28 January 2013

Whacking Student Loans

The easy way of getting a spike in readership is to use the words "student loans" in the title. I've done it again to direct readers to what's called the "Fairness for Struggling Students Act of 2013." Check the Huffington Post here. Three Democratic Senate co-sponsors, which suggests it's DOA but there might be a way forward with Republicans if it could be tied to a reduction in federal Pell Grants.

The article and Senator Durbin correctly point out that until 2005 only federal student loans were nondischargeable in bankruptcy; private student loans, like almost all other private debts, were fully dischargeable. As I've observed repeatedly (here and here) for example, making private student loans nondischargeable simply added to excess student borrowing through an indirect subsidy. This wouldn't be so bad if students were getting value for their money but in many cases, especially with for-profit institutions of higher "education," they're not. Forcing lenders to more accurately price student loans would in the end benefit students.

Pell Grants serve a different purpose but in the short run may also send students down useless paths and in the long run are fiscally unsustainable. Cutting back on Pell Grants just might be the fiscal sop to budget hawks for getting them to vote against the interests of their corporate supporters in the lending industry.

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