I was talking with a friend about the student loan crisis when he told me a funny story.
It seems he went to a restaurant with about 10 people for drinks and dinner. When the bill came, one guy said he’d put it all on his credit card if the others would just pay him in cash. Later that guy told my friend he was going bankrupt in two weeks. The many thousands he owed on that and other credit cards would be wiped out by the court.
This is hardly uncommon. Current law permits people to dispatch their credit-card debt regardless of what they used the money for – bars, restaurants, trips to London and Paris and so on.
But there’s one debt they can’t go bankrupt on: Higher education. That’s how we got into this mess, said one college professor who also dabbles in politics. Murray Sabrin teaches finance at Ramapo College. He’s also run for statewide office as a Libertarian and a Republican.
Sabrin said economists have a name for the problem that has left Americans facing $1.5 trillion in student-loan debt: “Moral hazard.”Moral hazard occurs when someone has an incentive to take risks that somebody else might end up paying for.