One Man’s Opinion on the Forgiveness of Student Loans

LNL recently assisted a small Ohio university in a sale of its assets to another accredited university. Our client was suffering from unresolvable financial problems from many causes, but one of its primary sources of revenue was the proceeds of student loans (which were insufficient to overcome its financial problems.).

Billionaire investor Mark Cuban recently opined on the forgiveness of student loan debt.  Mr. Cuban believes that forgiving student loan debt ultimately encourages colleges and universities to fail to address fundamental inefficiencies in their operations.  The article containing Mr. Cuban’s opinion can be found HERE.

The other side of that coin is that failing to forgive student loans, or at least allowing them to be discharged in bankruptcy at some point, is dragging down our economy.  Consider the student who accumulates a six figure student loan debt during his or her many years of schooling. The student finishes school and begins making a very good income. Can he buy a house? Probably not, because his student loan payment is too large. Can he buy a car or other big ticket item that must be financed?  Can he start his own business? Again, probably not. A person who would begin spending money on capital items at age 30 or 35 will now be 40 or 45 (at least), have family obligations, etc. He will not have been saving for retirement (depriving the economy of that investment capital).

On the other hand, if this person can discharge his student loan debt in bankruptcy, the stultifying effect of his debt would be eliminated and he would be able to fuel the engine, not only of his personal economy, but of the national economy as well. As a very desirable side effect, colleges and universities would be required to become better managers of the business of higher education, as well as the academics.

Frederick Luper is a founding member of LNL and a Board Certified Business Bankruptcy Specialist. Your comments are welcome. (614) 229-4409; fluper@lnlattorneys.com

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