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It seems like the root problem is that students cannot declare bankruptcy on student loans. If they could do that then lenders would adjust for risk accordingly

It seems like the root problem is that students cannot declare bankruptcy on student loans. If they could do that then lenders would adjust for risk accordingly which would lower the availability of loans, which would in turn drive tuition down. I know there's an argument that students will just declare bankruptcy after graduating, but if that's the case then the solution would be to make bankruptcy less appealing via disincentives (more penalties for declaring bankruptcy). Making student loans exempt from bankruptcy is distorting the loan markets and, in turn, tuition. If restricting the availability of loans creates a situation in which the higher education is unavailable to students without financial means, then the state should make free or very low cost higher education available to offset this. The solutions are so obvious that it's pretty clear that the financing of student loans is a giant con at this point.

leetcrew 9y ago
if students could declare bankruptcy there would probably be no student loans. there are already very few private loans available to students without substantial credit history or a cosigner. how could the numbers possibly work out? to graduate in four years from a state university (paying in-state tuition) costs about $44k. a typical college freshman has close to zero assets and no credit. if they have any income, it's probably a part-time minimum wage job. assuming they don't qualify for any aid, these people need to borrow about $10k each year and likely won't pay any of it back until they get a degree. now let's pause for a moment. how many ways can you get an unsecured $10k loan with limited to no credit history? they basically don't exist. you would need to build credit for a long time before you got a limit anywhere near that on a credit card, and their whole business model revolves around loaning people more money than they should. now consider that in the US, about 40% of students fail to get their bachelors in 6 years. obviously these people will not be able to use the degree to obtain employment, and probably will not ever pay down the debt in full unless they enter a lucrative trade that didn't require the degree in the first place. if we assume that the students who graduate are able to repay the loan, they have to pay a significant amount of interest before the lender breaks even on the group of loans. and keep in mind that there's no guarantee that a student who graduates has acquired a degree that actually improves their earning potential. so tl;dr: it is really hard to offer a reasonable loan of that size to an 18yo with no skills/assets who stands a substantial chance of either not finishing or finishing with a valueless (to the market) degree.
- ejnulls 9y ago
  You used to be able to discharge student loans through bankruptcy and guess what?? The sky didn't fall down. However, that was also when a year of college could be paid for by a minimum-wage summer job. Now it's egregiously expensive AND they've got you by the balls.
  - StudentStuff 9y ago
    Plus, remember that all these banks "offering" student loans aren't actually financing them, that is the domain of the federal government.
  - leetcrew 9y ago
    the last time you could discharge student loans in bankruptcy without satisfying special conditions was 1976 in the US. but that was a time where an undergrad degree was relatively cheap, and not many people took out loans in the first place. I don't disagree that something is seriously messed up in this country's higher education system, but the discharge exemption for student loans is probably one of the few things that keeps the system even slightly economic. like I said above, you cannot just lend huge chunks of money to kids without making any risk assessment and also allow them to default whenever. at least, you can't do this unless your intention is to lose money. if I had to have a guess, I would say that the main contributor to our outrageous education costs is the government making all these uneconomic loans in the first place.
SOLAR_FIELDS 9y ago
Alternate suggestion: Force all endowment gains from investments to be applied towards lowering student tuition until tuition is free, then the school can happily invest to their heart’s content. It could still probably be gamed to some extent but would at least prevent the somewhat disgusting situation of stacking tens of millions yearly into endowment funds while gutting the futures of students by raising tuition

leetcrew 9y ago

if students could declare bankruptcy there would probably be no student loans. there are already very few private loans available to students without substantial credit history or a cosigner. how could the numbers possibly work out? to graduate in four years from a state university (paying in-state tuition) costs about $44k. a typical college freshman has close to zero assets and no credit. if they have any income, it's probably a part-time minimum wage job. assuming they don't qualify for any aid, these people need to borrow about $10k each year and likely won't pay any of it back until they get a degree. now let's pause for a moment. how many ways can you get an unsecured $10k loan with limited to no credit history? they basically don't exist. you would need to build credit for a long time before you got a limit anywhere near that on a credit card, and their whole business model revolves around loaning people more money than they should. now consider that in the US, about 40% of students fail to get their bachelors in 6 years. obviously these people will not be able to use the degree to obtain employment, and probably will not ever pay down the debt in full unless they enter a lucrative trade that didn't require the degree in the first place. if we assume that the students who graduate are able to repay the loan, they have to pay a significant amount of interest before the lender breaks even on the group of loans. and keep in mind that there's no guarantee that a student who graduates has acquired a degree that actually improves their earning potential. so tl;dr: it is really hard to offer a reasonable loan of that size to an 18yo with no skills/assets who stands a substantial chance of either not finishing or finishing with a valueless (to the market) degree.

ejnulls 9y ago
You used to be able to discharge student loans through bankruptcy and guess what?? The sky didn't fall down. However, that was also when a year of college could be paid for by a minimum-wage summer job. Now it's egregiously expensive AND they've got you by the balls.
- StudentStuff 9y ago
  Plus, remember that all these banks "offering" student loans aren't actually financing them, that is the domain of the federal government.
- leetcrew 9y ago
  the last time you could discharge student loans in bankruptcy without satisfying special conditions was 1976 in the US. but that was a time where an undergrad degree was relatively cheap, and not many people took out loans in the first place. I don't disagree that something is seriously messed up in this country's higher education system, but the discharge exemption for student loans is probably one of the few things that keeps the system even slightly economic. like I said above, you cannot just lend huge chunks of money to kids without making any risk assessment and also allow them to default whenever. at least, you can't do this unless your intention is to lose money. if I had to have a guess, I would say that the main contributor to our outrageous education costs is the government making all these uneconomic loans in the first place.

SOLAR_FIELDS 9y ago

Alternate suggestion: Force all endowment gains from investments to be applied towards lowering student tuition until tuition is free, then the school can happily invest to their heart’s content. It could still probably be gamed to some extent but would at least prevent the somewhat disgusting situation of stacking tens of millions yearly into endowment funds while gutting the futures of students by raising tuition