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Or just the predictable results of mis-guided government policies?


From today’s Asbury Park Press, with my observations in green:

Bankruptcy won’t clear student debt


The misfortunes that brought schoolteachers Devin and Sarah Stang and their four young children to bankruptcy — and the loss of their house and a car in the process — were their own unique story.

They bought the house at just the wrong time. Apparently at the height of bubble caused by the feds setting interest rates way too low, forcing the relaxation of lending standards and creating moral hazards by guaranteeing mortgages.  There were heavy medical expenses when, at five months pregnant, she delivered stillborn twins.  The reason the expenses were so heavy is that the government, through massive regulation of the medical and insurance industries, and by pumping so much money into the system through Medicare and Medicaid, has pretty much eliminated any trace of market forces in medicine.  And their money woes go back further: When Sarah’s college softball team pressured her to drop classes she wanted to take, she quit, lost her scholarship and had to make up the difference with loans.  She wouldn’t have needed a loan if the government hadn’t bid up the price of tuition into the stratosphere with loans, grants, and scholarships Devin, too, borrowed to get a master’s degree.  Ditto.  Then they struggled amid school layoffs near their Sandusky, Ohio, home.

Now, the Stangs just want a truly clean slate, financially. But even the ordeal of bankruptcy won’t give it to them, and the reason is a common one: Much of their debt comes from private student loans.

Other debt

Virtually any other kind of debt — including medical bills, mortgage, credit cards and car loans, even gambling losses — can be discharged in bankruptcy, allowing the “honest but unlucky” a chance to restore their footing through an arduous restructuring overseen by a court.

But under a 2005 law passed by Congress to protect lenders, private student loans fall under the same nearly-impossible-to-clear category as child support payments and criminal fines.  This was to get banks to make student loans to kids pursuing careers that are unlikely to result in enough income to re-pay the loans.  (Banks generally like to loan money to people who can pay them back.)  Obama has since given the federal government a monopoly on student loans, so look for things to get even worse. 


The Stangs seem like perfectly decent people to me and there is no doubt in my mind that if the government hadn’t distorted the markets for housing, medicine, insurance, and education beyond recognition the Stangs would have a house, they would have their educations, they would have paid their medical bills, and they would not have gone hopelessly into debt.  The truly sad thing is that far from realizing that out of control government caused their problems, they probably believe that the government hasn’t done enough to “help” them.



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