Government and Student Debt

In an article on the possibility of the Federal government extending its current moratorium on student debt repayment, The Wall Street Journal posed a question to its readers.

How should Congress address the backlog of student-loan payments borrowers will owe after Sept 30?

I say, mostly by leaving it alone. The loans are strictly business arrangements between the borrower and the lender.

In a free market economy, government has no role here, other than to allow student debt to be discharged through bankruptcy like most other debt. Such bankruptcies then must flow with all the ramifications they entail for both the lenders and the borrowers.

Government also should stop guaranteeing student loans. If there needs to be a guarantor in order to have a student debt market at all, let the colleges and universities be the guarantors, either individually or via a consortium. It is, after all, the colleges’ and universities’ high prices and non-marketable or low-income-producing majors that drive the difficulties graduates have with their student debts.

2 thoughts on “Government and Student Debt

  1. Student loan debt is specifically not discharged under bankruptcy. The provision was included in the bill which centralized student loans in the government as a sop to those who warned of massive default and a resulting government loss. There are periodic calls to change that, because “it’s a hardship” on the poor ex-students.

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