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> A potential fix would be to limit the amount of government-backed student loans to something people can reasonably pay off. They DO limit the amount of gover

> A potential fix would be to limit the amount of government-backed student loans to something people can reasonably pay off. They DO limit the amount of government-backed loans you can take for an undergraduate degree to $31,000 (or $57,500 if you can convince TPTB that you are 'independent', which is much harder than it sounds.) Other loans don't have limits, but aren't government backed. They're private loans but get many of the same privileges, including that the loans aren't dischargeable in bankruptcy. This sort of makes sense, because you can't repossess a degree, but it also sort of doesn't because of the points you made.

derefr 9y ago
Insofar as bankruptcy itself was meant to be an "escape hatch" to avoid designing forgiveness into every element of the system, adding any situation where bankruptcy is impossible seems like it destroys the purpose of having bankruptcy exist in the first place. I mean, I get the real problem: just-graduated students have no assets, but a lot of debt, so they have no disincentive from declaring bankruptcy. Hard to come up with a solution to that, since—if the just-graduated student had assets—they'd just be able to pay the debt with them.
- mejin 9y ago
  Imo, one solution would be for high schools to encourage students to work for 3 years doing unskilled labor until they make enough money to pay for 3 years of college. Then for the 4th year they can get a part time job in their field and maybe extend their degree one more year. In the end they will be entering the professional workforce a few years later, but that isn't so bad and may help them mature.
  - michaelmrose 9y ago
    This is patently ridiculous. Many people going to school also can't live at home with mom and dad or at least can't live off mom and dad. 3 years of unskilled labor will leave a lot with just enough to support themselves while the cost of education managed to go up in those 3 years more than inflation. Meanwhile you missed out on years of good earnings at your chosen profession. Working your way through school has become somewhat laughable. Your advice would leave the majority of people much poorer for following it.
  - zanny 9y ago
    This is just fundamentally a waste of time and talent. If you have the time to work enough to pay for 3 years of college in high school and still perform well in the school itself and jump through all the hoops required to get into that prestigious school you always wanted with a plethora of extracurriculars you aren't learning jack in high school anyway and are probably doing severe harm to yourself working so many hours of the day. Education in general is messed up, mostly because years 5-18 are almost exclusively a black hole of nothing for most people where you go to learn to read, write, and do arithmetic. Which most people will do by age 8. Then there's a decade of Shakespeare, algebra, and dissecting frogs which plenty of people use in their daily lives and that plenty of employers eagerly need more of in the workforce.
- markshead 9y ago
  > adding any situation where bankruptcy is impossible seems like it destroys the purpose of having bankruptcy exist in the first place. Agreed, but keep in mind we aren't talking about loans in the traditional sense. Normally a loan requires some entity to take on the risk of default. With student loans this would mean looking at what the individual was studying, how much of their own money they were supplying, the typical default rate, etc. The amount that they will loan and the interest rate will be determined by the answers to those questions. When you have the government making loans to students without asking those questions, you are no longer running a normal loan program. When you remove the way a loan program usually adjusts to the risks up front, you have to try to deal with the risk elsewhere. This is done by removing the bankruptcy option. I think the solution is to account for the risk of the loan up front like we do with other loans. This probably means removing or decreasing the government's role in issuing these types of loans. Eventually, I could see colleges sharing the default risk with a private bank. Colleges who don't think their education is worth much would be less likely to participate in such a program, but that probably isn't a bad thing.
