Before the First Amendment

Let's talk about the "quasi-mythic status of student loan non-dischargeability.”

Before the Founding Fathers agreed to including things in the Constitution like freedom of speech, freedom of religion, or the right to bear arms, they agreed on something else: federal bankruptcy law.

Check the calendar:

• The original U.S. Constitution was ratified by the 13 states between 1787 and 1790. Article I, Section 8 of this original document gives Congress the power to establish “uniform laws on the subject of bankruptcies throughout the United States.”

• The Bill of Rights, however, including many of the individual rights we take for granted as Americans today, wasn’t fully ratified until 1791 — so, a full year later.

I've always found it interesting that they did this first.

Photo by Alexander Schimmeck on Unsplash

In context, it wasn’t because they were particularly fond of people who ran up big debts. Instead, they didn’t want individual states to pass their own bankruptcy laws that might actually be more pro-debtor.

That said, they took it for granted that there had to be some system of bankruptcy, because as a last resort, it’s sometimes the only way for people in debt to move on and rebuild.

Okay, now let’s fast-forward to 2025, and talk about a debt that 42.7 million Americans owe (which means 14% of the population): student loans.

It adds up to $1.75 trillion, which is about $200 billion more than it was the last time I wrote about this in this space five years ago. (You’d think I’d learn my lesson because I know this isn’t exactly an uncontroversial topic.)

If you’ve ever had student loans, you might remember a key piece of conventional wisdom: It’s one of the only kinds of debts that supposedly can't be discharged by filing for bankruptcy.

Now, I’ve had student loans — and in pure Bill Murphy Jr. fashion, I missed every way possible to have them forgiven. One fun example is that I did seven years as a federal government employee and then left — only to have the government later, and retroactively, offer full student loan forgiveness for people who did 10 years.

It’s water under the bridge, and I mention it only to point out that what I’m proposing here would not help me personally in any way.

Still, it never made any sense to me that we would single out this one kind of debt — as opposed to say, gambling debt, just to pick a random category — and decide as a society that we want the cost of pursuing higher education to become a super-debt.

I wouldn’t want to encourage people to be irresponsible about student debt (versus any other kind of debt), but isn’t the risk of a debtor defaulting supposed to be baked into the terms of any loan to begin with?

Anyway, about 250,000 student loan borrowers file for bankruptcy each year, but only about 400 of them bother trying to include their student debt in the package, perhaps because of the perception that doing so is impossible.

However, over the past few years, some courts have controversially cast doubt on the idea that student loans should be in this special category, namely “immortal, no matter what.”

A federal bankruptcy judge in Poughkeepsie, N.Y. started the trend in 2020, discharging more than $200,000 in student loans that a Navy veteran with a law degree had accrued before filing for Chapter 7 bankruptcy.

“What I found most fascinating, and I think heartening,” said Jason Iuliano, an assistant professor of law at Villanova University and an expert on bankruptcy, “is the very strong language that the judge used to call out … this ‘quasi-mythic status of student loan non-dischargeability.’”

The judge applied a three part analysis called the Brunner test that asks:

• Can the debtor maintain a “minimal” standard of living with the loans in place?

• Is the situation likely to persist?

• Has the debtor made good faith efforts to repay the loans before bankruptcy?

Look, I don't think anybody actually wants to file for personal bankruptcy if they can avoid it. The stigma is real, and the damage to personal credit is significant.

Sometimes, however, it's the only way debtors can restart their lives.

It also strikes me as a “fairly fair” way to handle student loan debtors who get in way over their heads:

• Not just getting rid of student loans like the Biden administration tried to do;

• But instead, offering the same or a similar last resort escape hatch that people have when dealing with almost every other kind of debt, complete with all the downsides.

They say hard cases make bad law, and this one isn’t an exception. But, one way or another, remember: the Founding Fathers agreed enough to write it right into the Constitution.

Heck, they even thought it was more important than the right they spelled out in the 3rd Amendment: to be free from having “Soldiers … in time of peace … quartered in any house, without the consent of the Owner.”

If that doesn’t tell you something about their priorities, I don’t know what might!

7 other things

• The battle against devastating wildfires that have gripped Los Angeles County for nearly a week — destroying thousands of structures and killing at least 25 people — continued Monday as officials prepared for the onset of another round of dangerous winds that will significantly heighten fire risk. “We are not in the clear as of yet and we must not let our guard down,” Los Angeles Fire Chief Kristin Crowley said during a news conference Monday. (LA Times)

• Last year, Francis Bischetti said he learned that the annual cost of the homeowners policy he buys from Farmers Insurance for his Pacific Palisades home was going to soar from $4,500 to $18,000 — an amount he could not possibly afford. The home he lived in for nearly all his life burned down Tuesday along with more than 10,000 other homes and structures damaged or destroyed in the worst fire event in the history of Los Angeles. Sixteen deaths have been confirmed countywide. “It was surrealistic,” he said. “I’ve grown up and lived here off and on for 50 years. I’ve never in my entire time here experienced this.” (LA Times)

• ‘Will Pay Any Amount’: Private Firefighters Are in Demand in L.A.: Hiring a private fire crew costs thousands of dollars a day, and most work through government contracts or with insurance companies. Some wealthy property owners are calling them in directly. (New York Times)

• This is sort of what got me thinking about student loans again: The U.S. Supreme Court review a lower court's decision to block a Biden administration rule that helped forgive student debt held by borrowers who were defrauded by their colleges. The courts have repeatedly quashed Biden's student debt forgiveness plans throughout his time in office, including a 2023 attempt to forgive $400 billion in debt. (USA Today)

• A federal judge said the Justice Department can publicly release special counsel Jack Smith’s investigative report on President-elect Donald Trump’s 2020 election interference case, but a temporary injunction by another judge, Aileen Cannon, who was appointed by Trump and oversaw and dismissed the case against him is still in effect. Expect this to reach the Supreme Court, which would likely have to rule before the weekend to have any effect. (AP)

• Volodymyr Zelenskyy offered to send 150 Ukrainian firefighters to help battle the blazes raging in California after Donald Trump Jr. dragged the Los Angeles County Fire Department for donating some supplies to Ukraine's defense. "The situation there is extremely challenging, and Ukrainians can help Americans protect lives," he said in a video statement. (Yahoo News)

• How Star Trek fans changed the name of NASA’s first space shuttle from Constitution to Enterprise: A declassified memo shows that 'hundreds of thousands of letters' called for a renaming. (Popular Science)

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