For decades, the U.S. system of higher education has operated on a unique premise: To make college affordable for a broad swathe of Americans, student debt must be an almost inviolable obligation.
Now, authorities are starting to question that assumption. It’s about time.
Capitalist societies have long taken a forgiving approach to people who can’t pay their debts.
Student debt is a rare exception. In the 1970s, spurred by stories of college graduates reneging on federal loans, Congress granted it special status. Unlike other obligations, such as credit-card balances, it can’t be discharged in bankruptcy unless it imposes an “undue hardship.” Courts narrowed that escape route further, in some cases demanding that borrowers demonstrate a “certainty of hopelessness” - an almost impossible standard to meet. As a result, debtors almost never seek relief.
Those precedents, though, were set at a time when student debt wasn’t the big deal it is today. As federal aid - which once covered as much as 77 percent of a public-university degree - has failed to keep pace with expenses, educational debt has surpassed auto and credit-card debt to become U.S. households’ second-largest obligation after mortgages.
The burden has fallen particularly heavily on the poor, who have all too often invested in education only to find themselves unable to complete a degree or cheated by for-profit institutions.
Those who can’t pay are relegated to a modern-day form of debtors’ prison. Interest keeps accruing, so balances can balloon many times over.
Even borrowers fortunate enough to qualify for federal income-based repayment plans, which cancel remaining debts after 20 to 25 years, face a tax bill for the forgiveness. This is precisely the situation that bankruptcy was designed to address.
The U.S. needs a better way to make higher education broadly accessible.
For now, though, the existing debts loom large.