- dilap 9y ago
  make them dischargeable by bankrupcty after 5 or 10 years. or just make them dischargeable by bankrupcty and let the market price in the default rate and see what happens. it’s terrible policy & imo immoral to let people be stuck in virtual debt peonage their entire life because of loans they took out at 18.
  - markshead 9y ago
    > make them dischargeable by bankrupcty and let the market price in the default rate and see what happens. These loans aren't coming from the market. If students had to go to a private bank and make a case about why they were a good investment, student loans would look a lot different--to say nothing about college in general.
    - dilap 9y ago
      aren’t many of them? i remember my wells fargo atm always trying to get me interested in a student loan...
      - markshead 9y ago
        Banks used to be able to loan you money but have it guaranteed by the government. I think that ended in 2010. Wells Fargo does offer a type of student loan, but it looks like you have to have someone cosign it with you (probably your parents). Back in the 90s over 90% of student loans were Federal. I'm not sure what the percentage is now.
- faceplanted 9y ago
  I feel like the only replacement for bankruptcy that works for people coming out of college with few assets is to require any unbankruptable (Is there a real word for this concept?) loan to have a minimum income required for repayment, meaning that if you come out of college unemployed or fail out you have a safety buffer between unemployment and destitution that you won't want to enter intentionally. Similar to the UK system, not that the UK system is currently doing any good.
markshead 9y ago
As I understand it, subsidized loans mean that the government will pay your interest for awhile. Unsubsidized Federal Student Loans are still loans from the government, but you have to start paying interest right away. As far as I can tell, a combination of different loan programs the government will loan any amount of money toward the cost of college with the only "limit" being for undergraduates. Your parents have to take out the loan for an amount in excess of the $12.5k to $18k yearly undergraduate limit. Once you get to grad school you can borrow the entire amount directly. Once you get to the Plus loan program (which doesn't appear to have any limit) there is a credit check required. There used to be a private loan program (FFEL) where the government would guarantee the loan amount, but I think that was shut down in 2010. I'm sure you can also go to a bank and just get a loan directly, but I don't know what type of special rules apply to those.
- gergles 9y ago
  The limits I mentioned include both subsidized and unsubsidized federal loan programs. Any further amount you receive is either a private loan or PLUS. PLUS loans are made to the parent on behalf of the student, and actually were dischargeable by the parents' bankruptcy last I checked. The graduate school limits are higher, but still exist. Med school students, for example, simply cannot fund their entire education through federal loans. The maximum period you can get through federal loans in any circumstance is around $140K, and medical school almost universally costs more than that.
  - markshead 9y ago
    Everything I've seen suggests that Plus loans will cover any cost of attendance at a college that isn't covered by other financial aid. https://studentaid.ed.gov/sa/types/loans/plus#how-much https://studentaid.ed.gov/sa/types/loans/plus#how-much It is possible to discharge student loans (not just Plus loans) in bankruptcy, but you have to basically prove that you can't survive while still making the payments. I don't know if it is easier to discharge the Plus loans or if they all require the same level of hardship.
    - 9y ago

