Student Loan Scandal Fallout
Among the many wonders of the 2005 bankruptcy amendments is the provision that for-profit student loan agencies would get the same protection of non-dischargeability as government lenders. No one seems to know where the amendment came from and no one seems to recall any evidence of abuse that would cause these for-profit lenders to get treatment usually reserved for domestic support recipients and the taxing authorities.
In the wake of the scandals over loan company payoffs to college officials, higher education experts are taking a closer look at BACPA. In a document that was leaked last week, the lobbying strategy of for-profit lender Sallie Mae was exposed. Educational policy expert Bob Shireman has started asking questions about those strategies, particularly as they relate to bankruptcy.
Ultimately the nondischargeability decisions boils down to two simple policy questions: Why should students who are trying to finance an education be treated more harshly than someone who negligently ran over a child or someone who racked up tens of thousands of dollars gambling? And why should a for-profit lender should receive the kind of extraordinary protection that is usually reserved for domestic support recipients or the government?
Politicians are scrambling to distance themselves from student loan companies, so it is no surprise that no one wants to claim credit for insert the nice bonus for for-profit student lenders into the bankruptcy bill. But if Congress is serious about investigating student lenders, perhaps the first legislative challenge to BACPA could be in section 523.