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The for-profit education model would work much better if there were no special class of “student” loans, and instead the loans offered were normally dischargeab

The for-profit education model would work much better if there were no special class of “student” loans, and instead the loans offered were normally dischargeable in bankruptcy. This would cause colleges to charge manageable tuition and bankrupt the colleges that produced graduates unable to pay. The current situation of student loans is a racket, and for-profit universities like Corinthian exist specifically to fleece the government. Destroying the lives of their students is a byproduct.

theobon 8y ago
Wouldn't that require that the school provide the loan? If the debt is not held by the school then they are not impacted by bankruptcy. I like the theory of what you are saying but I'm not sure I want schools to become creditors.
- seibelj 8y ago
  If you have to get a loan from a private company, and all of these students default, then the private company will not longer offer loans for education from the bad institution. If the college’s students can’t get loans, they either shutdown or charge tuition that can be paid out of pocket. The root cause of the entire problem is outrageously large loans, provided by the government, that can never be discharged. Until we solve this problem, tuition rates will continue to rise inline with the maximum the government will allow.
  - elliekelly 8y ago
    >The root cause of the entire problem is outrageously large loans, provided by the government, that can never be discharged. And given without any regard for the value of the investment. We don't allow banks to lend people $200,000 to buy a house we know is only worth $20,000 so why is it okay for Sallie Mae* to? edit: Sallie Mae, not Fannie Mae
- superseeplus 8y ago
  If student loans granted to students studying in for-profit schools became dischargeable in bankruptcy, then lenders would be incentivized to consider their graduation rates and employability of their graduates before granting loans.
moorhosj 8y ago
I wonder what percentage of the current population would be unable to attend school under your model. If you couldn’t get a loan, you couldn’t attend or you would have currency exchange level interest rates for the poor. Other countries have a more socialized system and still maintain lower costs (same as healthcare). Maybe the problems actually lie elsewhere.
- seibelj 8y ago
  I’m talking about for-profit colleges. If you want a socialized model where profit isn’t the goal, the game changes, but I would argue that ostensibly “non-profit” colleges (and other types of non-profits as well) are considered for-profit by the people who earn salaries, especially the upper echelon of employees with 7 figure salaries. They are non-profits in terms of goals and not having shareholders, but the employees earning money are incentivized to keep revenues flowing. Although for-profit colleges are the most egregious, the absurd rise in tuition across the entire education industry is driven by government-backed loans that cannot be discharged. If we moved the loan system to the private sector, and forced hard decisions to be made about the cost/benefit of education, there would be short-term disruption but longterm stability.
mental1896 8y ago
Don't forget Grantham University and University of Phoenix. They specifically prey on veterans for their GI Bill money.
- alwaysreading 8y ago
  Interesting book on the topic is Lower Ed if you want to do a deep dive on how bad it's gotten: https://amzn.to/2Dxyne1 https://amzn.to/2Dxyne1
chongli 8y ago
If students can discharge their loans in bankruptcy, then what stops this from becoming standard practice on graduation day? After all, a student has no assets to auction off. The education they received cannot be taken away from them.
- curuinor 8y ago
  yes. just have them do it. student loans are fundamentally unsecured loans because they aren't collateralized. amounts loaned should be comparable to credit cards and other unsecured loans, and support of student enrollments should be through grants and scholarships, not loans.
- rhexs 8y ago
  Why should that be stopped? That should be part of the risk the underwriters take into account when making the loan. Of course, the outcome of that would be that a large number of degree programs would no longer offer any meaningful loans, and then students would hopefully not be graduating with 50-100K in debt for a gender studies degree. The only way to have institutions underwrite a loan for a degree that has limited economic value is to make the debt nondischargeable. So, you either have nondischargeable loans for these types of degrees, else you start having the difficult conversation that maybe everyone doesn't actually need to go to college. Obviously, one of those arguments plays well.
- jkaplowitz 8y ago
  They were dischargeable in bankruptcy until 10-15 years ago. I don't believe declaring bankruptcy on graduation day was ever a standard practice, nor do I see why reversing the discharge exception would change that. By and large, people intend to repay debts they incur, and they don't want to deal with the 7 to 10 years (not sure of exact duration) of bad credit that results from bankruptcy if they can avoid it. Having difficulty buying or leasing a home or car without paying the total cost up front, inability to get those jobs where a credit check is involved, etc... that will never be standard practice by choice.
- ocschwar 8y ago
  They have to go in front of a judge. Do that the day after graduation, and the judge will not be inclined to approve the bankruptcy.
ravenstine 8y ago
> and instead the loans offered were normally dischargeable in bankruptcy. Well yes, when you can legally steal money, it logically follows that it becomes much easier to spend said money.
clairity 8y ago
yes, this dynamic is by now a well-known moral hazard, and yet we still have this system. why? one reason is because it's advantageous to capital holders, who are more effective at attracting and aggregating that risk-free money (the fairness rebuttal, that non-dischargeability reins in fraud, is a non-sequiter obscuring the main underlying issue). people rightly correlated education with social and financial success, but wrongly inferred a causal relationship between the two. universities were more a way for the wealthy to identify and promote each other, rather than bestowers of magical money-making skills to all (although it can do that too, but that's not the majority or primary outcome). so politicians, in an effort to level the playing field, saw that loans were one (minor?) impediment to higher education. in the rush to address that issue (and earn kudos, jobs, money, or whatever), those politicians ignored (possibly willfully) the real, and much harder, barriers to upward mobility. they wanted a clear win, and government-guaranteed loans were it. and this (simplified) narrative leaves out many other proximal complications. it's very hard to identify the root cause(s) of systemic problems, much less fix them. most people are not incentivized, nor have the patience, to do so. politicians were trying to provide upward mobility, but rather solved a financing problem instead. (n.b. - i benefitted from government-guaranteed loans to attend a good university that otherwise would have been out of my reach)

theobon 8y ago

Wouldn't that require that the school provide the loan? If the debt is not held by the school then they are not impacted by bankruptcy. I like the theory of what you are saying but I'm not sure I want schools to become creditors.

