Beleaguered and desperate borrowers caught in the student loan debt trap need immediate help.
There is a way out for them. That same way out could also rein in college costs.
But it's blocked by law. Obviously, the law has to be changed.
It can be done in just one step.
And today, I'll tell you how we can get there...
The Student Loan Debt Problem Is Made Even Worse by a Bad Law
The wrongheaded law, which the financial industry pushed hard for, of course, is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
BAPCPA basically says the courts cannot wipe out any student loan debt - federal or private - in bankruptcy unless the borrower can prove repaying the loan would cause "undue hardship."
And you can pretty much forget demonstrating undue hardship unless you suffer from a severe disability.
BAPCPA lumps student loan debt in with child support and criminal fines as types of debt that can't be discharged in bankruptcy.
While the "Bankruptcy Abuse Prevention" part of the law is obvious, one wonders where the "Consumer Protection" part of BAPCPA resides.
It's in there, but to find it, you have to understand how bull-you-know-what is spun into colorful yarn and woven into legislation.
Financial industry lobbyists pushed BAPCPA by promising cheaper student loans and more of them.
"Cheaper" didn't happen, but "more" certainly did.
In 2010, student loan debt in the United States surpassed credit card debt for the first time. And thanks to BAPCPA - let's call it the "Racket Protection Act" - lenders are sticking it to students for life.
Student loan debt now exceeds $1.3 trillion, according to the U.S. Federal Reserve.
Private lenders, however, say they're only a small part of that big number and are wrongly being pummeled. That's not exactly true.
It is true that only about 10% of the $1.3 trillion of student loan debt is strictly private. But according to the U.S. Department of Education, about 33%, or $403 billion, of the total is private debt backed by government guarantees.
It doesn't matter what form student loan debt takes - BAPCPA says it cannot be wiped out during bankruptcy.
BAPCPA is clearly a problem. Now, here's the solution...
The First Step to Resolving the Massive Student Loan Debt Problem
Obviously, the law is a bad one, foisted on us by bad actors - the usual suspects.
BAPCPA has to be changed or struck down.
Declaring personal bankruptcy is not an easy or desirable path for beleaguered borrowers. But it is a way out of indentured servitude to lenders who have no legal obligation to work with borrowers.
If lenders had to write off bad loans discharged in bankruptcy, no doubt they'd be less inclined to shovel out money to borrowers without doing better repayment calculations.
That would reduce the amount of easy money flowing into the student loan borrowing arena. And that would be a good thing.
Not everyone who borrows a fortune to get a degree ever gets a degree. And those who do get degrees lately, for almost the past decade, can't find work.
As long as there's money to spread about because BAPCPA requires lenders get paid back, college costs will keep rising.
Have you priced an education lately?
It sure looks like colleges, universities and, especially, for-profit schools of almost every stripe are in cahoots with lenders. It's become a nationalized, legitimized, duplicitous, and ruinous Ponzi scheme.
It's got to stop. Making student loans dischargeable is the first step.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.