Law Review: Darolia, Rajeev & Ritter, Dubravka – Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform

Abstract:

Bankruptcy reform in 2005 restricted debtors’ ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a national sample of credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior in response to the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.

Commentary:

As the authors conclude that, absent any evidence of moral hazard by allowing borrowers to discharge private student loans, “policymakers are faced with the challenge of weighing the burden placed by restrictions to bankruptcy protection on struggling nonopportunistic debtors against the benefits of expanded credit availability.”

While certainly a valuable corrective to the prevailing belief that borrowers are the parties that game the system, this study is only partially accurate or complete. The authors do not conclude that private student lenders (and the universities, both private, public and for-profit that work hand-in-glove with the private student lenders) are without their own moral hazards in making loans with no liability themselves.

For a copy of the paper, please see:

Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993.

2. Juris Doctor degree from George Washington University, 1996.

Admissions to Practice of Law:

North Carolina Bar, 1996.
Federal District Courts for the Eastern and Middle Districts of North Carolina.

Specialty Certification:

North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy.

Areas of Practice:

Practice limited to consumer and business debtor bankruptcy law, 1998 to present.

Memberships:

National Association of Consumer Bankruptcy Attorneys (NACBA).
North Carolina Academy of Trial Lawyers (NCATL).
North Carolina Bar Association, Bankruptcy Section.

Lectures prepared and presented:

North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court – C.Y.A. Forms to Help ‘Gird They Loins’; 2001.
Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002.
NACBA National Convention; Topic: Efficient Office Practices; 2003.
NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004.
Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004.

Positions held:

NACBA National Convention; Convention Chair; 2008.
NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008.
NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007.
NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007.
NACBA, Member of National Board of Directors, 2006 to present.
NCATL, Chair of the Bankruptcy Section, 2003 to 2007.
NACBA, Chair of the North Carolina Section, 2003 to 2007.
NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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