5 ms·

Won't people then plan to go bankrupt? Although perhaps that will allow a better equilibrium.

iguy 8y ago
Here's another idea for a better equilibrium: Cap non-dischargeable loan payments at (say) 15% of taxable income, written off after 20 years. Then they can never become an impossible burden, and lenders will become very picky about what kinds of study they wish to fund. Which will in turn provide more useful information to those applying, instead of just glossy brochures.
hn_throwaway_99 8y ago
No, being bankrupt is definitely not an enjoyable state to be in, even is your debts are discharged, though. What is does mean, however, is that no sane entity will then continue giving out loans for someone to go $75k in debt to go to cooking school.
- hobo_mark 8y ago
  You mean culinary science !
ashelmire 8y ago
Yes, which is exactly the point; so banks/gov will lend less, to people they think will pay it back. Which means schools will have to charge less, particularly for non-profitable majors.
AngryData 8y ago
It works for our president, maybe the government will learn something when not only the wealthy can get away with it.
sillyguy123 8y ago
Probably - it would change the dynamics between pricing , companies providing the financing and universities. How I’ve no idea. Right now it’s kinda risk free to give loans out so that would change. Maybe then less cash is made available and universities have extra capacity.
rjf72 8y ago
Like you mention it'd simply create an equilibrium. People would declare bankruptcy when the discomfort of repaying the loans exceeded the discomfort of declaring bankruptcy. If I lend you an unsecured $10 which you then expend on something personal and materially intangible (such as an education) you're not going to declare bankruptcy to get rid of that $10 debt. If I lend you an unsecured $1,000,000, you almost certainly would declare bankruptcy to get rid of that debt. So we can say that my risk (as a lender) in lending you $10 would be 0%, while my risk in lending you $1,000,000 would be 100%. There's some curve there where I maximize my profit:risk in the middle that depends on the specifics. Like any loan it now becomes the job of the lender to assess that risk, determine eligibility, and profit off sound financial decisions - or, themselves, go bankrupt with poor financial decisions. I think this would be a vastly better scenario simply because all interests would be aligned. Universities would have an incentive to keep prices reasonable because lenders would want to keep the total amount lent per individual relatively low. Universities would also have an incentive to ensure students would be likely to be able to comfortably provide for themselves after graduation because, once again, lenders would have an incentive to ensure that the people they're lending to will be able to comfortably pay back their loan once they graduate. And so forth and so on. In the end, we'd likely reach a scenario where it'd be relatively easy to obtain loans for majors likely to improve your ability to comfortably provide for yourself, and relatively difficult to obtain loans for majors likely to leave you with difficulties providing for yourself. A world where anyone could pursue education, on public dollar, on any topic they'd like, is an interesting idea. I look forward to seeing the outcomes now that such systems are truly starting to be put to the test. Many nations are facing substantial pressures on their social systems such as aging populations, increasing costs of medical care, reduced fertility rates, immigration of lower earning individuals, etc. At the same time, the face of the job market is constantly changing such that an ever larger share of all desirable careers require some degree of educational specialization to even get your foot in the door. These are relatively new problems and I'm not entirely convinced that utopic ideas of decades past will remain viable in the decades to come - though I certainly hope to be proven wrong!
- iguy 8y ago
  The problem IMHO is that the "discomfort of declaring bankruptcy" is hard to predict. Right now it caries some social stigma I believe, but that could change. I don't think that's a great mechanism for deciding who pays back the loan and who doesn't... and my suggestion in all such threads is that this should be tied to future income, which the lender will then become very interested in predicting.

iguy 8y ago

Here's another idea for a better equilibrium: Cap non-dischargeable loan payments at (say) 15% of taxable income, written off after 20 years. Then they can never become an impossible burden, and lenders will become very picky about what kinds of study they wish to fund. Which will in turn provide more useful information to those applying, instead of just glossy brochures.

hn_throwaway_99 8y ago

No, being bankrupt is definitely not an enjoyable state to be in, even is your debts are discharged, though. What is does mean, however, is that no sane entity will then continue giving out loans for someone to go $75k in debt to go to cooking school.

hobo_mark 8y ago
You mean culinary science !

ashelmire 8y ago

Yes, which is exactly the point; so banks/gov will lend less, to people they think will pay it back. Which means schools will have to charge less, particularly for non-profitable majors.

AngryData 8y ago

It works for our president, maybe the government will learn something when not only the wealthy can get away with it.

sillyguy123 8y ago

Probably - it would change the dynamics between pricing , companies providing the financing and universities. How I’ve no idea. Right now it’s kinda risk free to give loans out so that would change. Maybe then less cash is made available and universities have extra capacity.

rjf72 8y ago

Like you mention it'd simply create an equilibrium. People would declare bankruptcy when the discomfort of repaying the loans exceeded the discomfort of declaring bankruptcy. If I lend you an unsecured $10 which you then expend on something personal and materially intangible (such as an education) you're not going to declare bankruptcy to get rid of that $10 debt. If I lend you an unsecured $1,000,000, you almost certainly would declare bankruptcy to get rid of that debt. So we can say that my risk (as a lender) in lending you $10 would be 0%, while my risk in lending you $1,000,000 would be 100%. There's some curve there where I maximize my profit:risk in the middle that depends on the specifics. Like any loan it now becomes the job of the lender to assess that risk, determine eligibility, and profit off sound financial decisions - or, themselves, go bankrupt with poor financial decisions. I think this would be a vastly better scenario simply because all interests would be aligned. Universities would have an incentive to keep prices reasonable because lenders would want to keep the total amount lent per individual relatively low. Universities would also have an incentive to ensure students would be likely to be able to comfortably provide for themselves after graduation because, once again, lenders would have an incentive to ensure that the people they're lending to will be able to comfortably pay back their loan once they graduate. And so forth and so on. In the end, we'd likely reach a scenario where it'd be relatively easy to obtain loans for majors likely to improve your ability to comfortably provide for yourself, and relatively difficult to obtain loans for majors likely to leave you with difficulties providing for yourself. A world where anyone could pursue education, on public dollar, on any topic they'd like, is an interesting idea. I look forward to seeing the outcomes now that such systems are truly starting to be put to the test. Many nations are facing substantial pressures on their social systems such as aging populations, increasing costs of medical care, reduced fertility rates, immigration of lower earning individuals, etc. At the same time, the face of the job market is constantly changing such that an ever larger share of all desirable careers require some degree of educational specialization to even get your foot in the door. These are relatively new problems and I'm not entirely convinced that utopic ideas of decades past will remain viable in the decades to come - though I certainly hope to be proven wrong!

iguy 8y ago
The problem IMHO is that the "discomfort of declaring bankruptcy" is hard to predict. Right now it caries some social stigma I believe, but that could change. I don't think that's a great mechanism for deciding who pays back the loan and who doesn't... and my suggestion in all such threads is that this should be tied to future income, which the lender will then become very interested in predicting.