Perfect solution - except that in bankruptcy student loans are not cancelled/forgiven/whatever the term is.
Bringing back debtor's prison is another way we could get these deadbeats a low-paying job so they could pay off their obligation. Some jurisdictions already put folks who cannot make child support or court costs & fines on the County Farm.
We have a thoroughly corrupt legal system already, and where it's not corrupt, it's pay to play. We already DO have already debtor's prisons for poor people. If you're fined by a judge and you don't or can't pay, you go to jail. Mandatory prison work pays between $0.23-$1.15 (inside UNICOR), non-UNICOR varies but can be as low as $0.12.
Working at $0.12, you will never realistically pay any debt. If one worked 12 hours a day, 7 days a week, 365 days a year, you'd make $3,679.20. While theoretically unnecessary, some percentage of that would realistically be needed to buy basic supplies (toothpaste, socks, whatever) from the commissary which has significantly inflated prices.
Chris could tell you in much more detail than I, but we already have a legal system is overwhelmingly pay-to-play. Let's give an example.
Two girls are basically found guilty of whatever. Same crime at the same time. Vandalism or destruction of property. First time offenders, no serious background. Just dumb kid stuff.
One girl comes from an alright family, not rich but solid middle class. Parents pay for an alright lawyer. Not cheap, but not hideously expensive. Family isn't hugely important or anything, but belongs to a decent sized church, knows plenty of neighbors, etc. Not someone the prosecutor is actively afraid of, but could be a decent number of lost votes. Lawyer asks judge to agree to repayment for damages, therapy at the family's expense, community service. Think a judge is going to turn that deal down? Nope. Family drops $10k ish and the girl has to do hundred hours of community service, which guaranteed isn't breaking rocks.
Other girl has a single mother with a not great but not terrible, doesn't have great credit and gets a juvvie public defender. Doesn't have the cash for expensive therapy, and the government program is insanely overbooked.
Your solution is, what..? Throw the kid in debtor prison? The mother? Suppose the kid or mother is an absolute master craftsman and makes the absolutely top and unrealistic prison wages of a buck an hour. If the damage was a grand and court fees were $4000 (not unrealistic), that's two and a half years in prison. At a more realistic $0.30 wage, you're talking 16,666 hours of labor or 8 years in debtor prison. Possibly a lot more, because prisons now charge fees for plenty of things.
If you think any part of the above is not standard procedure now, please let me know and I'd be happy to go into more detail.
You'd think all the law firms would be out of business by now, given the high standards of honesty and old timey handshake deals described in this post.
Breach of contract (including loan contracts) happens all the time for business reasons. It's just that it only becomes a moral issue when consumers do it.
If only the banks took such a moral approach to managing consumer accounts!
Banks give millions to the politicians to get elected, help draft the laws, then put their people into the regulatory slots. So, yeah. It's just a moral issue when folks who can't buy the government break the law or contracts.
List of some of the Sachs folks in the current administration.
http://www.nachumlist.com/goldmansachsobama.htm