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I don’t really understand how there can exist any debt that can’t be bankrupted, apart from federal treasuries. It may produce some desired affect in the short

I don’t really understand how there can exist any debt that can’t be bankrupted, apart from federal treasuries. It may produce some desired affect in the short term, but in time creates a massive liability for everyone, not just those who took out the debt.

cbr 9y ago
The standard argument for why student loan debt survives bankruptcy is that otherwise students would declare bankruptcy on graduation. At least with our current system, where bankruptcy is wiped from your record after 7 (or 10) years this would be a good move for most students.
- mlindner 9y ago
  Right. That would have the correct feedback to properly represent what a poor investment investing in students actually is (not a good investment). This would cause interest rates for student loans to be much higher and there would be more rigor in who is allowed a loan.
  - ohyes 9y ago
    Arguably, students are a great investment, just not for money.
- tw04 9y ago
  There are better ways to counteract that. Off the top of my head - if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. Additionally you take a 5% tax increase for the duration of that window.
  - woolvalley 9y ago
    Not allowing people to put money in retirement accounts just means the govt has to support those people that much more when they get to old age, instead of them supporting themselves and getting tax revenue from the withdrawal. And a %5 tax increase sounds like a pretty good deal. For most people it's going to be $25-$50k total, and you have no bill due when your unemployed.
    - lovich 9y ago
      I don't know if it wouldn't work out better for everyone but the lender. People paying student onerous student loans, like myself, already aren't putting money into retirement accounts because the banks are taking it all. If I could just cut out student loan payments the money would go towards paying down any outstanding debt or towards buying a house/condo which would help me not need support in retirement. The tax advantaged retirement funds are nice but many people with student loan debt it's like telling them they have won't have to pay taxes on any yachts they buy. Technically nice, but practically useless
    - scythe 9y ago
      Being on the government dole in the US is not an outcome anyone would plan for. You're lucky if you can heat your apartment (if you even have your own) and eat processed cheese on what you'd be getting. Also, many (most?) student debts are less than $25k, and unpayable huge debts should never have been approved in the first place. The latter clause is the whole point of this anyway.
  - deleted 9y ago
    [deleted]
  - romwell 9y ago
    >Off the top of my head - if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. Additionally you take a 5% tax increase for the duration of that window. Why don't we just do that for everyone, and make higher education free. This works for the absolute majority of students. Provide an opt-out for the few that can pony up the cash up front.
    - charlesdm 9y ago
      You could probably turn education free by reducing the defence budget by a few percentage points. One of the reasons I'm happy to be European. Education is free in most countries. It makes no sense to burden young people with a load of debt when starting out.
      - rdtsc 9y ago
        It's a double whammy as they say in US because, students that can't find a job are both liable for student debt and also have to pay for health insurance.
      - beamatronic 9y ago
        Your ideas are intriguing and I wish to subscribe to your newsletter.
      - eadmund 9y ago
        > You could probably turn education free by reducing the defence budget by a few percentage points. According to https://nces.ed.gov/fastfacts/display.asp?id=75 https://nces.ed.gov/fastfacts/display.asp?id=75, in the 2014–2015 school year U.S. colleges & universities spent $536 billion; the 2014 defense budget was $526.6 billion[0]. We could spend our entire defense budget and still not cover our higher education bill. [0] http://comptroller.defense.gov/Portals/45/Documents/defbudget/fy2014/FY2014_Budget_Request_Overview_Book.pdf http://comptroller.defense.gov/Portals/45/Documents/defbudge...
