Discharging Student Debt Benefits All
It won't be long before high-school seniors will be confronted with the decision about how to finance their college education. Unless they come from affluence, the overwhelming majority will opt for a private or government loan that is not dischargeable in bankruptcy except under the most unusual circumstances. That policy can be a big mistake, albeit not for the reasons believed ("Let Them Go Bankrupt," The Weekly Standard, Feb. 22).
Consider the following. If private student debt were to be dischargeable in bankruptcy, banks would lend only to students who have a good chance of succeeding and paying them back. After all, they don't want to have to write off uncollectible student loans. The evidence shows that banks are on the right track because private student loans have lower default rates than government student loans. In other words, dischargeability creates more individual fiscal responsibility rather than less, as is presently assumed. Moreover, students would likely become more realistic about their chances of succeeding in higher education, and make better choices.
So far, I've dealt with banks and students. How about colleges? Under the present system, colleges are insulated from their responsibility. They view a guaranteed student loan as a cash cow. They admit the student and deposit the check in their account. They don't have to worry about default because the loan is not dischargeable in bankruptcy. But if the loan was not so protected, colleges might become far more careful about whom they admitted. I'm not talking now only about trade schools and for-profit colleges. It's too easy for financial considerations to overrride academic considerations in determining who is accepted at second- and third-tier institutions.
I say it's time to rethink the way a college education is financed. In fact, I question the advisability of college for all. Students who are not academically inclined can make a good living pursuing a vocational curriculum. For example, those who are accepted in a five-year training program at Plumbers and Steamfitters Local 5 in Lanham, Md. can earn a salary of about $80,000 a year, plus health and retirement benefits ("Pay Levels Crimp Work Opportunities for Plumbers Union," The Wall Street Journal, Feb. 18). And they have no college debt. What's wrong with that?