Is it Time for a Student Debt Revolt?

The escalating problem of American education debt has concerned pundits in this country for many years. Politicians make minor policy changes periodically to avoid calamity but the long-term trends remain the same.

College costs more every year, students and families borrow more and more every year, and graduate (or drop out) starting their working lives saddled with ever higher debt burdens.

Some students are pushing back, by just refusing to pay their loans. According to an article in the New Yorker:

On Monday, [Mallory] Heiney and fourteen other people who took out loans to attend [the for-profit] Corinthian [Colleges] announced that they are going on a “debt strike,” and will stop repaying their loans. They believe that they have both ethical and legal grounds for what appears to be an unprecedented collective action against the debt charged to students who attended Corinthian schools, and they are also making a broader statement about the trillion dollars of student debt owed throughout the country.

Readers of this publication may remember Corinthian, the company profiled here back in 2009 because,

Graduates of [large-scale] proprietary colleges often struggle to find jobs in their fields. This is because, in many cases, they don’t get the skills they need to compete. …It’s far easier and less expensive for schools to boost enrollment numbers through aggressive advertising and recruitment than to expend the resources to build quality schools. Corinthian and Career Education… have faced the most damning allegations when it comes to educational quality and steering students into shady private loans.

In general education debtors can’t just not pay their loans; the federal government can garnish wages and even social security in order to college on student loans. It’s virtually impossible to discharge student loans in bankruptcy. But this time it might be different. According to the New Yorker piece:

In December, a group of Democrats in the Senate, led by Elizabeth Warren of Massachusetts, wrote to the Education Secretary, Arne Duncan, calling on the Department of Education to “immediately discharge” the federal loans of at least some students who attended Corinthian. This wasn’t a toothless press stunt. The department, the senators noted, has the power to cancel federal loans for students who attended institutions that violated their rights. In fact, they pointed out, the department’s federal-loan agreements with students go as far as to spell this out, if in fine print: “In some cases, you may assert, as a defense against collection of your loan, that the school did something wrong or failed to do something that it should have done.” Earlier this month, the attorney general of Massachusetts made a request similar to that of the senators.

Is this the beginning of a trend? Maybe. This doesn’t mean a whole lot of students with high debt are likely to be able to avoid payment anytime soon, but this is setting a new standard here.

Armed by a group of lawyers connected to the Occupy Wall Street movement, the Corinthian victims are making a compelling argument that their education actually constituted fraud, and they therefor don’t have to pay the loans back.

But if Corinthian is fraud, is the University of Phoenix too? Is Northeastern? Who knows how far this argument can go.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer