Welcome to a discussion about the upcoming 5th Revolution in the US, which I’ve titled the “Revenge Revolution.” For more about the Revenge Revolution and the author, Entry #1 Periodically I write a “sense check” to assess whether a revolution in the US is possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US. Entry #430 was the most recent “sense check.”

BEGIN ENTRY #461. President Biden has proposed a program to reduce outstanding student loans by up to $20,000 for many middle- and limited-income families. Surprise, surprise, this proposal has many Republicans up in arms.

Before addressing the merits of such a program, let’s take a look at what’s available to companies and individuals who have too much debt relative to income, other than debt from student loans.

Companies with too much debt compared to income have an option called Chapter 11 bankruptcy. The cause of why the company has too much debt can range from bad luck to bad economic times to bad management, which is usually the cause.

While the cause of too much debt might influence whether existing management remains in place, the cause does not prevent the company from filing for debt relief under Chapter 11.

One company that seems to be quite familiar with Cha11 is the Trump Organization.  Trump has filed for Cha11 SIX (6) times.  For Republicans opposed to forgiving some portion of student debt, Trump’s bankruptcies somehow must be different.  Think about it. How could a business genius like Trump be forced into bankruptcy? Someone else must have been the cause since the Donald never makes mistakes. 

OK, I’ll stop the sarcasm. But the facts are straightforward – companies and individuals can file for bankruptcy, have debts significantly reduced or eliminated and start fresh.  Companies and individuals get debt relief even if an individual or management has made incredibly unsound financial decisions.  There’s only one exception – student loans are not relieved/eliminated under the bankruptcy laws.

That’s right. Student debt cannot be reduced or eliminated by bankruptcy.  Even if all other personal debts are excused, student debt remains.  Further, interest rates charged by the lender – usually a 3rd party and not the government – are often substantially above market rates.  Student borrowers have little or no recourse against unscrupulous lenders.

Who are the major players attracting prospective students to take on debt for “education“?  I’m sure you’re shocked but often the most aggressive are for-profit “universities.” Some examples include ITT, University of Phoenix and, of course, Trump University, which is now defunct after a being forced to close for fraud.  There are other for-profits as well – cosmetology schools, for example. 

The for-profits are not alone.  Some not-for-profit academic institutions have aggressively pursued students needing loans.  However, for-profit universities have a major incentive to attract prospective students with limited knowledge and/or marketable skills, keep students in school as long as possible and provide as little staff support as possible.  And why not? Students can increase ROI and the risk to the for-profit university is minimal. Once a student takes on debt, the for-profit university has created an annuity.

In what has become true Republican fashion, discussions about the merits/drawbacks of student debt reduction program (not complete debt relief for most), have been directed at blaming the student for the entire problem.  After all, the student signed the paperwork.

Is the student to blame? Partially but blaming the student for the entire problem is like blaming someone for a car accident who has never been taught to drive.

If we, societal we, want to retain Chapter 11 bankruptcy for businesses in Chapter 7 for bankruptcy for individuals to relieve debt, then we need to make some provision to relieve a portion of student debt. END ENTRY #461

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