5 ms·

Serious question: Why not just remove the government guaranteed part of the loans? This seems backwards to me.

by SteveNuts 8y ago

falcolas 8y ago
Is there an 18 year old who would be a good risk for tens to hundreds of thousands of dollars of collateral free loans?
- lotsofpulp 8y ago
  Is there a need for all 18 year olds to have access to tens to hundreds of thousands of dollars of debt?
  - jandrese 8y ago
    Not if we implement one of the "government pays for college" plans that are floating around progressive circles. This is also a way to get costs under control, since the government would have enormous leverage to set a cap on the rates (the same way Medicare pays much less than traditional insurance for the same procedure). Granted you can bet that on-campus housing would become even more expensive and mandatory, but at least tuition growth might slow down. Unfortunately the same forces that killed the Medicare for All plans are going to work against these plans. There's a ton of money to be made with the current system and the people making it are well connected politically.
    - ams6110 8y ago
      A big problem with most of those plans is that they are sold as "everyone gets to go to college and the government pays for it" not that "government pays only for those who are qualified"
  - falcolas 8y ago
    If they want to go to college (to have access to salaries exponentially higher than non-college graduates), and aren’t part of wealthy families, then yes they do. At least, with the current college prices, they do.
- jackcosgrove 8y ago
  No, but there are 22 year olds who go to medical school who are. The loans would still have to be non-dischargeable in bankruptcy, but default rates would be very low.
  - falcolas 8y ago
    There are still required classes, that cost a lot of money, to even get into medical school. Money that most families don’t have to give to their children.
    - jackcosgrove 8y ago
      I understand. I'm just saying that a medical degree is one of the few degrees that are enough of a sure thing to justify six-figure loan amounts absent government backing.
lotsofpulp 8y ago
I presume it’s because there are people making money from the cost inflation that the federal taxpayer guarantees provide, and so they lobby to keep them in effect.
twblalock 8y ago
Students would not qualify for loans if they were not guaranteed by the government. They are young people with little or no income or collateral -- who would be willing to lend them tens of thousands of dollars? If you remove the government backing you might as well just not bother having student loans at all.
- scrooched_moose 8y ago
  That, plus the fact that it's for an intangible asset that can't be repossessed. If they give an 18 year old $30k for a car purchase they come take the car when you don't pay and get most of their money back. There's no way to seize a diploma to recover their money.
  - magduf 8y ago
    You can garnish their wages. Student loans cannot be discharged in a bankruptcy, so students are on the hook for them for life unless the lender writes off the loan.
    - dragonwriter 8y ago
      > Student loans cannot be discharged in a bankruptcy Student loans can be discharged in bankruptcy, but it is harder than other unsecured debt.
      - magduf 8y ago
        You're right, apparently you can file a lawsuit within a bankruptcy proceeding to show that the student loan imposes an unreasonable burden. Not as easy as other debt of course.
- lotsofpulp 8y ago
  Good, then maybe we wouldn’t have colleges trying to outcompete each other on who can ratchet up the unnecessary expenses of a school.
- 8y ago
Judgmentality 8y ago
Yeah, I feel like making the loans forgivable is the correct solution. It should be the lenders on the hook, not the schools. And if lenders offer fewer loans because they don't see it as cost effective, the schools will be pressured to provide a cheaper and/or better service in response.
- notyourday 8y ago
  Who is going to continue to give loans for basket weaving degrees if that happens?
save_ferris 8y ago
It would likely destroy the rating of the outstanding debt and would raise serious questions around the US Government's ability to honor debt in general. I don't disagree that student debt is a crisis that needs to be dealt with, but the US government coming out and saying "JK, we're not going to back this debt" would surely be a disaster.
- ams6110 8y ago
  I think GP implied removing the guarantee on new loans. Not retroactively changing the terms of existing loans.
- creato 8y ago
  I think it is pretty obvious the post you are replying to meant that we would stop backing new student loans. There would be no change to outstanding debt, which would be absurd for the reasons you pointed out.
  - save_ferris 8y ago
    ah, I totally misunderstood.
geebee 8y ago
That is a serious question, worth asking. I'll try to summarize the arguments I've heard for justification for a government backed guarantee. 1) There's a widespread social benefit to having more highly educated citizens that won't be recouped by the institution making the loan. 2) The repayment term doesn't work well for very expensive professional degrees that confer huge long-term earning benefits, but aren't secured by those benefits (i.e.., it would make financial sense for a recent MD to declare bankruptcy to get out of $200k+ in med school bills, even though that person may be earning well over 300K/year for decades). In the end, I think it's all fallen apart, though. In fact, I think the wide availability of student loans has had the absolute opposite effect. If prices had stayed flat, the availability of low cost loans might have improved affordability, but as others have pointed out on this forum, prices inflated to reflect the wide availability large scale unsecured loans to people with no credit or collateral. As a result, the lower-cost approaches never emerged - instead of finding a way to offer a quality low cost education, universities figured out bigger and better ways to spend this new source of money. That alone would be bad enough, but these loans had a truly toxic element of not being dischargeable through ordinary bankruptcy. And now, add in the fact that most of the people taking these loans out were, by design, fairly young - we start college in the US around age 18, so many of the people encountering perhaps the most dangerous type of loan they'd ever encounter were signing paperwork and entering binding contracts maybe a week after they'd reached an age where they were permitted to do so as an adult! I agree that people need to take responsibility for the actions they take, especially as an adult, but this is... cruel. This is a really insidious trap, put out for people as they take their first steps out into the adult world of lasting consequences. I'm not saying this should be handled purely by the private sector... but seriously, if someone wouldn't touch a loan under standard bankruptcy laws with a 29 and a half foot pole... look, that should tell you something about the wisdom of subsidizing the loan though government programs. People need to pay their debts, but the credit system is kept in check by an incentive on the part of the lender not to be an idiot. This is why I and many people have a limited sympathy for lenders like credit cards. If you make a massive, unsecured loan to people with no assets and no reputation for paying their debts, well, there's a limit to how much the government is going to help you get your money back. The system works because lenders need to be careful about debt too. Yeah, this whole thing was a total disaster.

