As the United States contends with the economic crisis triggered by the COVID-19 pandemic, federal bankruptcy law is one tool that can be used to resolve the financial distress suffered by individuals and businesses. When implementing this remedy, the question arises whether the law’s application should be viewed as limited to addressing private debt matters, without regard for the public interest. This Article answers the question by looking to modern U.S.
The first section of this Bankruptcy Law Letter examines the questions surrounding the undefined term “educational benefit” in 11 U.S.C. §523(a)(8)(A)(ii), which makes private student loans, which do not meet the IRS definition of being a “qualified educational loan”, nondischargeable. These private loans can include bar review courses, loans for attendance at unacredited schools, loans for school or test preparation and ad hoc borrowing for that somehow relates to education.
Following the financial crisis, many home mortgage borrowers found themselves living in properties encumbered by debt that far exceeded their value. The result was an increase in mortgage default rates, followed by a wave of foreclosures as lenders scrambled to minimize the financial damage to their investments. From the wreckage, a new creature emerged that threatened to devastate borrowers who believed that foreclosure was their chance for a fresh start: the zombie mortgage.
This paper reviews recent research on mortgage default, focusing on the relationship of this research to the recent foreclosure crisis. Research on defaults was advanced both theoretically and empirically by the time the crisis began, but economists have moved the frontier further by improving data sources, building dynamic optimizing models of default, and explicitly addressing reverse causality between rising foreclosures and falling house prices.
This paper finds that graduates from universities that remove student loans from their financial aid policies are more likely to start entrepreneurial ventures and are more likely to subsequently get venture capital (VC) backing, particularly by reputed VCs, and get higher VC investment. Such ventures have higher sales and employment five years after founding. These results are stronger for universities with higher tuition and greater extent of R&D activity.
This paper studies the effects of available student loan repayment plans on borrowers’ career choices. By removing the risk of loan default, income driven repayment (IDR) plans make higher-paying but riskier jobs more attractive to those with moderate skill levels. The authors present experimental evidence that student loan recipients consider the repayment plans offered to them as well as the plans available to other borrowers as a reference in their evaluations of loans and careers.
