Allan Collinge is the founder of the Student Loan Justice Organization a grassroots citizen’s organization dedicated to returning standard consumer protections to student loans. The group was started in March of 2005 and has focused primarily on research, media outreach, and grassroots lobbying initiatives. located in Washington DC. From time to time Angry Bear has publicized Allan efforts to restore bankruptcy protection for student loan.
In a rare display of political courage and bipartisanship last week, Rep. John Katko (R-NY) filed the Discharge Student Loans in Bankruptcy Act with Rep. John Delaney (D-MD). This bill will return standard bankruptcy protections to all federal and private student loans. Katko is well ahead of the conservative curve on this issue and has a unique opportunity to revitalize the Republican Party in the current session by stepping up to lead the fight on this issue.
President Obama federalized the student loan system during his eight years in office and the nation’s student debt tab increased by $1 trillion. From these student loans, the federal government profits well over $50 billion annually from the student loan program, and also makes a profit on defaulted student loans. This is something no other lender of any loan in this country can claim. In fact, this is a defining hallmark of a predatory lending system. During the same time period, the price of college rose far faster than any other commodity, including healthcare, and this trend is continuing to accelerate today.
The student loan program is a structurally predatory lending system and Uncle Sam sits atop the hornet’s nest. What has caused this hyper-inflationary lending behemoth and its consequences is the fact that the Department of Education is not constrained by standard free-market protections like bankruptcy rights, statutes of limitations, and other standard protections existing for every other type of loan. Congress stripped these protections from student loans and in the end greatly destabilized the entire loan system.
Make no mistake: The Department of Education loves this freedom from free-market protections and fights tooth and nail behind the scenes to keep bankruptcy gone from its source of income. Since Trump was elected, the student loan swamp of unelected bureaucrats in and around the Department of Education have made bold moves to make this lending system harsher and more profitable.
Some true conservatives have noticed this problem and have begun to speak out. Jeb Bush, for example, put the return of bankruptcy protections to student loans as a plank in his presidential platform. Pundits and think tanks such as David Brooks and the Cato Institute have also publicly called for the return of bankruptcy protections to student loans. The issue screams out to conservatives for justice by sponsoring the Discharge Student Loans in Bankruptcy Act. By his actions, Congressman Katko is demonstrating to his colleagues that it’s fine, in fact,it is a great political benefit to stand up for the citizens, fight for free-market mechanisms, and against big government.
Sponsoring this bill will endear Katko to tens of thousands of Democratic voters who would have otherwise voted against him next year. There are roughly 100,000 people in his district with student loans, of which 63,000 are currently unable to pay down their loans.
While few of these voters would ultimately file for bankruptcy, all of them feel the predatory weight of the lending system on their backs, and all will appreciate having this constitutionally mandated power back on their side. I suspect that a large majority of these voters — regardless of party — will be strongly compelled to vote for him based upon this issue alone because it is that strongly held by these borrowers.
What is most interesting is that even if his Democratic challengers’ parrot Katko on this issue, his being a Republican makes the chances for success of the bill go up dramatically. No Democrat with the same position can claim this, and indeed we have seen similar Democrat bills flounder and fail in years past.
This is one of the hottest issues today in Congress and Congressman Katko is in the forefront of it with his bill. Other Republicans in Congress could benefit and capitalize on it to reduce the strong headwinds from Democrats in next year’s election. Republicans could do well in supporting this bill and avoid a crushing defeat.