How Trump could win the general election

The Republicans- Donald Trump in particular-  are looking at an uphill battle for the presidency.  All things being equal, Trump would have a tougher time in the general election were he to become the Republican nominee than Mitt Romney had.  The student loan issue, however, could change the game, and Trump happens to be in a very unique position to capitalize.  Here is why:

The unprecedented removal of standard bankruptcy protections and other fundamental consumer protections from student loans has created a big-government monstrosity where the federal government not only books about $50 billion per year in profits, but also makes huge money on defaulted student loans.  This has enabled hyper-inflation in the price of college, a Department of Education that is perversely incented to pile as much debt as possible onto the citizens, while essentially ignoring its responsibilities to compel the schools to provide a quality education at a reasonable price.  This absence of core consumer protection has gone on for decades with federal loans, and for over a decade with private student loans. 

{mosads}The Democrats used to claim to be concerned with this problem, but after they took both House and Senate in 2006, they didn’t even return bankruptcy protections to private loans, thanks to effective lobbying by the student loan industry of Blue Dog Democrats.  Since then, national student debt has more than doubled but today, the democratic candidates won’t even broach the topic.  They are delicately tip-toeing around the issue, and instead are touting extremely unimpressive plans for refinancing student loans, and pointing to forgiveness programs that are likely to harm the vast majority of people who sign up for them rather than help, due to a Department of Education that is kicking as many people out of these programs as possible.  Meanwhile, the Education Department officials fight tooth-and-nail behind the scenes to keep bankruptcy gone from their predatory cash cow.

The Democratic candidates are promising all manner of debt-free schooling for future generations, but people who haven’t yet entered college usually cannot vote.  The 44 million people who have already borrowed for school do vote.  They are being treated like piñatas by a lending industry that has powers that would make a mobster envious!  One student loan collection company even has a 4000-gallon shark tank in the lobby of its corporate headquarters!

For all of Trump’s successes, he has learned the hard way what it’s like to be shark bait.  He knows the critical role that bankruptcy plays in ensuring good faith in a lending relationship, and he understands why the founding fathers put bankruptcy rights ahead of the powers to form an Army and Navy, to declare war, and even coin currency when they enumerated the powers of Congress.  Instead of being caught flat-footed on the bankruptcy question, he could seize this as a teachable moment, and point to the student loan system as a perfect example for why bankruptcy protections are so important to the citizens, even when the loans are held by a supposedly “friendly” federal government.

While the student loan issue offers a great pivot point for Trump on the bankruptcy question, what is most important is the votes it will deliver.  There are 44 million people in the country with student loans, and if the class of 2005 is any indicator, where a whopping 63 percent were either in forbearance, deferment, default, or otherwise delinquent as of 2010, it is likely that something like 25 million of these borrowers are feeling the predatory pinch of student loans, and would view the call for the return of standard bankruptcy protections to student loans extremely favorably, and would be strongly inclined to give the candidate making that call very serious consideration.  While few of these voters want to, or would file for bankruptcy on their student loans, they feel, viscerally, the disadvantage put upon them by not having that power.

Given that the majority of people who take out student loans are democrats- a very reasonable assumption- this opens a huge door for Trump.  25 million people struggling with their student loans, 18 million Democrats/Independents.  If Trump were to champion the return of bankruptcy protections to all student loans, he would win over at least half of these folks. 

If Trump were to go further, and put forth a refinancing plan that were better than Hillary Clinton’s or Sen. Bernie Sander’s (I-Vt.) – say, loans that were capped at the long term Treasury rate plus a percent or two – he could well make significant inroads into the remaining borrowers, although that is somewhat less clear.

Interestingly, It turns out that the fear mongering by the banks and the Department of Education that bankruptcy would open up floodgates, and lead to a massive wave of filing is completely without basis. When student loans were treated the same as all other loans in bankruptcy court, less than a tenth of a percent of all loans were discharged this way. Moreover, Robert Lawless, a respected professor and expert on bankruptcy estimates that repealing the special exemption to bankruptcy would result in only about $2.4 billion in discharged debt per year. I actually think the true cost would be about double this, but this is still a nearly negligible amount compared to the outstanding balance of nearly $1.5 trillion in outstanding loans.

Because of his unique experience with bankruptcy, and also because he is not beholden to either the beltway, or the Wall Street crowd, the student loan issue presents an opportunity unique to Trump, one that he could use to demonstrate that the “Invisible hand” of free market capitalism actually can work for the little guy. It would also deliver to him at least 9 million votes from people who would otherwise be disinclined to vote for him- and that is on the low side. Importantly, these would come with no losses from his Republican base. For Trump, this should be a no-brainer.  Its good conservative policy, great politics, and incidentally the right thing to do.

Collinge is founder of StudentLoanJustice.Org and author of The Student Loan Scam (Beacon Press).