Skip to main content
Part of complete coverage on
 

Obama should push bankruptcy relief for student loans

By Anya Kamenetz, Special to CNN
updated 7:42 PM EDT, Thu April 26, 2012
President Obama discusses student loan debt this week at the University of North Carolina at Chapel Hill.
President Obama discusses student loan debt this week at the University of North Carolina at Chapel Hill.
STORY HIGHLIGHTS
  • The interest rate on student loans will soon double unless Congress acts
  • Anya Kamenetz says Obama showed concern over student debt during visits to colleges
  • But proposed relief measures don't go far enough; bankruptcy relief is needed, she says
  • Kamenetz: Bankruptcy relief is fair, a first step to more functional education market

Editor's note: Anya Kamenetz is a senior writer at Fast Company magazine and the author of Generation Debt, DIY U, and the free book The Edupunks' Guide.

(CNN) -- This week President Obama did a swing through some college campuses talking about student loan debt. The immediate issue is the 3.4% interest rate on federal student loans. It's set to double July 1 unless Congress acts. Keeping the rate low in this still weak economy is, as the president said, a no-brainer. Even his opponent Mitt Romney has endorsed it. But the larger problem -- mounting college costs and a cumulative $1 trillion in student loan debt — remains untouched.

Some recent polls have shown that support for Obama among young voters, once Obama's enthusiastic fans, may be waning in this election compared with four years ago. Student loans are seen by some as the president's chosen key to regaining their hearts. But really, the issue has been raised for him by the Occupy movement, gearing up this May 1 with a new set of actions focusing on the cost of college and the depredations of the student loan industry.

Additionally, almost 700,000 people have signed a petition sponsored by MoveOn.org for student loan forgiveness, started by lawyer and student-loan debtor Robert Applebaum. And the Student Loan Forgiveness Act of 2012, introduced by U.S. Rep. Hansen Clarke, D-Michigan, last month, is aimed at offering relief.

Anya Kamenetz
Anya Kamenetz

What's at stake here is the basic equation of the American dream: Hard work plus merit equals opportunity. As usually happens, hard times have led to cuts in support to public education and attendant tuition hikes. Young people are graduating into a dismal job market with an average of more than $25,000 in debt. Loan default rates were up sharply last year, and many graduates are questioning the value of their education. In eight years of covering and advocating for student debtors, I've never seen such a level of public outcry.

The president and his Department of Education deserve credit for keeping the heat on student loan and college cost issues, and not just at campaign time. Their most important move was probably the government takeover of the student loan market. As of July 1, 2010, all federally subsidized student loans — about 80% of the total — have been originated by the Department of Education. The deal ended billions of dollars in unnecessary subsidies to lenders like Sallie Mae and, in theory at least, empowered the government to set repayment terms friendlier to student lenders.

Obama pushes for the youth vote
Student loan interest rates to rise

Unfortunately, the measures proposed so far -- freezing interest rates, income-based repayment and public service loan forgiveness -- haven't gone far enough to improve the lot of students and recent grads. There are indications that the specialized repayment programs, designed to make loans cheaper for low earners and those employed by the government or nonprofits, are undersubscribed because of red tape and a lack of publicity.

There is a simpler way to cut the Gordian knot of rising debt and college costs, one that would help desperate graduates in the short term and lower the cost of college in the long term. The answer is bankruptcy relief for both federal and private student loans.

Since 1998, federally subsidized student loans have been non-dischargeable in bankruptcy, except in rare cases involving permanent disability or death. Since 2005, even private, unsubsidized student loans -- the fastest-growing, highest-cost type of student loan, tantamount to putting college on your credit card -- have been immune to bankruptcy claims, as well. Without bankruptcy, lenders have little interest in negotiating. Falling behind on your loans can spiral into a hellish decades-long nightmare of interest rates and penalties soaring many times beyond the original sum. For federal borrowers, the government can garnish your wages without taking you to court, seize tax refunds and even Social Security.

Allowing anyone who faces unreasonable student loan sums compared with their income to seek relief through the courts, as we do with every other kind of debt, would end the horror stories. It would also likely have several ripple effects. Private loans would decrease, and the federal government, facing a potential liability of $100 billion a year, would have a reason to get more serious about college costs and productivity. This could lead to, among other things, an expansion of the gainful employment rule, which sanctions schools that prepare very few of their students to be solvent.

In the long run, we'd probably see more innovative low-cost learning alternatives, such as the free online courses being offered by Stanford, Princeton, and MIT professors through the new ventures Udacity, Coursera, and MITx.

