THE SOCIAL COST OF UNPAID STUDENT LOANS.

Federal student loans represent a multibillion-dollar investment by American taxpayers. Although most student loans are repaid on time, a significant minority of borrowers struggle to repay their debts. This is particularly true when the education obtained using the loans does not translate into higher earning potential for the borrower. Policymakers have periodically focused attention on easing the burden of student debt. The sympathetic plight of many borrowers makes it easy to consider only their best interests. However, on the opposite side of every debtor is a creditor; in this case, it is the federal government as a representative of taxpayers. Failure to consider the best interests of creditors when considering debt forgiveness can lead to inefficient and unfair outcomes. When making decisions to forgive student debt, policymakers would do better to consider the repayment interests of taxpayers and grant loan forgiveness only when the costs of attempting to collect from borrowers exceeds the likely recovery, or when borrowers demonstrate an inability to satisfy all of their debts. Bankruptcy proceedings can offer targeted and efficient solutions to the student loan debt forgiveness problem and should be better implemented in this space. Furthermore, administrators of student loan programs should update lending criteria for future loans based upon past student loan performance. [ABSTRACT FROM AUTHOR]