One angle of the student loan scam that is just starting to get some attention is the over borrowing of student loans for the purpose of living expenses.
The Wall Street Journal (paywall) reported (as re-reported by the libertarian Reason.com) on the case of a law school graduate named Lilianna Rodriguez-Marshall, a 30-year old mother of three. Ms. Rodriguez-Marshall graduated from the Southwestern Law School in Los Angeles in December owing more than $300,000 in federal loans. Ms. Rodriguez-Marshall is apparently applying for government jobs in the hopes of entering the federal loan forgiveness program.
According to a right-wing think tank who crunched the numbers on her loan, assuming Ms. Rodriguez-Marshall lands a government job paying about $55,000/year (good luck, big assumption), she will have payments of $273/month instead of the $3,562/month she would otherwise be obligated to pay. Her payments under the program would total about $102,000 over 10 years while the balance of approximately $639,000 including interest would be forgiven.
Ms. Rodriguez-Marshall acknowledges that her debt is so large in part because she spread out law school over 4 1/2 years instead of 3. However, what is interesting is that she also says that she and her family used the student loan money for living expenses. She reported that her husband was laid off twice and she took out emergency student loans totaling $30,000 to "make home repairs, pay unexpected medical costs and keep up with the families $1,000-per-month health-insurance bills."
In other words, at least in this case as reported, what would otherwise be typical consumer and personal spending (which is dischargeable in bankruptcy) is being converted into non-dischargeable student loan debt.
On the right, commentators are arguing that the student loan forgiveness program encourages reckless over borrowing. Ms. Rodrigeuz-Marshall being held up as the poster child on this point.
On the left, progressives acknowledge: "Students actually spend their loan money on surviving as consumers in a tight economy, while learning skills needed for the economy of the future." The argument then seems to be that this kind of spending is good for the economy. The progressive's proposed fix so-far seems to be to lower student loan interest rates. Elizabeth Warren is advocating that student loan interest rates (which are about to reset to 6.8% per annum) should instead be the same as the overnight lending rate that the too-big-too-fail banks receive which is .75% per annum. Is Elizabeth Warren just one of the liberal professors Brian Tamanaha is calling out?
Whose right? Both? Neither? Is it common to use student loans like charge cards for your living expenses? Why aren't progressives forcefully advocating to get the cost of education down? The interest rates are just a tiny portion of the problem here. Why aren't progressives forcefully advocating to get better information to student consumers about career prospects and loan payment responsibilities so that they can make more informed choices? Why isn't there the equivalent of a TILA for law school where the schools have to provide projected loan repayment information together with projected career prospect information side-by-side? Why isn't anyone pushing for bankruptcy reform? It would seem that both the right and the left should be advocating for meaningful education reforms that don't create a society where vast resources are being wasted by educating students in areas for which there is no demand and then leaving them in debt bondage for most of their adult life. What is the political impact moving forward of the choices made today?
Is Ms. Rodrigeuz-Marshall's scenario typical? Does anyone know of similar situations?
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