President Biden recently announced a long anticipated Federal Student Loan forgiveness program that has stirred considerable debate. Several clients and friends, knowing that the issue is something I deal with professionally every day, have asked for my thoughts on the matter and so here they are.
In my law practice we focus on “what can we do today?” to achieve positive outcomes for clients. We navigate current laws to benefit our clients to the greatest extent possible. Arguing to the court what the law should be benefits our clients little. Trial judges don’t make laws any more than we do. They too must follow laws that do not make much sense or that no one agrees with. Accordingly, our client work is always about what can we do right NOW to make things better for our clients TOMORROW.
In the course of that work, one gets a “boots on the ground” view of what is really happening and naturally provides some experiences and insights that most people do not have the benefit of. This “front seat” vantage point of the carnage that is student loan debt, inevitably compels one to focus on real world solutions that can have an impact TODAY.
The financing of higher education in general, and student loan debt resolution specifically, is a very complex issue. Student loans have been around for over 50 years and there have been many changes to them over that time. They have morphed into something almost unrecognizable from the student loans I got over 40 years ago. The hot topic today is “fairness” and interestingly, much of what I am promoting here is simply a return to the “fairness” that previously existed for federal student loans and has always existed for other types of debt.
So here are four specific, concrete steps that can be taken to better manage and resolve student loan debt. Like most favored solutions they are quite simple. I also think they would be universally accepted by most Americans. To be sure, they are not going to solve all problems, but they are four simple straight forward steps in the right direction that can be implemented quite easily.
- Certain types of income such as social security, VA, and other similar benefits should be exempt from being attached when a student loan debtor defaults. Private lenders cannot get these funds under any circumstance and nor should the federal government. I suspect that most Americans don’t even know this, but the federal government can take grandma’s social security benefits to repay federal student loans. Stop this right now. I doubt there would be much disagreement about this among the American people.
- Apply a statute of limitation to federal student loans (they already apply to private student loans). [For those that do not know what a statute of limitation is: it is longstanding law that requires anyone with a claim against another, to assert it within a certain period or lose the ability to make the claim]. I’m willing to bet that most Americans have no idea that the federal government can pursue student loan repayment at any time for the rest of the student loan debtor’s life. This was not always the case. In the 90’s the statute of limitation for most federal student loans was removed, and this dramatically and fundamentally changed the loans. Put it back in place. Again, I’m willing to bet that most Americans would have no problem with this. Even taxes have a statute of limitation.
- To those that qualify, make bankruptcy available to student loan debtors (federal and private) like they were previously! In 2005 the federal government took away this right for 99.9% of all bankruptcy filers. Bring it back. Make it harder to discharge than credit cards if you want but make it available to those that qualify. Any lender will lend to just about anyone if that borrower can’t file bankruptcy on them. Add to this the ability to pursue the borrower forever, AND the ability to seize government benefits like social security, and lenders will underwrite ANY loan to ANY borrower. This change would be so easy and quick because it previously existed a mere 17 years ago. The result would be people who are genuinely in financial distress would get relief. Again, most Americans will accept that if you qualify for and follow the bankruptcy process and bear the consequences of that, student loan debt can be and should be, discharged or “forgiven”.
- Force the federal government to use the due process of the court system to collect monies. It cannot reasonably be disputed that many of these loans are predatory, abusive, and should never have been made. It is incredibly difficult to contest federal student loans. Let’s improve due process and use the courts to solve disputes between lenders and debtors. Make the federal government do what private lenders must do: take you to court! Prove the claims! Give consumers the opportunity to be heard and defend themselves, in a real way, an American way. Give them a jury, or at least a judge. We decide credit cards and medical bills in this way, but not federal student loans? Again, this would be easy to do. Again, I doubt most Americans would have an issue with this.
These four simple changes can be implemented right away and almost every citizen could agree with this process… or would at least accept it as reasonably “fair”. This is because we already do agree to this process for virtually all other types of unsecured debt. It is a case-by-case approach to resolving debt. Legal systems are already in place and have been for hundreds of years. Lenders, including the federal government, would be forced to make “better” loans and do a better job of underwriting. They would have to follow an accepted and well-defined process to determine who gets relief and who does not.
There are many other changes we can debate that may not be so universally accepted. For example, everyone understands the wisdom of “following the money”. Who got the money? Are they being held accountable? For example, years ago a student loan used to be a loan to pay tuition. Today a student loan is a loan to a student. Did the money go to the student’s pocket or to the school’s coffers? This is a big difference. Responsibility should attach to where the funds actually went.
Another money issue is the reality that without adequate controls, schools can and do take advantage of the easy money student loans provide them. Many times, they do not provide the corresponding value of a useful education. Make it easier for students to hold the schools accountable for the money the student borrowed and handed over to the school. Make it easier to hold lenders responsible for the bad loans they approved (typically with little to no due diligence). All the parties to varying degrees, bear some responsibility for the failures of our current student loan system: borrowers, lenders, and schools. Let’s see some responsibility and accountability attributed to each.
In my experience, most people with student loans are not trying to get out of anything. They want to pay what they owe. They also wanted to have basic rights in the process. Basic benefits must be protected. Real due process needs to be reinstated. The continuing failure to fix the problem is hurting our economy and many families every day. Everyone would benefit from an intelligent process of making and resolving these loans in an even-handed way.
By simply reversing past mistakes we can start to fix the financing of American higher education. The four points I detailed only require the federal government to return rights to citizens that citizens had when I went to school in 1980. Let’s restore due process. Let’s restore the evidence code, and the bankruptcy code, and the statute of limitations. It is so simple that I don’t understand why it is not already under serious consideration by the people in charge on this country. The only thing I can think of is that those who are profiting from the current system have more power and influence than the borrowers and taxpayers left paying for these loans.
If you have other questions, please contact Fitzgerald & Campbell, APLC. Our professional law corporation is highly experienced with student loan debt. So far, in 2022, we have eliminated over $12 million of client debt, and we are well versed in what debt collectors are and aren't allowed to do. Please call (855) 709-5788 or contact us online for a free consultation.