        zolthrowaway 9y ago
  - gdix 9y ago
    > if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. That's something that a large percentage of people do anyway. What a strange and poorly-thought-out suggestion.
    - lightbyte 9y ago
      It's also a sure fire way for the public to have to spend even MORE on social programs since you'll be even more likely to reach retirement with zero money. What good could possibly come from intentionally banning someone from saving for retirement?
  - kirykl 9y ago
    This is somewhat the case in a chapter 13 bankruptcy. You generally can’t contribute to a retirement savings during the 5 years of the bankruptcy
- pishpash 9y ago
  Then have a probation period like 5 years before it can be discharged through personal bankruptcy. Infinity is not the right number.
- scythe 9y ago
  You say that like declaring bankruptcy is painless. That was not the case before George Bush's reforms. It certainly would not become the case again -- lenders' job is to predict this behavior.
- gambiting 9y ago
  Or just look at how other countries do it - in UK your payments for the student loan are taken automatically from your salary each month(10% of anything above 20k/year - so if you make less than 20k/year you don't pay anything), but if there is any outstanding balance after 20 years it's automatically forgiven. No need to declare bankrupcy since if you can't pay it back there is simply nothing to pay. If you have a job it's paid back automatically without the employee having to do anything. If it's paid off in 20 years = great. If not = no big deal, you just get a letter saying that your outstanding balance is now zero. I guess that system is possible because all loans are provided by the Student Loans Company which is ran by the government - and tuition is capped at 10k/year, so it doesn't matter what or where you study - the cost is exactly the same.
  - stordoff 9y ago
    Small correction: current loans are written off after 30 years, not 20. Also worth noting that loans can still be sold off by the SLC (though remain managed by the SLC, so probably makes little if any difference to the individual), and government ownership hasn't completely stopped the use of questionable tactics (e.g. debt collection letters purporting to be from "Smith Lawson & Company").
  - lightbyte 9y ago
    We have a system like this in the US. >The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. [1] https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...
    - BioMeditate 9y ago
      Just note that very few jobs qualify you for PSLF. Also, I believe if you ever opted for another type of repayment plan (IBR) you wont qualify.
    - tomc1985 9y ago
- AlexandrB 9y ago
  Canada solved this in the most obvious way possible: > If you file bankruptcy in Canada a federally guaranteed student loan is only automatically discharged if the date of your bankruptcy is more than seven years from when you ceased to be a student. This rule was created to prevent student from incurring huge student loans, and then graduating and immediately going bankruptcy. [1] https://bankruptcy-canada.com/bankruptcy-blog/bankruptcy-canada-student-loans/ https://bankruptcy-canada.com/bankruptcy-blog/bankruptcy-can...
deleted 9y ago
[deleted]
stuntkite 9y ago
I had a bad year last year and the couple before. I defaulted on my student loans, they got sold off, and it just so happened that I was in a group of sold off student debt that didn't get the information sold to the new organization handled correctly so for me and a couple hundred thousand delinquents had their student loans lost in the mail. It's completely unfair that mine went away and people that are upside down and have been "playing the game" are still in the slog, but it by a wide margin the most fortuitous thing that has ever happened to me. https://www.forbes.com/sites/zackfriedman/2017/07/18/5-billion-student-loans-erased/#4ecd1183190a https://www.forbes.com/sites/zackfriedman/2017/07/18/5-billi...
- daemin 9y ago
