Allowing the debt to be discharged could tighten lending standards, put a lid on tuition increases and end shady for-profit universities.
Passing a law that allows student loans to be included in a bankruptcy filing is the obvious compromise. It doesn’t give either side everything it wants, but it gives each of them enough to make it an acceptable solution.
For those advocating canceling student debt, changing the bankruptcy law would do just that. Former students wouldn’t be able to discharge only $10,000 or $50,000 but their entire debt load. Because the federal government owns more than 90% of student loans, it would absorb the vast majority of the debt. The government might also need to cover the losses for the debt that isn’t federally guaranteed because private institutions made the loans before the change in the law.
For those opposed to canceling the debt, there would be some comfort in knowing that bankruptcy comes at a price. It would be a part of a borrower’s credit report for seven or 10 years, depending on whether Chapter 7 or Chapter 13 is used. The availability of credit would be sharply diminished during those periods, eliminating the ability to obtain a mortgage and other loans
