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OpEdNews Op Eds    H3'ed 9/22/14

Why Ordinary People Bear Economic Risks and Donald Trump Doesn't

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When some members of Congress tried to amend the law to allow homeowners to use bankruptcy, the financial industry blocked the bill.

There's no starting over for millions of people laden with student debt, either.

Student loan debt has more than doubled since 2006, from $509 billion to $1.3 trillion. It now accounts for 40 percent of all personal debt -- more than credit card debts and auto loans.

But the bankruptcy law doesn't cover student debts. The student loan industry made sure of that.

If former students can't meet their payments, lenders can garnish their paychecks. (Some borrowers, still behind by the time they retire, have even found chunks taken out of their Social Security checks.)

The only way borrowers can reduce their student debt burdens is to prove in a separate lawsuit that repayment would impose an "undue hardship" on them and their dependents.

This is a stricter standard than bankruptcy courts apply to gamblers trying to reduce their gambling debts.

You might say those who can't repay their student debts shouldn't have borrowed in the first place. But they had no way of knowing just how bad the jobs market would become. Some didn't know the diplomas they received from for-profit colleges weren't worth the paper they were written on.

A better alternative would be to allow former students to use bankruptcy where the terms of the loans are clearly unreasonable (including double-digit interest rates, for example), or the loans were made to attend schools whose graduates have very low rates of employment after graduation.

Economies are risky. Some industries rise and others implode, like housing. Some places get richer, and others drop, like Atlantic City. Some people get new jobs that pay better, many lose their jobs or their wages.

The basic question is who should bear these risks. As long as the laws shield large investors while putting the risks on ordinary people, investors will continue to make big bets that deliver jackpots when they win but create losses for everyone else.

Average working people need more fresh starts. Big corporations, banks, and Donald Trump need fewer.

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Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.

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