virtually every other debt, student loans — both government and private — are generally not dischargeable in bankruptcy. Financially distressed borrowers face a lifetime of debt with little or no chance for escape, no matter how dire their economic situation.
How big is the problem?
According to the Federal Reserve Bank of New York’s 2016 Q4 “Report on Household Debt and Credit,” outstanding student loan balances stood at roughly $1.3 trillion as of December 2016, growing by $31 billion in the 4th quarter of last year. In 2016, 11 percent of aggregate student loan debt was 90 or more days delinquent or in default.
We know that unmanageable student loan debt can have devastating financial consequences for people of all ages, often placing ruinous burdens on borrowers in cities, suburbs and rural communities, and preventing middle class and poor Americans from using their education to build better lives for themselves and their families.
In fact, student loan debt is so crippling for millennials that young families often cannot get off the ground. Student loan debts dramatically deter new graduates from using the fruits of their education to start new and innovative businesses. The prospect of becoming a parent and taking on financial responsibility of a home mortgage (and, even more daunting, another human being!) is often so unimaginable that marriage is put off.
Bankruptcy attorneys see all of this every day, yet we also know what the solution is. The truth is that there currently is no real way out for Americans saddled with student loan debt when there is little realistic chance that debt can be repaid. For most other consumer debts, the bankruptcy system affords that remedy. But, that is not the case when it comes to student loans, where borrowers must overcome substantial hurdles if they need bankruptcy protection.
The National Association of Consumer Bankruptcy Attorneys (NACBA) flagged the troubling parallels between the rise of student loan debt and the mortgage crisis half a decade ago in 2012. Over the last few years NACBA has reported on the growing numbers of Americans who are now seeking help with unmanageable student loan debt.
Of course, it is true that not all student loan borrowers will need bankruptcy protection, and that a small number of other programs, including refinancing to lower interest rates and repayment plans based on the income of the borrower, are available to some borrowers under certain circumstances. But for every borrower granted assistance through a program, there are scores or even hundreds of others left with unmanageable or unrealistic payoff plans with no alternative.
To be sure, the student loan debt crisis is a multi-faceted problem and will require a number of tailored approaches to address it. Restoring the bankruptcy discharge for student loans is an important piece of the puzzle – a targeted solution that would provide immediate relief to the most distressed student loan borrowers.
Congress must act now to defuse the student loan debt bomb. The good news is that S. 729, The Fairness for Struggling Students Act, introduced in the last Congress by Senator Durbin (D-Ill.) and co-sponsored by several of his colleagues, would restore bankruptcy protection for private student loans. Also, H.R. 449, The Discharge Student Loans in Bankruptcy Act, introduced last year by Congressman John Delaney (D-MD), would restore bankruptcy protections for both private and federal student loans.
President Trump has taken the important first step of highlighting the student loan debt crisis, and making a sweeping policy proposal to cap student loan repayment plans at 12.5 percent of income. Now, it’s time for Congress to respond.
Doing so will be a real shot in the arm for the economy, and it will help ease the way for millions of young people to move ahead with their dreams of marriage, family, a first home, children, and all the rest of the American Dream.
Jim Haller is the president of National Association of Consumer Bankruptcy Attorneys.
The views of contributors are their own, not the views of The Hill.