derefr 9y ago

Insofar as bankruptcy itself was meant to be an "escape hatch" to avoid designing forgiveness into every element of the system, adding any situation where bankruptcy is impossible seems like it destroys the purpose of having bankruptcy exist in the first place. I mean, I get the real problem: just-graduated students have no assets, but a lot of debt, so they have no disincentive from declaring bankruptcy. Hard to come up with a solution to that, since—if the just-graduated student had assets—they'd just be able to pay the debt with them.

mejin 9y ago
Imo, one solution would be for high schools to encourage students to work for 3 years doing unskilled labor until they make enough money to pay for 3 years of college. Then for the 4th year they can get a part time job in their field and maybe extend their degree one more year. In the end they will be entering the professional workforce a few years later, but that isn't so bad and may help them mature.
- michaelmrose 9y ago
  This is patently ridiculous. Many people going to school also can't live at home with mom and dad or at least can't live off mom and dad. 3 years of unskilled labor will leave a lot with just enough to support themselves while the cost of education managed to go up in those 3 years more than inflation. Meanwhile you missed out on years of good earnings at your chosen profession. Working your way through school has become somewhat laughable. Your advice would leave the majority of people much poorer for following it.
- zanny 9y ago
  This is just fundamentally a waste of time and talent. If you have the time to work enough to pay for 3 years of college in high school and still perform well in the school itself and jump through all the hoops required to get into that prestigious school you always wanted with a plethora of extracurriculars you aren't learning jack in high school anyway and are probably doing severe harm to yourself working so many hours of the day. Education in general is messed up, mostly because years 5-18 are almost exclusively a black hole of nothing for most people where you go to learn to read, write, and do arithmetic. Which most people will do by age 8. Then there's a decade of Shakespeare, algebra, and dissecting frogs which plenty of people use in their daily lives and that plenty of employers eagerly need more of in the workforce.
markshead 9y ago
> adding any situation where bankruptcy is impossible seems like it destroys the purpose of having bankruptcy exist in the first place. Agreed, but keep in mind we aren't talking about loans in the traditional sense. Normally a loan requires some entity to take on the risk of default. With student loans this would mean looking at what the individual was studying, how much of their own money they were supplying, the typical default rate, etc. The amount that they will loan and the interest rate will be determined by the answers to those questions. When you have the government making loans to students without asking those questions, you are no longer running a normal loan program. When you remove the way a loan program usually adjusts to the risks up front, you have to try to deal with the risk elsewhere. This is done by removing the bankruptcy option. I think the solution is to account for the risk of the loan up front like we do with other loans. This probably means removing or decreasing the government's role in issuing these types of loans. Eventually, I could see colleges sharing the default risk with a private bank. Colleges who don't think their education is worth much would be less likely to participate in such a program, but that probably isn't a bad thing.
dilap 9y ago
make them dischargeable by bankrupcty after 5 or 10 years. or just make them dischargeable by bankrupcty and let the market price in the default rate and see what happens. it’s terrible policy & imo immoral to let people be stuck in virtual debt peonage their entire life because of loans they took out at 18.
- markshead 9y ago
  > make them dischargeable by bankrupcty and let the market price in the default rate and see what happens. These loans aren't coming from the market. If students had to go to a private bank and make a case about why they were a good investment, student loans would look a lot different--to say nothing about college in general.
  - dilap 9y ago
    aren’t many of them? i remember my wells fargo atm always trying to get me interested in a student loan...
    - markshead 9y ago
      Banks used to be able to loan you money but have it guaranteed by the government. I think that ended in 2010. Wells Fargo does offer a type of student loan, but it looks like you have to have someone cosign it with you (probably your parents). Back in the 90s over 90% of student loans were Federal. I'm not sure what the percentage is now.
faceplanted 9y ago
I feel like the only replacement for bankruptcy that works for people coming out of college with few assets is to require any unbankruptable (Is there a real word for this concept?) loan to have a minimum income required for repayment, meaning that if you come out of college unemployed or fail out you have a safety buffer between unemployment and destitution that you won't want to enter intentionally. Similar to the UK system, not that the UK system is currently doing any good.

markshead 9y ago

As I understand it, subsidized loans mean that the government will pay your interest for awhile. Unsubsidized Federal Student Loans are still loans from the government, but you have to start paying interest right away. As far as I can tell, a combination of different loan programs the government will loan any amount of money toward the cost of college with the only "limit" being for undergraduates. Your parents have to take out the loan for an amount in excess of the $12.5k to $18k yearly undergraduate limit. Once you get to grad school you can borrow the entire amount directly. Once you get to the Plus loan program (which doesn't appear to have any limit) there is a credit check required. There used to be a private loan program (FFEL) where the government would guarantee the loan amount, but I think that was shut down in 2010. I'm sure you can also go to a bank and just get a loan directly, but I don't know what type of special rules apply to those.

gergles 9y ago
The limits I mentioned include both subsidized and unsubsidized federal loan programs. Any further amount you receive is either a private loan or PLUS. PLUS loans are made to the parent on behalf of the student, and actually were dischargeable by the parents' bankruptcy last I checked. The graduate school limits are higher, but still exist. Med school students, for example, simply cannot fund their entire education through federal loans. The maximum period you can get through federal loans in any circumstance is around $140K, and medical school almost universally costs more than that.
- markshead 9y ago
  Everything I've seen suggests that Plus loans will cover any cost of attendance at a college that isn't covered by other financial aid. https://studentaid.ed.gov/sa/types/loans/plus#how-much https://studentaid.ed.gov/sa/types/loans/plus#how-much It is possible to discharge student loans (not just Plus loans) in bankruptcy, but you have to basically prove that you can't survive while still making the payments. I don't know if it is easier to discharge the Plus loans or if they all require the same level of hardship.
  - 9y ago