For those who just read the title, the cause of this new high is ballooning student debt, not mortgages. Housing debt is still mostly declining.
Student loan debt is dischargeable in bankruptcy, though it has a higher bar than most other debt.
> If it were, banks would be far less likely to issue them
Banks issue less than 10%, by dollar value, of student loans; the vast majority are federal direct loans. Even if banks dropped out of issuing them completely, it wouldn't make the kind of difference you suggest.
Call it a slippery slope fallacy, but it's not fallacious when you realize we are rational beings (for the most part) and this loophole is attractive.
It's easy to be "rational" as armchair economists, but social norms and pride are a very important driver. It's what baffles real economists when they gripe "our models would work, if the world were rational!"
So now, I guess, lenders at least need to consider whether a student is a flight risk. If not, they'll eventually be able to collect, presumably.
We should have a marketplace where the normal incentives exist. Does an educational plan make sense? Does the student have aptitude and work ethic for the chosen career? Will there be a job waiting for this student when they graduate?
If bankruptcy were possible, these questions would be more important.
Because there isn't a way to take back the knowledge/skills/information learned while in college. If you default on a home loan, then can take your house. If you default on a car loan, they can take your car.
What can they do when you default on your student loans?
Time does that anyway, you'd be surprised how much you forget when you don't use it everyday. Plus the knowledge get's stale. A university degree depreciates just like everything else.
The price you pay for that guarantee is that you can't declare bankruptcy. The government is propping up this industry and it has some parallels to the US housing before 08 (encouraging lending to subprime homebuyers)