Zachary Einsig's 2017 Winning Scholarship Essay

• Bankruptcy Solutions
• Foreclosure Solutions
• Modification & Negotiation
• Credit Card Debt Relief

Written By: Zachary Einsig

Discharging Student Loan Debt: A Pro/Con Debate
Has the pursuit of a higher education become too financially risky? As stated by former President Barack Obama, the United States economy is facing a plethora of “headwinds” which threaten to derail our economic recovery (Nakamura, 2012). One looming storm, the student loan crisis, is building in intensity. An article published in The Journal of the James Madison Institute highlights several student debt statistics. Student loan debt has morphed into the second largest category of consumer debt, resting only behind home mortgages. Roughly 44 million Americans hold student loans, which amount to a staggering $1.19 trillion (Edwards, 2016). With the average 2015 college graduate owing in excess of $35,000, there have been calls for several changes in public policy. One focus is whether student loan debt should be discharged in bankruptcy. This essay will focus on three main paradigms from which the quandary’s pros and cons can be viewed. Opponents and proponents would acknowledge the economic impact, societal effect of lowered debt risk, and ideological concerns.
As with any public policy change, the potential economic ramifications would be intensely scrutinized. Arguing for the change in bankruptcy law, proponents would posit that relieving a population’s debt burden helps foster increased consumer spending. An individual having recently filed bankruptcy could focus their resources on purchasing goods, instead of paying for an education that was not providing an investment return. The increased spending activity would help support our consumerism economy. Proponents could also site the benefits of a “cleaner” recovery trajectory. By allowing bankrupt individuals to discharge student loan debt, the government would provide access to a fresher financial rebirth. Supporters could argue that such a policy would increase the hope and outlook of those who file. Ultimately, this reinvigoration could further enable one to realize his or her potential, causing them to lead a more economically productive life.
Conversely, opponents of the policy shift would predict negative economic impacts. A discharge of debt would only shift the debt burden from the individual to society. With the federal debt surging past $19.5 trillion (U.S. Debt Clock, 2017), it would be argued that any increase would be detrimental to our nation’s economy. In addition to the possibility of raising taxes, the National Bureau of Economic Research’s Macroeconomics Annual argues that a higher federal debt increases the nation’s long term interest rate. Allowing bankrupt, college graduates to discharge their debt to the federal government could start a destructive chain reaction. Beginning with increasing our nation’s long-term interest rates, a policy change could contribute to a lower credit rating, higher interest payments, and a tightening of available capital. Compounding this threat, education costs and associated debt continue to rise rapidly. U.S. News & World Report found that increases in education costs have more than doubled the inflation rate over the past 20 years (Mitchell, 2015). With no sign of slowing, the average amount of student debt to be discharged in bankruptcy may also skyrocket.
Another battleground for this debate would erupt on the policy’s societal effects. By broadening the safety net that bankruptcy provides, students may be incentivized to choose their field on passion versus income potential. This would be a direct result of lowering the associated risk of acquiring student debt. Even if any proposed bankruptcy legislation would not ease a graduate’s ability to file, there would still be a political message of decreased risk. Proponents would highlight the change in decision making as beneficial. Increasing students’ ability to choose would foster a larger sense of independence and control over life. This perceived increase in freedom could improve the mental health of collegiate students. A study published in the Journal of Happiness Studies suggests at least a limited positive correlation between perceived freedom and a sense of well-being (Spruk, 2016). Supporters could easily leverage this correlation into an argument’s premise. Additionally, proponents could tout the positive impact that a lowered risk would have on the arts and humanities, by promoting pursuit of passion instead of high pay.
In response, those opposed to the change could paint the lower debt risk as societally devastating. An opponent’s counterattack would be based in free market theory. Argued in the lifetime work of famed economist Milton Friedman, income is a powerful indicator of the market’s need. Following this theory, one that is highly paid produces goods or services that are in high demand. Because the possibility of discharging student debt in bankruptcy lowers its associated risk, students would be better positioned to pursue low-paying careers. Therefore, the policy would encourage an inefficient distribution of society’s human capital. Jobs which are in high demand, such as medical professions, could face a declining pool of eligible employees. Furthermore, opponents would theorize that a lowered risk would incentivize more individuals to pursue a college education. “Maybe Fewer People Should Go To College” is an article published by the Center of the American Experiment that discusses education investment as having diminishing returns. With a society’s economic resources being limited, opponents would argue that it would be more efficient to encourage trade programs. Immersed in free market principles, opponents could develop an arsenal of philosophical attacks.
The contrasting arguments outlined thus far have a foundation that is intricately woven in the fabric of this nation’s political ideology. Political ideology can be extremely persuasive and a powerful tool in decision-making. While an understanding of the ideological tilt of the debate is not valuable in distinguishing facts, it is vital to recognizing how the discussion would be spun. Unfortunately, the arguments’ images, their “spin”, would help to determine the issue’s outcome. Therefore, a truly informed discussion should not shy away from this sensitive angle. Proponents, most likely those labeled left-of-center, would focus on the factors of life that are beyond our self-control. Stories of people who have fallen on hard times due to unforeseen circumstances would be broadcasted loudly. Is it fair that those who suffered a life altering event remain forever trapped under an avalanche of student loan debt? The Liberal answer to the rhetorical question: a resounding “no.” This query would be accompanied by the argument that democracy is benefited when the education of its citizens is encouraged. If the debt accrued in pursuance of education becomes a financial death-sentence, fewer people may seek enrollment.
Opponents, those considered right-of-center, would propagate their own ideological tilt. If student loan debt is allowed to be discharged, those in opposition could argue that a “back door” government entitlement program has been created. Opponents would peddle this change as moving us one step closer to “universal education”. Furthermore, Conservatives would theorize that the outcome of one’s life is largely under his or her control. It would be argued that adhering to the consequences of the world encourages a responsible citizenry. By allowing graduates an opportunity to undo the consequence of debt, our society would be complicit in discouraging wiser decisions by the next generation. Ultimately, the opposition may argue that long-term societal lessons are learned through exposure to burden and failure; without these “lessons,” progression is hindered.
For many graduates, student loan debt has evolved into an inescapable nightmare. Born of good intentions, the pursuit of education has become a burden without any current remedy. However, allowing student loans to be discharged in bankruptcy is one avenue of change available to politicians. A proposal of this magnitude could be destined for an intense national debate. Proponents and opponents would clash on the policy’s economic impact, societal effects, and ideological ramifications. As this issue continues to grow and affect more graduates, it is important that society seriously weigh the pros and cons that have been highlighted. Even if a perfect solution does not exist, it is crucial that our society seek improvement. Higher education has become a keystone of the modern world, and the status quo is discouraging its pursuit.