Bankruptcy relief on student loans isn't just fair, it's the first step to a more functional market in higher education.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Anya Kamenetz.

ADVERTISEMENT
Part of complete coverage on
updated 6:03 PM EDT, Tue August 19, 2014
It used to be billy clubs, fire hoses and snarling German shepherds. Now it's armored personnel carriers and flash-bang grenades, writes Kara Dansky.
updated 10:24 AM EDT, Tue August 19, 2014
Maria Haberfeld: People who are unfamiliar with police work can reasonably ask, why was an unarmed man shot so many times, and why was deadly force used at all?
updated 5:52 PM EDT, Mon August 18, 2014
Ruben Navarrette notes that this fall, minority students will outnumber white students at America's public schools.
updated 5:21 PM EDT, Tue August 19, 2014
Humans have driven to extinction four marine mammal species in modern times. As you read this, we are on the brink of losing the fifth, write three experts.
updated 7:58 AM EDT, Tue August 19, 2014
It's been ten days since Michael Brown was killed, and his family is still waiting for information from investigators about what happened to their young man, writes Mel Robbins
updated 7:58 AM EDT, Tue August 19, 2014
Sally Kohn says the Ferguson protests reflect broader patterns of racial injustice across the country, from chronic police violence and abuse against black men to the persistent economic and social exclusion of communities of color.
updated 8:42 AM EDT, Mon August 18, 2014
The former U.K. prime minister and current U.N. envoy says there are 500 days left to fulfill the Millennium Goals' promise to children.
updated 9:10 AM EDT, Mon August 18, 2014
Julian Zelizer says the left mistrusts Clinton but there are ways she can win support from liberals in 2016
updated 8:37 AM EDT, Wed August 20, 2014
Peter Bergen says the terror group is a huge threat in Iraq but only a potential one in the U.S.
updated 1:34 PM EDT, Sat August 16, 2014
Mark O'Mara says the way cops, media, politicians and protesters have behaved since Michael Brown's shooting shows not all the right people have learned the right lessons
updated 11:23 AM EDT, Sun August 17, 2014
Retired Lt. Gen. Mark Hertling says the American military advisers in Iraq are sizing up what needs to be done and recommending accordingly
updated 3:41 PM EDT, Fri August 15, 2014
Marc Lamont Hill says the President's comments on the Michael Brown shooting ignored its racial implications
updated 5:46 PM EDT, Fri August 15, 2014
Joe Stork says the catastrophe in northern Iraq continues, even though many religious minorities have fled to safety: ISIS forces -- intent on purging them -- still control the area where they lived
updated 6:26 PM EDT, Thu August 14, 2014
Tim Lynch says Pentagon's policy of doling out military weapons to police forces is misguided and dangerous.
updated 9:15 AM EDT, Fri August 15, 2014
S.E. Cupp says millennials want big ideas and rapid change; she talks to one of their number who serves in Congress
updated 7:57 PM EDT, Thu August 14, 2014
Dorothy Brown says the power structure is dominated by whites in a town that is 68% black. Elected officials who sat by silently as chaos erupted after Michael Brown shooting should be voted out of office
updated 7:49 AM EDT, Thu August 14, 2014
Bill Schmitz says the media and other adults should never explain suicide as a means of escaping pain. Robin Williams' tragic death offers a chance to educate about prevention
updated 11:05 AM EDT, Fri August 15, 2014
Nafees Syed says President Obama should renew the quest to eliminate bias in the criminal justice system
updated 4:24 PM EDT, Thu August 14, 2014
Eric Liu says what's unfolded in the Missouri town is a shocking violation of American constitutional rights and should be a wake-up call to all
updated 3:22 PM EDT, Wed August 13, 2014
Neal Gabler says Lauren Bacall, a talent in her own right, will be defined by her marriage with the great actor Humphrey Bogart
updated 6:56 AM EDT, Fri August 15, 2014
Bob Butler says the arrest of two journalists covering the Ferguson story is alarming
updated 4:35 PM EDT, Wed August 13, 2014
Mark O'Mara says we all need to work together to make sure the tension between police and African-Americans doesn't result in more tragedies
updated 4:06 PM EDT, Mon August 18, 2014
Pepper Schwartz asks why young women are so entranced with Kardashian, who's putting together a 352-page book of selfies
updated 7:08 PM EDT, Wed August 13, 2014
Michael Friedman says depression does not discriminate, cannot be bargained with and shows no mercy.
updated 11:25 AM EDT, Tue August 12, 2014
LZ Granderson says we must not surrender to apathy about the injustice faced by African Americans
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT