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It is remarkable that you cannot declare bankruptcy from student debt. We have essentially decoupled the price of college from the expected return.

nemo44x 9y ago
The other side of it is everyone qualifies for a loan. So there's an enormous amount of risk associated with it and the interest rates do not reflect that risk. It's difficult to loan 18-year olds money as they tend to lack income and credit worthiness and it's also unreasonable to expect an 18-year old to really understand the future debt they are setting themselves up for.
- StudentStuff 9y ago
  Hence why the federal government backs nearly every student loan either directly or indirectly. None of the private banks risk their own money in this market, as the feds have happily hand them cash and encourage said banks to loan it out! This has resulted in costs spiraling out of control, as universities can charge whatever they want with minimal repercussions, and students often end up with the STD known as student loans haunting them for the rest of their lives.
ChrisBland 9y ago
If we didn't prevent it, then you'd be stupid to not go to college take out $120k in loans and then declare bankruptcy at 22 prior to taking a job (you'd have no income and no assets). You'd be 29 by the time the bankruptcy fell off your credit report, meaning credit might be tight in those years to buy a car or house, but you'd be debt free - something many people in their 20s and 30s would gladly do if they were given the option. Since a degree is not tangible, there is nothing to secure it with, they can't foreclose on your education like they can a piece of property. Without anything to secure it, there would be 0 market for college loans except for the privileged who can pay out of pocket for their education. IMO the only way to solve it is to put the school on the hook for part of the $$ if the default rate exceeds X%. Then it forces the school to look at costs, as well as expected outcomes of the program. At the end of the day, maybe giving an 18 year old 120k to study underwater basket weaving for 4 years is not the best investment of money?
- distances 9y ago
  Or alternatively, you could make sure there's an affordable public option for university level education for qualifying students, to avoid the need for a loan in the first place. It was feasible before, and I'm sure there isn't any non-political reason why it'd be impossible now.
  - maxerickson 9y ago
    The percentage of the population that enrolls in college has increased dramatically, so a given level of individual support has become more expensive in total. (I don't mean the above to really try to address whether it is feasible, just to point out that the situation has changed)
    - harryh 9y ago
      In addition to this very good point, Baumol's cost disease makes education ever more expensive as long as it is a labor intensive practice.
    - briandear 9y ago
      However, university cost inflation is even greater than health care costs. One of the only logical reasons is that as more “free” or “cheap” government money enters the system, the more inflation. Ready availability of student loans has made universities much more insulated from market pressures than “normal” industries. If you were to eliminate student loans, costs would drop like a rock. You wouldn’t have universities hiring endless Vice Provosts of Some Bullshit Initiative or spending 10s of millions building “Student Life Centers” or luxury-level athletic facilities for sports that aren’t revenue self-sustaining. Universities are like the military — they pay the privates (adjunct professors) almost nothing while spending huge money on things like the Crusader Artilley System (insert random boondoggle university initiative here.) Considering university tuition at a private university for a single student per year is literally more expensive than the salary of a single low level professor, it’s clear universities are running quite a racket. And we haven’t even touched on the insanity that is textbook pricing.
rayiner 9y ago
It's hardly remarkable. Student loans are originated without regard to credit risk, at the same interest rate for all borrowers. Moreover, pretty much every student is eligible to declare bankruptcy soon (and often, long) after they graduate. Requiring loans to be freely originated on one hand, and permitting people to discharge them in bankruptcy on the other, would be completely unworkable. As to why we require loans to be originated without regard to credit risk: if we took credit risk into account, disadvantaged groups would get student loans at drastically decreased rates. That, in turn, would undermine our bipartisan narrative that the way to overcome all the bad things America did to certain people is not to fix the resulting problems, but for everyone to get a college education.
- arkades 9y ago
  Is this same logic supposed to apply to professional school debt, which likewise can’t be discharged despite the extremely low credit risk?
  - tptacek 9y ago
    Yes. If your credit risk is so low that non-dischargeability is a bad deal, presumably you can just get a private, fully dischargeable loan. The basic structure of this argument is really straightforward: if student loans were dischargeable in bankruptcy, it would be irrational for a lot of student borrowers not to go into chapter 7 after school, when their earnings are so low that they qualify and their time horizon for major financial decisions is so far into the future that their current credit rating doesn't matter.
- kharms 9y ago
  >Student loans are originated without regard to credit risk, at the same interest rate for all borrowers. That's not entirely true. For undergraduate students, no more than $57,500 can be loaned from the government at a fixed 4.45% APR. This is what you're talking about. If you need more than $57k (which you would even at most state schools) you need to get a private loan. Private loans have variable APR based on your and your cosigners credit history. Sallie Mae offers loans with an APR between 5.74 and 11.85.
amorphid 9y ago
As someone who exited a chapter 7 bankruptcy (all dischargeable debts wiped out) in 2010 with $140K USD in student loans, I can say with certainty that student loan debt sucks.
- tudelo 9y ago
  Oh wow. That must be some story about how you racked those up. I wish you luck.
  - amorphid 9y ago
    Imagine a person who is the paragon on personal finance, wise & disciplined in all aspects of borrowing & spending; I was the opposite in my college days & grad school days :) It's better now. Yay!
madengr 9y ago
Because there is no collateral.

nemo44x 9y ago

The other side of it is everyone qualifies for a loan. So there's an enormous amount of risk associated with it and the interest rates do not reflect that risk. It's difficult to loan 18-year olds money as they tend to lack income and credit worthiness and it's also unreasonable to expect an 18-year old to really understand the future debt they are setting themselves up for.

