37 ms·

I'd love to see more discussion on this. On the one hand -- allow bankruptcy and this problem literally can't exist. Further, with the rule in hand, endless tui

I'd love to see more discussion on this. On the one hand -- allow bankruptcy and this problem literally can't exist. Further, with the rule in hand, endless tuition increases seem inevitable (because its easy to take out larger loans). But on the other, without that rule, loans to lower income individuals wouldn't happen, and discrimination would be practically inevitable. (this is how I believe the arguments on either side go).

blisterpeanuts 10y ago
You can't allow bankruptcy because there's no collateral to these loans, only the vague promise that the borrower will use their degree to make a good income some day. For example, home mortgages are breakable because the bank gets the house. What does the bank get when you break your Sallie Mae loan? Zero. Only the government would lend money knowing the borrower might never pay it back. They might as well be honest and just subsidize tuition, in that case.
- dragonwriter 10y ago
  > You can't allow bankruptcy because there's no collateral to these loans Unsecured loans are often dischargeable in bankruptcy (even student loans are, though its harder than most other unsecured loans.) The idea that only secured loans can be discharged in bankruptcy is false. > Only the government would lend money knowing the borrower might never pay it back. Obviously false, as private insitutions do issue unsecured credit that is dischargeable in bankruptcy.
  - seiferteric 10y ago
    Sure, but then the interest rates on student loans would by necessity be much higher.
jasode 10y ago
>allow bankruptcy and this problem literally can't exist. You're just creating a different problem. Back when school loans could be discharged, a new doctor could declare bankruptcy immediately after medical school to wipe out the $200k in student debt. Well, if you allow that "moral hazard", it means the price (a.k.a. interest rates) for those loans must increase to account for the increase in defaults and worthless loans. It means poorer people can't go to school because the interest rates loans are too high. Tweak the economic game and you get a different problem instead of solving all problems. The doctor/lawyer/engineer wipes out the school loans but the banks can't take back the "education" in the graduates' brains. The graduates go on to earn a living and the banks get nothing. In other words, it's an unsecured loan. There are other unsecured loans that can be discharged such as credit cards. But their interest rates of 22% reflect the higher risks of nonpayment and no significant recovery of money when liquidating debtor's assets in bankruptcy court. Student loans are 6% instead of 22% interest rate[1][2]. They don't have to so high because they can't be discharged (easily) and they are guaranteed by the government. [1]https://studentaid.ed.gov/sa/about/announcements/interest-rate https://studentaid.ed.gov/sa/about/announcements/interest-ra... [2]http://www.valuepenguin.com/average-credit-card-interest-rates http://www.valuepenguin.com/average-credit-card-interest-rat...
- dalke 10y ago
  "A different problem" indeed, but ones that most other countries solve by not having an expensive medical program which requires students to acquire $200K of personal debt first. As an extreme case, Cuba uses "medical diplomacy" to train foreign students to be doctors, including students from the US who want to work in poor and rural areas in the US and don't want to be $100K+ in debt.
- iofj 10y ago
  > Student loans are 6% instead of 22% interest rate[1][2]. They don't have to so high because they can't be discharged and they are guaranteed by the government. Maybe we should allow people to sell themselves and their future families into eternal servitude for loans ? We could have 1% student loans ! Hurray ! This is effectively slavery, and it should be illegal.

blisterpeanuts 10y ago

You can't allow bankruptcy because there's no collateral to these loans, only the vague promise that the borrower will use their degree to make a good income some day. For example, home mortgages are breakable because the bank gets the house. What does the bank get when you break your Sallie Mae loan? Zero. Only the government would lend money knowing the borrower might never pay it back. They might as well be honest and just subsidize tuition, in that case.

dragonwriter 10y ago
> You can't allow bankruptcy because there's no collateral to these loans Unsecured loans are often dischargeable in bankruptcy (even student loans are, though its harder than most other unsecured loans.) The idea that only secured loans can be discharged in bankruptcy is false. > Only the government would lend money knowing the borrower might never pay it back. Obviously false, as private insitutions do issue unsecured credit that is dischargeable in bankruptcy.
- seiferteric 10y ago
  Sure, but then the interest rates on student loans would by necessity be much higher.

jasode 10y ago

>allow bankruptcy and this problem literally can't exist. You're just creating a different problem. Back when school loans could be discharged, a new doctor could declare bankruptcy immediately after medical school to wipe out the $200k in student debt. Well, if you allow that "moral hazard", it means the price (a.k.a. interest rates) for those loans must increase to account for the increase in defaults and worthless loans. It means poorer people can't go to school because the interest rates loans are too high. Tweak the economic game and you get a different problem instead of solving all problems. The doctor/lawyer/engineer wipes out the school loans but the banks can't take back the "education" in the graduates' brains. The graduates go on to earn a living and the banks get nothing. In other words, it's an unsecured loan. There are other unsecured loans that can be discharged such as credit cards. But their interest rates of 22% reflect the higher risks of nonpayment and no significant recovery of money when liquidating debtor's assets in bankruptcy court. Student loans are 6% instead of 22% interest rate[1][2]. They don't have to so high because they can't be discharged (easily) and they are guaranteed by the government. [1]https://studentaid.ed.gov/sa/about/announcements/interest-rate https://studentaid.ed.gov/sa/about/announcements/interest-ra... [2]http://www.valuepenguin.com/average-credit-card-interest-rates http://www.valuepenguin.com/average-credit-card-interest-rat...

dalke 10y ago
"A different problem" indeed, but ones that most other countries solve by not having an expensive medical program which requires students to acquire $200K of personal debt first. As an extreme case, Cuba uses "medical diplomacy" to train foreign students to be doctors, including students from the US who want to work in poor and rural areas in the US and don't want to be $100K+ in debt.
iofj 10y ago
> Student loans are 6% instead of 22% interest rate[1][2]. They don't have to so high because they can't be discharged and they are guaranteed by the government. Maybe we should allow people to sell themselves and their future families into eternal servitude for loans ? We could have 1% student loans ! Hurray ! This is effectively slavery, and it should be illegal.