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The standard argument for why student loan debt survives bankruptcy is that otherwise students would declare bankruptcy on graduation. At least with our curren

by 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...

by cbr 9y ago

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...