America’s Emerging Second Class: Student Loan Borowers

There’s been a lot of talk about citizenship so far during this presidential campaign season: specifically, the rights, responsibilities and privileges that inure to those who are naturally born or otherwise enjoy documented legal status, versus those who have taken up residency unlawfully.

What has to this point gone unmentioned, however, is the extent to which the former are compelled to subvert or surrender certain rights in exchange for things they need and become, for all practical purposes, second-class citizens.

Case in point is the manner in which we finance our higher educational pursuits.

There is no other mode of consumer financing in the U.S. that aggregately requires borrowers to forgo:

• • Protections to which they are legally entitled under the Truth in Lending Act;
  • The ability to discharge in bankruptcy obligations that cannot be repaid;
  • Equal tax treatment for loan balances that are forgiven by lenders;
  • The potential to refinance existing debts at lower rates and more favorable terms;
  • Their constitutional right to a trial by jury;

A predetermined methodology for releasing loan co-signers and guarantors.

The individual arguments in favor of these limitations are well known.

Federally sponsored education loans are exempted from TILA so that taxpayers, who back the government’s obligations, are not mistreated. The same goes for the prohibition against discharge in bankruptcy, although the tipping point for federal student loans came in the mid-1970s amid allegations of abuses on the part of student borrowers — assertions that were later proved false — and in the mid-2000s for private student loans because, well, the financial services industry did a good job of convincing lawmakers it deserved comparable consideration.

Speaking of equal treatment, when the economy collapsed in 2008, Congress passed (and subsequently extended) the Mortgage Forgiveness Debt Relief Act so homeowners would not be taxed on the waivered portions of their financial obligations. Yet no such consideration has been extended to student loan borrowers whose balances are discharged under various government relief programs — programs that are destined to remain in place for decades to come.

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Mitchell D. Weiss

Mitchell D. Weiss is a financial services industry executive and entrepreneur. He is also an Executive-in-Residence at the University of Hartford, co-founder of the university’s Center for Personal Financial Responsibility and adjunct faculty at Rutgers University. His most recent text, Practical Finance - A Straightforward Guide to Personal and Entrepreneurial Finance, is the basis for the course he teaches at both institutions.

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