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I think not being able to default on your student loans is the main factor in rising costs. There is no reason not to give out a student loan of any amount if i

I think not being able to default on your student loans is the main factor in rising costs. There is no reason not to give out a student loan of any amount if it is guaranteed money. And there are many people who struggled to graduate highschool, or people who have no idea what they want to do in life in any way, that are getting crazy large loans to go to very expensive and demanding schools and and are very likely to drop out and have nothing substantial in return. They might only go for one year but then BAM, now they got near $30,000 in debt to pay with little to no job experience and no degree. With students able to get loans of nearly any amount, the schools have no reason not to raise tuition prices, and that extra money ends up feeding a bunch of administrative bloat, a significant amount of which gets turned around into crazy marketing and advertising schemes to trick more fresh highschool graduates into taking out loans to pay for the crazy tuition. The first time in most of these people's lives where they are expected to take out a significant loan of money and are easily manipulated into potential financial traps. For many of them it is the first financial decision in their entire life and it rivals the cost of buying a house.

chimeracoder 8y ago
> I think not being able to default on your student loans is the main factor in rising costs. There is no reason not to give out a student loan of any amount if it is guaranteed money. Just because the loans can't be discharged during bankruptcy proceedings doesn't mean the lender gets their money back. Default rates are high (and rising). The lender may get some money, but that doesn't mean they get their principal back, let alone a sufficient interest to justify giving out the loan in the first place.
- oillio 8y ago
  The mechanism by which you default on a loan is bankruptcy. If you can't discharge a loan in bankruptcy, you can't default on it. Some people never make enough money to pay it off, after which the government will pay the loan off after a few years. The lender gets payed anyway. These are risk free loans for lenders.
  - chimeracoder 8y ago
    > The mechanism by which you default on a loan is bankruptcy. If you can't discharge a loan in bankruptcy, you can't default on it. This is absolutely, completely, 100% wrong. Defaulting on a loan means that the borrower has failed to repay according to the agreed-upon terms. > Some people never make enough money to pay it off, after which the government will pay the loan off after a few years. The lender gets payed anyway. This isn't really true either. The lender is not guaranteed to be paid their principal back. > These are risk free loans for lenders. If these were truly risk-free, then the interest rate on private student loans would be roughly equal to the current actual risk-free rate of investment (because any new lender could always capture additional loans by undercutting their competitors and still make a profit). Except, that's not true at all. The interest rate on private loans is quite high. In fact, it's significantly higher than the interest rate on mortgages, which are loans backed by collateral that can actually be seized.
    - nimish 8y ago
      The spread between them is very low, much lower than another kind of unsecured loan would be to young adults with no credit.
    - windows_tips 8y ago
      >The lender is not guaranteed to be paid their principal back. This may apply for personal loans, where real money is given up; but, it's not really correct to call a bank, the originators of most private student loans, as far as I know, a 'lender'; as, banks don't lend their own money, but create new money through promissory notes.
      - chimeracoder 8y ago
        > This may apply for personal loans, where real money is given up; but, it's not really correct to call a bank, the originators of most private student loans, as far as I know, a 'lender'; It is 100% correct to refer to a bank as a lender. This is standard use of terminology.
andrepd 8y ago
In short, the free market has found a very lucrative cash cow for all involved. A select group of people are getting fabulously rich off this broken system, and since they control it there is no incentive to stop. Of course, someone is getting shafted. The students, in this case.
- xtreme 8y ago
  Definitely not a free market. If the government didn't guarantee student loans, the banks would have been a lot more conservative in giving out loans. In fact, this is easily the biggest factor in the rapid rise in tuition.
  - rrcaptain 8y ago
    The biggest factor in the rise in tuition is easily austerity policies lowering in-state school budgets.
    - IncRnd 8y ago
      As the government applies ever greater amounts of money to pay for tuition, tuition rises. That's simple economics. You can read about the facts here: https://www.forbes.com/sites/prestoncooper2/2017/02/22/how-unlimited-student-loans-drive-up-tuition https://www.forbes.com/sites/prestoncooper2/2017/02/22/how-u...
      - rrcaptain 8y ago
        Yes, don't fund students, fund schools. The government shouldn't pay tuition bills, it should ban tuition for schools receiving public funding. Though I question why an AEI schill should be considered a credible source on anything.
- CrazyPyroLinux 8y ago
  The parent posts detail the ways the government has distorted the free market, and your takeaway was that this is the free market's fault...? So was the '06 housing bubble was the free market's fault as well?
duxup 8y ago
I think you're right, at the same time if allowed to walk from student loans... wouldn't we see a similar incentive on the student side? I would find it pretty tempting when graduating to ... default. You've got plenty of time to fish your way out of bankruptcy as you're young, you don't have much for assets or anything...
- wyattpeak 8y ago
  That seems fine to me. Banks are in the business of calculating risk on loans, they can work out under what conditions they're willing to loan money to students who have little to lose by declaring bankruptcy. If they basically shut down all student funding, that doesn't seem like a huge problem either - it's a fairly bad model and I think society would benefit for from the pressure to find a better way to educate people. It's a difficult question, it would have a lot of unpredictable knock-on effects. But subjecting the industry to market pressures seems a move in the right direction.
  - pfisch 8y ago
    That would cause a crazy economic implosion in the education sector. Anything like that would need to be done very gradually or else there would be massive layoffs at every university all at once.
    - alexgmcm 8y ago
      I agree but we must also realise the amount of struggle and suffering the current system causes to graduates. In general it's a lot easier to see the flaws of a new proposal than take notice of the problems with the status quo. So doing things really gradually also has a cost.
      - duxup 8y ago
        Short term the costs to those you describe as suffering will be significant too...such as no options.
  - 8y ago
h4b4n3r0 8y ago
I like the idea of withholding tuition from future earnings. That way we can get rid of all the "underwater basketweaving" courses that are so popular today, and focus on the ones that the economy actually needs (as in, is willing to pay top dollar for). There's one "but" however: this does absolutely nothing to improve affordability, so some mechanism needs to be devised to reduce overhead costs, and put a cap on profits. I would prefer if that mechanism were market-based as well.
- perfmode 8y ago
  education is about more than the economy
- GeneralMayhem 8y ago
  I very heartily disagree with letting the market decide education priorities, for two reasons. First, education is chock full of positive externalities, which will never be realized correctly. While "the economy" doesn't need underwater basket weaving - or art history, or literature - society still does. Even if people don't work in their field, the world is better for the increase in knowledge. Man does not live on engineering alone. Second, the invisible hand can only do its work in a world where the effects of decisions are predictable. Given the long lead time on a choice of major affecting your income - at least four years, arguably more if you factor in choice of AP classes on high school - that's never going to be the case. Say this system had been in place in the 90s, and say you're okay with underwater basket weaving students getting the short end of the stick because, well, they signed up for it. Fine. But what do you say to the computer science class of 2001?
  - h4b4n3r0 8y ago
    >> society still does That's just, like, your opinion, man. Society certainly does not need so many graduates in English Literature: there are only so many open positions at McDonalds, and they as a rule do not require a degree. If there's market demand, society can pay real cash money for it. It used to be that most writers, painters, historians, etc, etc, had to also have an useful day job. _Albert Einstein_ had a day job up to a point. There's nothing wrong with that if the market can't support full-time work in a certain profession. The second part of your argument I do agree with: there are a lot of details to flesh out. Maybe it will compel the colleges to teach broader sets of skills, since if they teach a narrow profession that's not useful they don't get paid.
dionidium 8y ago
> "I think not being able to default on your student loans is the main factor in rising costs." The law responsible for this situation (the Bankruptcy Abuse Prevention and Consumer Protection Act) was passed in 2005. Prices had already been rising for decades. I'm not saying it hasn't had an effect, but it can't possibly be the "main factor," because it literally didn't exist when prices started to rise.