seibelj 8y ago
If you have to get a loan from a private company, and all of these students default, then the private company will not longer offer loans for education from the bad institution. If the college’s students can’t get loans, they either shutdown or charge tuition that can be paid out of pocket. The root cause of the entire problem is outrageously large loans, provided by the government, that can never be discharged. Until we solve this problem, tuition rates will continue to rise inline with the maximum the government will allow.
- elliekelly 8y ago
  >The root cause of the entire problem is outrageously large loans, provided by the government, that can never be discharged. And given without any regard for the value of the investment. We don't allow banks to lend people $200,000 to buy a house we know is only worth $20,000 so why is it okay for Sallie Mae* to? edit: Sallie Mae, not Fannie Mae
superseeplus 8y ago
If student loans granted to students studying in for-profit schools became dischargeable in bankruptcy, then lenders would be incentivized to consider their graduation rates and employability of their graduates before granting loans.

moorhosj 8y ago

I wonder what percentage of the current population would be unable to attend school under your model. If you couldn’t get a loan, you couldn’t attend or you would have currency exchange level interest rates for the poor. Other countries have a more socialized system and still maintain lower costs (same as healthcare). Maybe the problems actually lie elsewhere.

seibelj 8y ago
I’m talking about for-profit colleges. If you want a socialized model where profit isn’t the goal, the game changes, but I would argue that ostensibly “non-profit” colleges (and other types of non-profits as well) are considered for-profit by the people who earn salaries, especially the upper echelon of employees with 7 figure salaries. They are non-profits in terms of goals and not having shareholders, but the employees earning money are incentivized to keep revenues flowing. Although for-profit colleges are the most egregious, the absurd rise in tuition across the entire education industry is driven by government-backed loans that cannot be discharged. If we moved the loan system to the private sector, and forced hard decisions to be made about the cost/benefit of education, there would be short-term disruption but longterm stability.

mental1896 8y ago

Don't forget Grantham University and University of Phoenix. They specifically prey on veterans for their GI Bill money.

alwaysreading 8y ago
Interesting book on the topic is Lower Ed if you want to do a deep dive on how bad it's gotten: https://amzn.to/2Dxyne1 https://amzn.to/2Dxyne1

chongli 8y ago

If students can discharge their loans in bankruptcy, then what stops this from becoming standard practice on graduation day? After all, a student has no assets to auction off. The education they received cannot be taken away from them.

curuinor 8y ago
yes. just have them do it. student loans are fundamentally unsecured loans because they aren't collateralized. amounts loaned should be comparable to credit cards and other unsecured loans, and support of student enrollments should be through grants and scholarships, not loans.
rhexs 8y ago
Why should that be stopped? That should be part of the risk the underwriters take into account when making the loan. Of course, the outcome of that would be that a large number of degree programs would no longer offer any meaningful loans, and then students would hopefully not be graduating with 50-100K in debt for a gender studies degree. The only way to have institutions underwrite a loan for a degree that has limited economic value is to make the debt nondischargeable. So, you either have nondischargeable loans for these types of degrees, else you start having the difficult conversation that maybe everyone doesn't actually need to go to college. Obviously, one of those arguments plays well.
jkaplowitz 8y ago
They were dischargeable in bankruptcy until 10-15 years ago. I don't believe declaring bankruptcy on graduation day was ever a standard practice, nor do I see why reversing the discharge exception would change that. By and large, people intend to repay debts they incur, and they don't want to deal with the 7 to 10 years (not sure of exact duration) of bad credit that results from bankruptcy if they can avoid it. Having difficulty buying or leasing a home or car without paying the total cost up front, inability to get those jobs where a credit check is involved, etc... that will never be standard practice by choice.
ocschwar 8y ago
They have to go in front of a judge. Do that the day after graduation, and the judge will not be inclined to approve the bankruptcy.

ravenstine 8y ago

> and instead the loans offered were normally dischargeable in bankruptcy. Well yes, when you can legally steal money, it logically follows that it becomes much easier to spend said money.

clairity 8y ago

yes, this dynamic is by now a well-known moral hazard, and yet we still have this system. why? one reason is because it's advantageous to capital holders, who are more effective at attracting and aggregating that risk-free money (the fairness rebuttal, that non-dischargeability reins in fraud, is a non-sequiter obscuring the main underlying issue). people rightly correlated education with social and financial success, but wrongly inferred a causal relationship between the two. universities were more a way for the wealthy to identify and promote each other, rather than bestowers of magical money-making skills to all (although it can do that too, but that's not the majority or primary outcome). so politicians, in an effort to level the playing field, saw that loans were one (minor?) impediment to higher education. in the rush to address that issue (and earn kudos, jobs, money, or whatever), those politicians ignored (possibly willfully) the real, and much harder, barriers to upward mobility. they wanted a clear win, and government-guaranteed loans were it. and this (simplified) narrative leaves out many other proximal complications. it's very hard to identify the root cause(s) of systemic problems, much less fix them. most people are not incentivized, nor have the patience, to do so. politicians were trying to provide upward mobility, but rather solved a financing problem instead. (n.b. - i benefitted from government-guaranteed loans to attend a good university that otherwise would have been out of my reach)