Works Cited

Edwards, D. (2016). How We Can Solve the Student Loan Debt Crisis. The Journal of the James Madison Institute. https://jamesmadison.org/Library/docLib/Journal-Winter-2016-How-           We-Can-Solve-the-Student-Loan-Debt-Crisis1.pdf.
Engen, E., & Hubbard, R. (2004). Federal Government Debt and Interest Rates, NBER        Macroeconomics Annual 19.
Mitchell, T. (2015). Chart: See 20 years of Tuition Growth at National Universities. U.S. News &   World Report.
Nakamura, D. (2012, June 1). Obama Warns of ‘Serious Headwinds’ to Economic Recovery         Following Disappointing Jobs Report. The Washington Post.        https://www.washingtonpost.com/politics/obama-warns-of-serious-headwinds-to-   economic-report/2012/06/01/gJQARbXN7U_story.html?utm_term=.ed2fa5dc11be.
Nelson, P. (2011). Maybe Fewer People Should Go To College. Center of the American     Experiment.
Spruk, R., & Keseljevic, A. (2016). Institutional Origins of Subjective Well-Being: Estimating        the Effects of Economic Freedom on National Happiness. Journal of Happiness Studies.                  Volume 17. Issue 2.
U.S. Debt Clock. http://www.usdebtclock.org/