4 ms·

That's the compromise to put people on an even playing field though. If you could get rid of them in bankruptcy, they would require a cosigner with credit histo

That's the compromise to put people on an even playing field though. If you could get rid of them in bankruptcy, they would require a cosigner with credit history. Many people don't have access to that, so you would basically be cutting off anyone not middle class or above from college. For loans without a cosigner I'd imagine interest rates would be on par with credit card rates, possibly higher since its a large, unsecured loan. Regardless, you already can get student loans that can be removed in bankruptcy, they just require a cosigner and have higher interest rates so no one wants them. It would be interesting to see schools cosign loans past the 2nd year. They could chapter out underperforming students with an associates after two years since they would be on the hook for repayment past there. Then the loans would still be accessible basically equally and schools would have incentive to keep costs down and be more selective rather than just growing indefinitely.

Spooky23 11y ago
You have a consigner -- the US Government. In most cases the bank is just a processor getting paid for processing. They bear zero downside risk.
chongli 11y ago
It's a chicken-and-egg problem. If it weren't for the easy availability of these loans then tuition would be much lower. This is a classic example of the fallout from adverse selection[0]. [0] https://en.wikipedia.org/wiki/Adverse_selection https://en.wikipedia.org/wiki/Adverse_selection
x0x0 11y ago
So if you look at the evidence, neither of your first two claims are true; that's the problem with speculation when there's actual data available. For-profit student debt was dischargeable in bankruptcy just like almost all debts until 2005, yet there wasn't a wave of opportunistic bankruptcy filings. Interest rates were similar to now. Student debt was made non-dischargeable largely through banks purchasing congresspeople because why not exempt yourself from bankruptcy if you can? There are multiple datasets available that you can find yourself, or eg http://www.slate.com/blogs/moneybox/2015/04/16/student_loans_in_bankruptcy_how_the_bush_administration_pointlessly_screwed.html http://www.slate.com/blogs/moneybox/2015/04/16/student_loans...
- thomaskcr 11y ago
  Those same private loans are still available though - their interest rates are just higher. Either people aren't taking the time to research their options, or they desire the lower interest rate in exchange for lack of bankruptcy protection. Interest rates are lower on the non-dischargable loans, so I'm not sure why you think they're the same when both types currently exist so you can see the difference without the need for guesswork. Additionally, private loans always have and still do take into account the credit history of the borrowers. If you don't have a credit history or someone willing to cosign you're basically out of luck. I don't think opportunistic bankruptcy filings are an issue at all, but I do think it would be an issue for banks to lend significant amounts of money to people with no way to quantify the risk associated with it. I don't have the perfect answer, but I do think it's better to have loans accessible by lower income people than to have the ability to discharge the loans in bankruptcy which by your admission only a small number of people do.
  - DaveWalk 11y ago
    If I understand OP's point correctly, it's that there is no bankruptcy protection whatsoever, even with a qualified co-signer. And maybe there should be. Further, if one does not qualify for government loans, banks are the only place to go, with lower interest rates being a moot point. BTW I am very intrigued by your idea of having a school cosign for a student after the second year. If nothing else it would force schools to think twice about their acceptance habits. It seems to me to be more in line with academia's not-for-profit interests, but I guess tuition dollars are too entrenched at this stage?

Spooky23 11y ago

You have a consigner -- the US Government. In most cases the bank is just a processor getting paid for processing. They bear zero downside risk.

chongli 11y ago

It's a chicken-and-egg problem. If it weren't for the easy availability of these loans then tuition would be much lower. This is a classic example of the fallout from adverse selection[0]. [0] https://en.wikipedia.org/wiki/Adverse_selection https://en.wikipedia.org/wiki/Adverse_selection

x0x0 11y ago

So if you look at the evidence, neither of your first two claims are true; that's the problem with speculation when there's actual data available. For-profit student debt was dischargeable in bankruptcy just like almost all debts until 2005, yet there wasn't a wave of opportunistic bankruptcy filings. Interest rates were similar to now. Student debt was made non-dischargeable largely through banks purchasing congresspeople because why not exempt yourself from bankruptcy if you can? There are multiple datasets available that you can find yourself, or eg http://www.slate.com/blogs/moneybox/2015/04/16/student_loans_in_bankruptcy_how_the_bush_administration_pointlessly_screwed.html http://www.slate.com/blogs/moneybox/2015/04/16/student_loans...

thomaskcr 11y ago
Those same private loans are still available though - their interest rates are just higher. Either people aren't taking the time to research their options, or they desire the lower interest rate in exchange for lack of bankruptcy protection. Interest rates are lower on the non-dischargable loans, so I'm not sure why you think they're the same when both types currently exist so you can see the difference without the need for guesswork. Additionally, private loans always have and still do take into account the credit history of the borrowers. If you don't have a credit history or someone willing to cosign you're basically out of luck. I don't think opportunistic bankruptcy filings are an issue at all, but I do think it would be an issue for banks to lend significant amounts of money to people with no way to quantify the risk associated with it. I don't have the perfect answer, but I do think it's better to have loans accessible by lower income people than to have the ability to discharge the loans in bankruptcy which by your admission only a small number of people do.
- DaveWalk 11y ago
  If I understand OP's point correctly, it's that there is no bankruptcy protection whatsoever, even with a qualified co-signer. And maybe there should be. Further, if one does not qualify for government loans, banks are the only place to go, with lower interest rates being a moot point. BTW I am very intrigued by your idea of having a school cosign for a student after the second year. If nothing else it would force schools to think twice about their acceptance habits. It seems to me to be more in line with academia's not-for-profit interests, but I guess tuition dollars are too entrenched at this stage?