  Could you buy your own student debt for pennies on the dollar then forgive it and take a tax loss? Or could a bunch of former students band together and do this in a cooperative type corporation? Buy defaulted student debt, then forgive it?
  - te_chris 9y ago
    I remember seeing stories about an Occupy group doing that. You know, a distributed ledger of defaulted US student debt might actually be a useful use for a blockchain. (I say this as a NZer whose student debt was held by the govt. and had capped fees etc.)
    - daemin 9y ago
      Yeah, I think it was an episode of The Daily Show where they bought a whole tranche of medical debt and forgave it.
      - lightbyte 9y ago
        It was an episode of Last Week Tonight a few years ago. They noted that you can not buy individual debt, just large blocks of it. So HBO let them buy a large block of it and they told everyone they wouldn't be collecting.
colordrops 9y ago
Out of all the debts you'd want to forgive, education seems like the top of the list. The fact that it's not even on the list is insane.
- jjeaff 9y ago
  There is a reason it's not bankruptable. If it was, lenders would not loan to students. And if, like now, the government backed the loans and they were dischargeable, it would create a death spiral of companies encouraging loans to no end with tons of students accepting them, knowing that they can just file bankruptcy right after graduating.
  - scythe 9y ago
    Good! Lenders should not lend to students whom they do not reasonably believe will be able to pay. Serfdom should be outlawed. Hopefully one day these debts are struck down under the 13th Amendment.
  - TangoTrotFox 9y ago
    You act like the concept of bankruptcy is something lenders have no concept of. No, what would happen is that lenders would become more selective about lending. A mediocre high school student planning to get an underwater basketweaving degree for $40k a year? Yeah, probably not a good investment from a lender. And you can go the opposite direction to create equally obvious investments for lenders. There's an even better side effect of this. There is no real and inherent reason that university prices have skyrocketed out of control. It's mostly a consequence of government removing all economic concerns for students. That of course sounds nice, but they also simultaneously removed all economic concerns from universities who can, and do, charge arbitrarily large sums and justify it by increasingly reckless spending. This a recurring problem when messing with the market - we create unforeseen problems, though in this case this should have been very foreseeable! By returning to market forces universities would be obligated to themselves also take economic matters into consideration with their decisions. Too high of tuition and fees are unlikely to get paid off, thus unlikely to produce much in the way of loans, and thus generally not economically viable. Similarly there would be less of an incentive to grow programs that do not substantially improve the ability of students to create a comfortable life for themselves. Basically we would start on a path back towards the world some baby boomers seem to think we still live in where somebody with a bit of hard work could put themselves through college with a part time job graduating not only debt free but with a enough of a nest egg put aside to have a nice down payment for their first place.
rdtsc 9y ago
> I don’t really understand how there can exist any debt that can’t be bankrupted, apart from federal treasuries. Because it's debt to get a degree. I don't agree necessarily but the idea is that students would get large loans, go to schools, get a degree, then declare bankruptcy. I think the GP comments makes a good point that large loans would be harder to get if all of the sudden they knew bankruptcy option is going to considered after graduation.
beamatronic 9y ago
Its not about money. It’s about control. The student becomes legally enslaved by the banks.
wefarrell 9y ago
The argument is that if they could be bankrupted the interest rates would be much higher because the likelihood of default would be high.
- matt_wulfeck 9y ago
  That’s downward pressure on tuition cost and the expectation of an organization giving a loan.

