"The roughly two-thirds of U.S. students who take out loans to finance their college education can end up in a situation most resembling the historical concept of indenture. In medieval times, peasants would sign deeds to work land, which would then get cut in a jagged line (looking like teeth, or “dentures”). Each party would get half, and rejoining them would prove the authenticity of the contract. Colonial indentures would trade years of labor for the opportunity of transportation to the New World. The indentured could not alter the terms of the contract, no matter their circumstances. One way or another, the debt would get paid. This is basically how student loans work. A college student might remember freshman orientation, when an instructor told them to look to their left and right, explaining, “One of you won’t graduate.” But student loans aren’t extinguished for those who don’t finish college; instead, the debt becomes a burdensome reminder of this early mistake in life. This is also true for students snookered into matriculating at sketchy for-profit colleges, which offer almost no marketable skills or career preparedness to justify the cost. And it further describes recent college graduates who, through an accident of timing, entered the real world during the Great Recession and its aftermath, finding it difficult to obtain work in their field of study... The principle that bankrupt individuals should get a second chance at a fresh start has been established for hundreds of years; there’s no reason for student loans to be exempt. Law professor Bob Lawless believes that returning to the 1976-era treatment of student debt in bankruptcy, or even with a 5-year waiting period to deal with the moral hazard issue, could put downward pressure on the cost of college. “Lenders and schools aren’t bearing the financial costs of the bankruptcy laws, students are,” Lawless told Salon. If lenders had skin in the game on student debt, they might force schools to deliver a better product and ensure their income streams. Ultimately, keeping college affordable is the answer. Costs are far outpacing inflation, and even fallbacks for lower-income students like community colleges have seen a dramatic loss of government funding support. Reducing student debt goes hand-in-hand with reducing the need for student loans. At $50,000 a year, the wage premium that college graduates get over their peers is almost not worth the pain and stress of overwhelming debt. And that exacerbates inequality, as economist Joseph Stiglitz points out. The wealthiest opt out of the student debt cycle, while the rest have to gamble with huge financial burdens in the hopes that they graduate and succeed. You can make the argument that rising borrowing has exacerbated college cost escalation, with no improvement in the finished product. This entire system must be overhauled. Otherwise, it will continue to damage our economy by indenturing talented students, our greatest renewable resource."
Posted on: Wed, 05 Jun 2013 12:23:54 +0000
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