In early 1793, Louis XVI no longer had a need for hats.

Among his sins, he had failed to do an adequate risk assessment of the restless mob, angrier and more powerful than he expected. They rose up in numbers, storming both the fetid Bastille and the perfumed gardens at Versailles.

The French peasantry had suffered years of hunger and neglect by the rich and insulated elite. When food became unaffordable, bread scarce, and the nobility still held extravagant feasts, the rage boiled over.

“Let them eat cake,” probably wrongly attributed to Marie Antoinette, served to reflect the image of a monarchy that had grown dangerously indifferent to its people’s pain. That indifference fueled fury, then rebellion, then ultimately, regime collapse.

Currently in America, we are not yet storming castles or guillotining nobility, but the seeds of economic discontent are unmistakable. And this discontent creates risks.

Today's Peons Have Degrees

I had a professor at UCLA who was fanatically enthusiastic about medieval England. Peons, I learned by his animated lectures, were indebted to the landholder and were bound to the land until the debt was paid.

The modern peons are all college grads. We have a generation of people, bound to pay year after year, to purchase a future that they slide further into with every tick of the clock, all the while wondering, is this what I bargained for?

Our culture sold this concept of education as the ticket to economic mobility. Unfortunately, the rising cost of education has greatly exceeded income growth. And as a result, graduates begin life after school massively in debt. Currently, total student debt in the US stands at more than $1.7 trillion, with the average student owing in the range of $40,000.

And how did we get here? In the US we exhaust ourselves with laws making us fair and nice and even-handed with our borrowers. And yet we make student loans to kids who likely can’t define amortization. And these loans are special – they are not like credit cards or cars – these loans are going to be like that Spring break Cabo tattoo – forever yours. You don’t get rid of them in bankruptcy, not unless you can prove "undue hardship." And Congress did this on purpose, yielding to the effective lobbying by banks that birthed this freakish, asymmetrical treatment of college debt. Biden tried to help them out. He failed.

Adding to this woeful agglomeration of life handicaps, when the future becomes the present to these college grads, it's a gig economy, not the salaried-with-benefits-with-pension job they’d imagined.

Asymmetrical Treatment Breeds Discontent

In looking for a rationale, however, I am unsuccessful. Is the decision to pay $100,000 for a sociology degree any more defensible than investing in a local Build-A-Bear? Failed entrepreneurs can use the bankruptcy courts to provide a do-over, that is, if they are willing to undergo the pain of a bankruptcy. There appears to be no such relief for college debt.

Bad decisions lead to bad results, but we've decided that only the decision to get a degree is unforgivable.

As a result, the societal message to an entire generation of American college grads is that the system works for some people, but not you.

Making Student Debt Dischargeable

What if there were a way to convert student debt into dischargeable credit card debt? 

Here's one potential method: A college grad with $100,000 in student debt starts a business that is betting on gold prices. The grad maxes out credit cards by buying gold bars at Costco. He buys 40 ounces of gold at $3,000 per ounce, totaling about $120,000. Then he changes his mind before he even gets home. He decides to liquidate the business, selling the gold at a bargain price to friends and family, netting about $100,000 in cash. The college grad uses that $100,000 and pays off his student loans. He waits more than 90 days then files bankruptcy on the now-maxed credit cards. Business failure. Personal success.

Morally reprehensible? Sure. Doable? Probably.

And the plan works with gold bars or 100 iphones. Buy inventory, change your mind, liquidate the inventory and pay off the student loans. Then file bk. At some point in the future, college grads may take matters into their own hands and wield the bankruptcy code like a pitchfork.

Lest you think this can't happen, in 1789, fed-up peasants burned debt records and stormed feudal estates. They weren’t worried about “legal and moral.” They were concerned only with effectiveness. 

Likelihood and Severity of Risk

As a risk professional, your job is to prepare for eventualities, grading them by severity and likelihood of occurrence. Marie Antoinette was executed nine months after Louis because she didn’t get out of Paris in time; she was captured 180 miles east of Versailles, on her way to Luxembourg. Another risk management failure.

In the US, the political revolution has already happened. Will there be an economic revolution? Have we performed an adequate risk assessment of our own restless mob? Do we have a plan for ameliorating the indignation of those treated dismissively by those already behind the walls, with bellies full?

If Congress does not help our indebted college grads, if their attitude is “let them eat cake,” then our indentured baccalaureates may find resolve in conduct that few ever expected, and no one ever prepared for. That is, converting non-dischargeable student debt to dischargeable credit card debt.

A trillion-dollar strategic default is not inconceivable.