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The Origins of the Student Loan Crisis

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As a companion piece to some of Paul’s recent work, Maureen Tkacik has a terrific piece about a few random anecdotes being parlayed into student loan debts being made uniquely non-dischargeable:

But then, in 1978, the bill went to conference committee with the Senate, and the clause came back. Like the loans themselves, it could not be gotten rid of.

At first this provision applied only during the first five years of the life of the loan; then it was seven, then eternity. Until 2005 it only applied to federally guaranteed loans; now, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act, it applies to all.

And as the loans became more steadily impervious to the usual laws of credit and debt, they became bigger and more profitable. In the years since the Bankruptcy Reform Act passed in 1978, the nominal price of college tuition has risen more than 900 percent. Over the same period the median male income – again, nominally – has risen 165 percent. And since the percentage of the workforce boasting a bachelor’s degree has expanded from less than 20 percent to nearly a third, I don’t have to convince you that the median de facto return on investment on those diplomas has diminished greatly over the same years. Which brings us to the second way in which the student debt bubble differs from all the others you’ve seen: It is legally impossible to pop. By law it can only grow very fast. The profits in this racket are downright hallucinogenic: A military veteran sharing his story with Occupy Student Debt has paid $18,000 on a $2,500 loan, and Sallie Mae claims he still owes $5,000; the husband of a social worker bankrupt and bedridden after a botched surgery tells Student Loan Justice of a $13,000 college loan balance from the 1980s that ballooned to $70,000. A grandmother subsisting on Social Security has her payments garnished to pay off a $20,000 loan balance resulting from a $3,500 loan she took out 10 years ago, before she underwent brain surgery.

As a side point, note the date of when this policy started. It’s very common to read that the Democratic Party has been “drifting right” for 30 years, and that the Democrats we had back then were so much better than Obama, Reid, and Pelosi. My reaction is always to wonder what the hell people are talking about. During this alleged Golden Age of the Democratic Party, it controlled the White House and both houses of Congress for four years. Can someone point out the legislative achievement that rivals the repeal of DADT, let alone the ACA?

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