Get an education appraisal before you mortgage your future

The article in today's Charlotte Observer (link here: Even after bankruptcy, trapped by student debt) about the 2005 law that prohibits borrowers from wiping out student loans in bankruptcy prompted this idea. 

1.  Colleges give every degree a dollar value. This would equal the Bureau of Labor Statistics (BLS) database average earnings for someone with that degree, multiplied by seven.  This amount is a proxy for the student’s projected earnings over the next seven years.

2.  The value of a degree is online at the university’s website with their admissions information about the majors and degrees they offer.

3.  If the value of a degree is overstated and the university cannot substantiate their claims with BLS data, the student has a cause of action against the school.

4.  If a lender extends student loan credit (cumulatively) for an amount exceeding 50% of the value of the degree, then the debt in excess of the 50% ceiling can be discharged in bankruptcy.

Say tuition at Queens totals $120 thousand for four years.  Say new elementary education teachers earn $28 thousand per year for seven years, totaling $196 thousand.  Half of that is $98 thousand, so the maximum student loan would be $98 thousand.  If a lender grants credit in excess of the $98 thousand, say $120 less $98 being $22 thousand, the $22 thousand could be discharged in bankruptcy, and the rest could not. 

This method places the “caveat emptor” burden on each party to the credit transaction.  It is similar to getting an appraisal on a house in support of a mortgage loan.