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Should bankruptcy be allowed for student loan debt?

Publication Date: 
April 09, 2012
Source: 
KPCC 89.3 - Air Talk with Larry Mantle
Author: 
Larry Mantle

Professor G. Marcus Cole was a guest on Air Talk with Marry Mantle to discuss the potential downfalls of allowing student loan debt to be forgiven.

Stanford University professor of law G. Marcus Cole said what sounds like a good idea could eliminate the whole market of student loans.

"Student loans are fundamentally different than any other kind of borrowing that takes place in our society. When you borrow for a mortgage to buy a house, that mortgage is supported by both your income and the value of the house that you're buying," he explained. "Student loans are basically a situation where a student who typically has no assets and no current income goes to a lender and says, 'I'm going to promise to pay you in the future, out of my future higher income, for the loan that you're giving me today."

With dischargeable loans, the risk that lenders would not receive the money they originally lent would increase. Cole added that investors wouldn't see the sense in lending to students anymore.

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Cole maintained that the student loan market must remain open, whether that takes increased responsibility from both lenders and students taking out loans.

"We're trying to create a system where people who don't have current resources can build their human capital to be able to participate in a more sophisticated economy, so we want this kind of lending to take place," he said.