cbr 9y ago

The standard argument for why student loan debt survives bankruptcy is that otherwise students would declare bankruptcy on graduation. At least with our current system, where bankruptcy is wiped from your record after 7 (or 10) years this would be a good move for most students.

mlindner 9y ago
Right. That would have the correct feedback to properly represent what a poor investment investing in students actually is (not a good investment). This would cause interest rates for student loans to be much higher and there would be more rigor in who is allowed a loan.
- ohyes 9y ago
  Arguably, students are a great investment, just not for money.
tw04 9y ago
There are better ways to counteract that. Off the top of my head - if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. Additionally you take a 5% tax increase for the duration of that window.
- woolvalley 9y ago
  Not allowing people to put money in retirement accounts just means the govt has to support those people that much more when they get to old age, instead of them supporting themselves and getting tax revenue from the withdrawal. And a %5 tax increase sounds like a pretty good deal. For most people it's going to be $25-$50k total, and you have no bill due when your unemployed.
  - lovich 9y ago
    I don't know if it wouldn't work out better for everyone but the lender. People paying student onerous student loans, like myself, already aren't putting money into retirement accounts because the banks are taking it all. If I could just cut out student loan payments the money would go towards paying down any outstanding debt or towards buying a house/condo which would help me not need support in retirement. The tax advantaged retirement funds are nice but many people with student loan debt it's like telling them they have won't have to pay taxes on any yachts they buy. Technically nice, but practically useless
  - scythe 9y ago
    Being on the government dole in the US is not an outcome anyone would plan for. You're lucky if you can heat your apartment (if you even have your own) and eat processed cheese on what you'd be getting. Also, many (most?) student debts are less than $25k, and unpayable huge debts should never have been approved in the first place. The latter clause is the whole point of this anyway.
- deleted 9y ago
  [deleted]
- romwell 9y ago
  >Off the top of my head - if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. Additionally you take a 5% tax increase for the duration of that window. Why don't we just do that for everyone, and make higher education free. This works for the absolute majority of students. Provide an opt-out for the few that can pony up the cash up front.
  - charlesdm 9y ago
    You could probably turn education free by reducing the defence budget by a few percentage points. One of the reasons I'm happy to be European. Education is free in most countries. It makes no sense to burden young people with a load of debt when starting out.
    - rdtsc 9y ago
      It's a double whammy as they say in US because, students that can't find a job are both liable for student debt and also have to pay for health insurance.
    - beamatronic 9y ago
      Your ideas are intriguing and I wish to subscribe to your newsletter.
    - eadmund 9y ago
      > You could probably turn education free by reducing the defence budget by a few percentage points. According to https://nces.ed.gov/fastfacts/display.asp?id=75 https://nces.ed.gov/fastfacts/display.asp?id=75, in the 2014–2015 school year U.S. colleges & universities spent $536 billion; the 2014 defense budget was $526.6 billion[0]. We could spend our entire defense budget and still not cover our higher education bill. [0] http://comptroller.defense.gov/Portals/45/Documents/defbudget/fy2014/FY2014_Budget_Request_Overview_Book.pdf http://comptroller.defense.gov/Portals/45/Documents/defbudge...
      - zolthrowaway 9y ago
- gdix 9y ago
  > if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. That's something that a large percentage of people do anyway. What a strange and poorly-thought-out suggestion.
  - lightbyte 9y ago
    It's also a sure fire way for the public to have to spend even MORE on social programs since you'll be even more likely to reach retirement with zero money. What good could possibly come from intentionally banning someone from saving for retirement?
- kirykl 9y ago
  This is somewhat the case in a chapter 13 bankruptcy. You generally can’t contribute to a retirement savings during the 5 years of the bankruptcy
pishpash 9y ago
Then have a probation period like 5 years before it can be discharged through personal bankruptcy. Infinity is not the right number.
scythe 9y ago
You say that like declaring bankruptcy is painless. That was not the case before George Bush's reforms. It certainly would not become the case again -- lenders' job is to predict this behavior.
gambiting 9y ago
Or just look at how other countries do it - in UK your payments for the student loan are taken automatically from your salary each month(10% of anything above 20k/year - so if you make less than 20k/year you don't pay anything), but if there is any outstanding balance after 20 years it's automatically forgiven. No need to declare bankrupcy since if you can't pay it back there is simply nothing to pay. If you have a job it's paid back automatically without the employee having to do anything. If it's paid off in 20 years = great. If not = no big deal, you just get a letter saying that your outstanding balance is now zero. I guess that system is possible because all loans are provided by the Student Loans Company which is ran by the government - and tuition is capped at 10k/year, so it doesn't matter what or where you study - the cost is exactly the same.
- stordoff 9y ago
  Small correction: current loans are written off after 30 years, not 20. Also worth noting that loans can still be sold off by the SLC (though remain managed by the SLC, so probably makes little if any difference to the individual), and government ownership hasn't completely stopped the use of questionable tactics (e.g. debt collection letters purporting to be from "Smith Lawson & Company").
- lightbyte 9y ago
  We have a system like this in the US. >The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. [1] https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...
  - BioMeditate 9y ago
    Just note that very few jobs qualify you for PSLF. Also, I believe if you ever opted for another type of repayment plan (IBR) you wont qualify.
  - tomc1985 9y ago
AlexandrB 9y ago
Canada solved this in the most obvious way possible: > If you file bankruptcy in Canada a federally guaranteed student loan is only automatically discharged if the date of your bankruptcy is more than seven years from when you ceased to be a student. This rule was created to prevent student from incurring huge student loans, and then graduating and immediately going bankruptcy. [1] https://bankruptcy-canada.com/bankruptcy-blog/bankruptcy-canada-student-loans/ https://bankruptcy-canada.com/bankruptcy-blog/bankruptcy-can...