StudentStuff 9y ago
Hence why the federal government backs nearly every student loan either directly or indirectly. None of the private banks risk their own money in this market, as the feds have happily hand them cash and encourage said banks to loan it out! This has resulted in costs spiraling out of control, as universities can charge whatever they want with minimal repercussions, and students often end up with the STD known as student loans haunting them for the rest of their lives.

ChrisBland 9y ago

If we didn't prevent it, then you'd be stupid to not go to college take out $120k in loans and then declare bankruptcy at 22 prior to taking a job (you'd have no income and no assets). You'd be 29 by the time the bankruptcy fell off your credit report, meaning credit might be tight in those years to buy a car or house, but you'd be debt free - something many people in their 20s and 30s would gladly do if they were given the option. Since a degree is not tangible, there is nothing to secure it with, they can't foreclose on your education like they can a piece of property. Without anything to secure it, there would be 0 market for college loans except for the privileged who can pay out of pocket for their education. IMO the only way to solve it is to put the school on the hook for part of the $$ if the default rate exceeds X%. Then it forces the school to look at costs, as well as expected outcomes of the program. At the end of the day, maybe giving an 18 year old 120k to study underwater basket weaving for 4 years is not the best investment of money?

distances 9y ago
Or alternatively, you could make sure there's an affordable public option for university level education for qualifying students, to avoid the need for a loan in the first place. It was feasible before, and I'm sure there isn't any non-political reason why it'd be impossible now.
- maxerickson 9y ago
  The percentage of the population that enrolls in college has increased dramatically, so a given level of individual support has become more expensive in total. (I don't mean the above to really try to address whether it is feasible, just to point out that the situation has changed)
  - harryh 9y ago
    In addition to this very good point, Baumol's cost disease makes education ever more expensive as long as it is a labor intensive practice.
  - briandear 9y ago
    However, university cost inflation is even greater than health care costs. One of the only logical reasons is that as more “free” or “cheap” government money enters the system, the more inflation. Ready availability of student loans has made universities much more insulated from market pressures than “normal” industries. If you were to eliminate student loans, costs would drop like a rock. You wouldn’t have universities hiring endless Vice Provosts of Some Bullshit Initiative or spending 10s of millions building “Student Life Centers” or luxury-level athletic facilities for sports that aren’t revenue self-sustaining. Universities are like the military — they pay the privates (adjunct professors) almost nothing while spending huge money on things like the Crusader Artilley System (insert random boondoggle university initiative here.) Considering university tuition at a private university for a single student per year is literally more expensive than the salary of a single low level professor, it’s clear universities are running quite a racket. And we haven’t even touched on the insanity that is textbook pricing.

rayiner 9y ago

It's hardly remarkable. Student loans are originated without regard to credit risk, at the same interest rate for all borrowers. Moreover, pretty much every student is eligible to declare bankruptcy soon (and often, long) after they graduate. Requiring loans to be freely originated on one hand, and permitting people to discharge them in bankruptcy on the other, would be completely unworkable. As to why we require loans to be originated without regard to credit risk: if we took credit risk into account, disadvantaged groups would get student loans at drastically decreased rates. That, in turn, would undermine our bipartisan narrative that the way to overcome all the bad things America did to certain people is not to fix the resulting problems, but for everyone to get a college education.

arkades 9y ago
Is this same logic supposed to apply to professional school debt, which likewise can’t be discharged despite the extremely low credit risk?
- tptacek 9y ago
  Yes. If your credit risk is so low that non-dischargeability is a bad deal, presumably you can just get a private, fully dischargeable loan. The basic structure of this argument is really straightforward: if student loans were dischargeable in bankruptcy, it would be irrational for a lot of student borrowers not to go into chapter 7 after school, when their earnings are so low that they qualify and their time horizon for major financial decisions is so far into the future that their current credit rating doesn't matter.
kharms 9y ago
>Student loans are originated without regard to credit risk, at the same interest rate for all borrowers. That's not entirely true. For undergraduate students, no more than $57,500 can be loaned from the government at a fixed 4.45% APR. This is what you're talking about. If you need more than $57k (which you would even at most state schools) you need to get a private loan. Private loans have variable APR based on your and your cosigners credit history. Sallie Mae offers loans with an APR between 5.74 and 11.85.

amorphid 9y ago

As someone who exited a chapter 7 bankruptcy (all dischargeable debts wiped out) in 2010 with $140K USD in student loans, I can say with certainty that student loan debt sucks.

tudelo 9y ago
Oh wow. That must be some story about how you racked those up. I wish you luck.
- amorphid 9y ago
  Imagine a person who is the paragon on personal finance, wise & disciplined in all aspects of borrowing & spending; I was the opposite in my college days & grad school days :) It's better now. Yay!

madengr 9y ago

Because there is no collateral.