chimeracoder 8y ago

> I think not being able to default on your student loans is the main factor in rising costs. There is no reason not to give out a student loan of any amount if it is guaranteed money. Just because the loans can't be discharged during bankruptcy proceedings doesn't mean the lender gets their money back. Default rates are high (and rising). The lender may get some money, but that doesn't mean they get their principal back, let alone a sufficient interest to justify giving out the loan in the first place.

oillio 8y ago
The mechanism by which you default on a loan is bankruptcy. If you can't discharge a loan in bankruptcy, you can't default on it. Some people never make enough money to pay it off, after which the government will pay the loan off after a few years. The lender gets payed anyway. These are risk free loans for lenders.
- chimeracoder 8y ago
  > The mechanism by which you default on a loan is bankruptcy. If you can't discharge a loan in bankruptcy, you can't default on it. This is absolutely, completely, 100% wrong. Defaulting on a loan means that the borrower has failed to repay according to the agreed-upon terms. > Some people never make enough money to pay it off, after which the government will pay the loan off after a few years. The lender gets payed anyway. This isn't really true either. The lender is not guaranteed to be paid their principal back. > These are risk free loans for lenders. If these were truly risk-free, then the interest rate on private student loans would be roughly equal to the current actual risk-free rate of investment (because any new lender could always capture additional loans by undercutting their competitors and still make a profit). Except, that's not true at all. The interest rate on private loans is quite high. In fact, it's significantly higher than the interest rate on mortgages, which are loans backed by collateral that can actually be seized.
  - nimish 8y ago
    The spread between them is very low, much lower than another kind of unsecured loan would be to young adults with no credit.
  - windows_tips 8y ago
    >The lender is not guaranteed to be paid their principal back. This may apply for personal loans, where real money is given up; but, it's not really correct to call a bank, the originators of most private student loans, as far as I know, a 'lender'; as, banks don't lend their own money, but create new money through promissory notes.
    - chimeracoder 8y ago
      > This may apply for personal loans, where real money is given up; but, it's not really correct to call a bank, the originators of most private student loans, as far as I know, a 'lender'; It is 100% correct to refer to a bank as a lender. This is standard use of terminology.

