In 2005, Congress passed a law preventing all student loans from being discharged in bankruptcy. Since then, the cost of attending college – and the average student loan size – has exploded.
The government issues nondischargeable loans with minimal requirements to both students and their parents. Unlike typical consumer lending, there is no underwriting, risk retention, or loan-to-value requirements. Loans are granted regardless of the student’s projected salaries, debt-to-income ratio, or ability to repay post-graduation. This leaves students and parents with relatively minimal consumer protections compared to loans for other products, such as cars or homes. Consequently, education providers are not required or incentivized to ensure the degree they provide will earn the student enough additional income to pay back the loan.
Most education finance reformers focus on loan forgiveness or free college, but if an oversupply of easy credit in education is a problem, those reforms only mask the problem’s symptoms. Instead, maybe the solution is to apply the same type of protections used in the consumer financial services industry to the student loan industry.
Join us Wednesday, August 19, at 11 a.m. EDT as we examine the disparity of protections between consumer and education finance and discuss whether student borrowers are sufficiently protected.
Mercatus Center at George Mason University
Director of Innovation and Governance and Senior Research Fellow
Tom Miller, Jr., PhD.
Mississippi State University College of Business
Jack R. Lee Chair of Financial Institutions and Consumer Finance
Bob Stein, CFA
Deputy Chief Economist
Director of the Center for Educational Freedom