Much reporting on college education or student loans confuses or misleads audiences. One source that’s been particularly outspoken in the last couple months, The Wall Street Journal, ran a few articles worrying about the large sums of federal student loans going unrepaid, perhaps $200 billion. It’s a serious issue, but it’s important that student-loan debtors (and everyone else) recognize that their debt problems aren’t the same thing as the policy-sized issues facing the federal government. Your student loan crisis isn’t Uncle Sam’s.
Starting with student-loan debtors, the biggest problem is income: They aren’t earning enough to repay their loans. Sometimes the news will dismiss this fact by pointing to people with high debts also earning high incomes, e.g. graduates and professionals. That’s a poor comparison. Some people with low incomes have high debts and vice versa. Many debtors are in jobs that don’t use their credentials; others are in the right career tracks but are just underpaid.
There are many macroeconomic factors involved, but the WSJ and others reporting on the topic often ignore them. For example, in early June, it proclaimed that the government’s trillion-dollar fifteen-year investment in higher education had “backfired.” In April, it found that more than two in five student debtors aren’t making their repayments at all, thanks to a combination of generous repayment plans and forbearance options. Debtors owing as much as $200 billion of $1.2 trillion are behind on their payments.
The WSJ’s facts are right, but it’s omitting a lot. Since 2000, the U.S. entered a prolonged slump due to the housing bust. That led many people to go to school, borrowing money to do so. The economy never fully recovered, so whether the students finished or not, they never had the incomes to pay the loans. It may be that the federal loan program is too generous and even enables colleges and universities to hike their costs, but as it is the problem is income first, not debt.
The government’s student-loan problem is only a problem for debtors if the federal government decides to reduce the generous privileges it grants them—like income-sensitive repayment plans—to get them to pay more. There’s some evidence the government is moving in this direction with the REPAYE repayment plan.
The June WSJ article is here, the April one here (subscription required).
In the meantime, it’s true that for student-loan debtors, New York bankruptcy usually only helps indirectly, eliminating other debts to allow debtors to repay others. However, according to an older report from the Federal Reserve Bank of New York (pdf), student-loan delinquencies tend to coincide with delinquencies in other debts, amplifying the benefits of chapter 7. Chapter 13 can help debtors too.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy trustee actions Bruce Weiner for a free initial consultation.