deleted 9y ago

[deleted]

stuntkite 9y ago

I had a bad year last year and the couple before. I defaulted on my student loans, they got sold off, and it just so happened that I was in a group of sold off student debt that didn't get the information sold to the new organization handled correctly so for me and a couple hundred thousand delinquents had their student loans lost in the mail. It's completely unfair that mine went away and people that are upside down and have been "playing the game" are still in the slog, but it by a wide margin the most fortuitous thing that has ever happened to me. https://www.forbes.com/sites/zackfriedman/2017/07/18/5-billion-student-loans-erased/#4ecd1183190a https://www.forbes.com/sites/zackfriedman/2017/07/18/5-billi...

daemin 9y ago
Could you buy your own student debt for pennies on the dollar then forgive it and take a tax loss? Or could a bunch of former students band together and do this in a cooperative type corporation? Buy defaulted student debt, then forgive it?
- te_chris 9y ago
  I remember seeing stories about an Occupy group doing that. You know, a distributed ledger of defaulted US student debt might actually be a useful use for a blockchain. (I say this as a NZer whose student debt was held by the govt. and had capped fees etc.)
  - daemin 9y ago
    Yeah, I think it was an episode of The Daily Show where they bought a whole tranche of medical debt and forgave it.
    - lightbyte 9y ago
      It was an episode of Last Week Tonight a few years ago. They noted that you can not buy individual debt, just large blocks of it. So HBO let them buy a large block of it and they told everyone they wouldn't be collecting.

colordrops 9y ago

Out of all the debts you'd want to forgive, education seems like the top of the list. The fact that it's not even on the list is insane.

jjeaff 9y ago
There is a reason it's not bankruptable. If it was, lenders would not loan to students. And if, like now, the government backed the loans and they were dischargeable, it would create a death spiral of companies encouraging loans to no end with tons of students accepting them, knowing that they can just file bankruptcy right after graduating.
- scythe 9y ago
  Good! Lenders should not lend to students whom they do not reasonably believe will be able to pay. Serfdom should be outlawed. Hopefully one day these debts are struck down under the 13th Amendment.
- TangoTrotFox 9y ago
  You act like the concept of bankruptcy is something lenders have no concept of. No, what would happen is that lenders would become more selective about lending. A mediocre high school student planning to get an underwater basketweaving degree for $40k a year? Yeah, probably not a good investment from a lender. And you can go the opposite direction to create equally obvious investments for lenders. There's an even better side effect of this. There is no real and inherent reason that university prices have skyrocketed out of control. It's mostly a consequence of government removing all economic concerns for students. That of course sounds nice, but they also simultaneously removed all economic concerns from universities who can, and do, charge arbitrarily large sums and justify it by increasingly reckless spending. This a recurring problem when messing with the market - we create unforeseen problems, though in this case this should have been very foreseeable! By returning to market forces universities would be obligated to themselves also take economic matters into consideration with their decisions. Too high of tuition and fees are unlikely to get paid off, thus unlikely to produce much in the way of loans, and thus generally not economically viable. Similarly there would be less of an incentive to grow programs that do not substantially improve the ability of students to create a comfortable life for themselves. Basically we would start on a path back towards the world some baby boomers seem to think we still live in where somebody with a bit of hard work could put themselves through college with a part time job graduating not only debt free but with a enough of a nest egg put aside to have a nice down payment for their first place.

rdtsc 9y ago

> I don’t really understand how there can exist any debt that can’t be bankrupted, apart from federal treasuries. Because it's debt to get a degree. I don't agree necessarily but the idea is that students would get large loans, go to schools, get a degree, then declare bankruptcy. I think the GP comments makes a good point that large loans would be harder to get if all of the sudden they knew bankruptcy option is going to considered after graduation.

beamatronic 9y ago

Its not about money. It’s about control. The student becomes legally enslaved by the banks.

wefarrell 9y ago

The argument is that if they could be bankrupted the interest rates would be much higher because the likelihood of default would be high.

matt_wulfeck 9y ago
That’s downward pressure on tuition cost and the expectation of an organization giving a loan.