Is debt forgiveness the answer to the student loan crisis?

Posted on March 15th, 2013

With student loan debt at an all-time high and more students than ever falling behind on their payments, some people have called on the government to forgive all student loans as a way to help needy students.

Daniel Lin, a Professor of Economics at American University, argues that this would just be a temporary solution that wouldn’t help break the cycle of student debt. Instead of debt forgiveness, Professor Lin suggests making student loans like other types of loans: dischargeable in bankruptcy.

According to Professor Lin, if student loans were dischargeable in bankruptcy, then lenders:

  • could stop using the government as a collection agency
  • would be liable for bad loans
  • would be more careful about who they loan to

Professor Lin claims this would lead to fewer loans and higher interest rates, but make borrowers more responsible and careful about the amount of debt they take on to pay for college. He says it would also give colleges incentive to stop raising tuition and feel greater pressure to control their costs.

On the other hand, student loan forgiveness by the government would shift the burden onto taxpayers instead of addressing the root problem or preventing students from continuing to amass large amounts of student loan debt.

What do you think? Should the government forgive all student loans? Should student loans be dischargeable in bankruptcy? Or is there an alternative solution? Write on our Facebook wall, Tweet us @cfgcollege, or comment below with your ideas.

Category: Student Loans & Repayment

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