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IMO, the best solution to resolving the tuition pricing/lending issue is to strip away bankruptcy protection from the lender's side of the student loan equation

IMO, the best solution to resolving the tuition pricing/lending issue is to strip away bankruptcy protection from the lender's side of the student loan equation. I worked for a bankruptcy trustee for a couple of years, and it was an enlightening experience. Generally speaking, the greater the security, the higher the dollar amount you will be loaned. An example: A bank will loan you hundreds of thousands of dollars for a home, but only $10k in credit cards. Why? Because they mortgage security is the house. The bank has something to take. With credit cards, the debtor simply has to file for bankruptcy in order escape the debt. This introduces a level of accountability on the behalf of the lender. Rewind to student loans. There is no accountability to the lender. You cannot escape student loan debt. Period. As a student lender, rather than evaluating the risk of default, I am left to focus on the debtor's ability to service the debt. I may even loan them more money than I think they can realistically pay back. Why? Because I'm able to borrow money at such low rates that I can generate a tremendous cash churn at a rate that is many times my borrowing rate. Even if I have to write off a portion of the loan value at the end of the term (the debtor dies or flat defaults and goes to jail), I'm still ahead of the game because I've been compounding my earnings for years. It's a sick system with no escape for student debtors. The system was created to incentivize higher education, but the unintended consequence is that an entire market has sprung forth from a custom tailored opportunity for predator lending. Big surprise.

kgrin 16y ago
"flat defaults and goes to jail" - the following isn't a joke question: do you actually mean that people go to prison for defaulting on a loan? I thought debtors' prisons were... a concept we got past around the Victorian era?
- bradleyland 16y ago
  Sorry, no. That was hyperbole. You're not in jail in a traditional sense, but there are a laundry list of bad things that will happen, making it seem like you are. I'm talking things like wage garnishment and draining bank accounts. It's difficult to live a life based on cash (as in green paper), so at some point, the banks will catch up with you and drain your accounts. It's next to impossible to lead a normal life when you can't even save up enough money to pay cash for a $5000 car. The impact of wage garnishment on employment are significant as well. How motivated would you feel to show up to work, knowing that you'll never see the majority of your wages. This drives a lot of people to do stupid things like commit fraud, which can result in jail time if you repeatedly break the law. You literally end up on the run from your debt. That's not a life you want to live.

kgrin 16y ago

"flat defaults and goes to jail" - the following isn't a joke question: do you actually mean that people go to prison for defaulting on a loan? I thought debtors' prisons were... a concept we got past around the Victorian era?

bradleyland 16y ago
Sorry, no. That was hyperbole. You're not in jail in a traditional sense, but there are a laundry list of bad things that will happen, making it seem like you are. I'm talking things like wage garnishment and draining bank accounts. It's difficult to live a life based on cash (as in green paper), so at some point, the banks will catch up with you and drain your accounts. It's next to impossible to lead a normal life when you can't even save up enough money to pay cash for a $5000 car. The impact of wage garnishment on employment are significant as well. How motivated would you feel to show up to work, knowing that you'll never see the majority of your wages. This drives a lot of people to do stupid things like commit fraud, which can result in jail time if you repeatedly break the law. You literally end up on the run from your debt. That's not a life you want to live.