andrepd 8y ago

In short, the free market has found a very lucrative cash cow for all involved. A select group of people are getting fabulously rich off this broken system, and since they control it there is no incentive to stop. Of course, someone is getting shafted. The students, in this case.

xtreme 8y ago
Definitely not a free market. If the government didn't guarantee student loans, the banks would have been a lot more conservative in giving out loans. In fact, this is easily the biggest factor in the rapid rise in tuition.
- rrcaptain 8y ago
  The biggest factor in the rise in tuition is easily austerity policies lowering in-state school budgets.
  - IncRnd 8y ago
    As the government applies ever greater amounts of money to pay for tuition, tuition rises. That's simple economics. You can read about the facts here: https://www.forbes.com/sites/prestoncooper2/2017/02/22/how-unlimited-student-loans-drive-up-tuition https://www.forbes.com/sites/prestoncooper2/2017/02/22/how-u...
    - rrcaptain 8y ago
      Yes, don't fund students, fund schools. The government shouldn't pay tuition bills, it should ban tuition for schools receiving public funding. Though I question why an AEI schill should be considered a credible source on anything.
CrazyPyroLinux 8y ago
The parent posts detail the ways the government has distorted the free market, and your takeaway was that this is the free market's fault...? So was the '06 housing bubble was the free market's fault as well?

duxup 8y ago

I think you're right, at the same time if allowed to walk from student loans... wouldn't we see a similar incentive on the student side? I would find it pretty tempting when graduating to ... default. You've got plenty of time to fish your way out of bankruptcy as you're young, you don't have much for assets or anything...

wyattpeak 8y ago
That seems fine to me. Banks are in the business of calculating risk on loans, they can work out under what conditions they're willing to loan money to students who have little to lose by declaring bankruptcy. If they basically shut down all student funding, that doesn't seem like a huge problem either - it's a fairly bad model and I think society would benefit for from the pressure to find a better way to educate people. It's a difficult question, it would have a lot of unpredictable knock-on effects. But subjecting the industry to market pressures seems a move in the right direction.
- pfisch 8y ago
  That would cause a crazy economic implosion in the education sector. Anything like that would need to be done very gradually or else there would be massive layoffs at every university all at once.
  - alexgmcm 8y ago
    I agree but we must also realise the amount of struggle and suffering the current system causes to graduates. In general it's a lot easier to see the flaws of a new proposal than take notice of the problems with the status quo. So doing things really gradually also has a cost.
    - duxup 8y ago
      Short term the costs to those you describe as suffering will be significant too...such as no options.
- 8y ago

h4b4n3r0 8y ago

I like the idea of withholding tuition from future earnings. That way we can get rid of all the "underwater basketweaving" courses that are so popular today, and focus on the ones that the economy actually needs (as in, is willing to pay top dollar for). There's one "but" however: this does absolutely nothing to improve affordability, so some mechanism needs to be devised to reduce overhead costs, and put a cap on profits. I would prefer if that mechanism were market-based as well.

perfmode 8y ago
education is about more than the economy
GeneralMayhem 8y ago
I very heartily disagree with letting the market decide education priorities, for two reasons. First, education is chock full of positive externalities, which will never be realized correctly. While "the economy" doesn't need underwater basket weaving - or art history, or literature - society still does. Even if people don't work in their field, the world is better for the increase in knowledge. Man does not live on engineering alone. Second, the invisible hand can only do its work in a world where the effects of decisions are predictable. Given the long lead time on a choice of major affecting your income - at least four years, arguably more if you factor in choice of AP classes on high school - that's never going to be the case. Say this system had been in place in the 90s, and say you're okay with underwater basket weaving students getting the short end of the stick because, well, they signed up for it. Fine. But what do you say to the computer science class of 2001?
- h4b4n3r0 8y ago
  >> society still does That's just, like, your opinion, man. Society certainly does not need so many graduates in English Literature: there are only so many open positions at McDonalds, and they as a rule do not require a degree. If there's market demand, society can pay real cash money for it. It used to be that most writers, painters, historians, etc, etc, had to also have an useful day job. _Albert Einstein_ had a day job up to a point. There's nothing wrong with that if the market can't support full-time work in a certain profession. The second part of your argument I do agree with: there are a lot of details to flesh out. Maybe it will compel the colleges to teach broader sets of skills, since if they teach a narrow profession that's not useful they don't get paid.

dionidium 8y ago

> "I think not being able to default on your student loans is the main factor in rising costs." The law responsible for this situation (the Bankruptcy Abuse Prevention and Consumer Protection Act) was passed in 2005. Prices had already been rising for decades. I'm not saying it hasn't had an effect, but it can't possibly be the "main factor," because it literally didn't exist when prices started to rise.