Serious question: Why not just remove the government guaranteed part of the loans? This seems backwards to me.

falcolas 8y ago

Is there an 18 year old who would be a good risk for tens to hundreds of thousands of dollars of collateral free loans?

lotsofpulp 8y ago
Is there a need for all 18 year olds to have access to tens to hundreds of thousands of dollars of debt?
- jandrese 8y ago
  Not if we implement one of the "government pays for college" plans that are floating around progressive circles. This is also a way to get costs under control, since the government would have enormous leverage to set a cap on the rates (the same way Medicare pays much less than traditional insurance for the same procedure). Granted you can bet that on-campus housing would become even more expensive and mandatory, but at least tuition growth might slow down. Unfortunately the same forces that killed the Medicare for All plans are going to work against these plans. There's a ton of money to be made with the current system and the people making it are well connected politically.
  - ams6110 8y ago
    A big problem with most of those plans is that they are sold as "everyone gets to go to college and the government pays for it" not that "government pays only for those who are qualified"
- falcolas 8y ago
  If they want to go to college (to have access to salaries exponentially higher than non-college graduates), and aren’t part of wealthy families, then yes they do. At least, with the current college prices, they do.
jackcosgrove 8y ago
No, but there are 22 year olds who go to medical school who are. The loans would still have to be non-dischargeable in bankruptcy, but default rates would be very low.
- falcolas 8y ago
  There are still required classes, that cost a lot of money, to even get into medical school. Money that most families don’t have to give to their children.
  - jackcosgrove 8y ago
    I understand. I'm just saying that a medical degree is one of the few degrees that are enough of a sure thing to justify six-figure loan amounts absent government backing.

lotsofpulp 8y ago

I presume it’s because there are people making money from the cost inflation that the federal taxpayer guarantees provide, and so they lobby to keep them in effect.

twblalock 8y ago

Students would not qualify for loans if they were not guaranteed by the government. They are young people with little or no income or collateral -- who would be willing to lend them tens of thousands of dollars? If you remove the government backing you might as well just not bother having student loans at all.

scrooched_moose 8y ago
That, plus the fact that it's for an intangible asset that can't be repossessed. If they give an 18 year old $30k for a car purchase they come take the car when you don't pay and get most of their money back. There's no way to seize a diploma to recover their money.
- magduf 8y ago
  You can garnish their wages. Student loans cannot be discharged in a bankruptcy, so students are on the hook for them for life unless the lender writes off the loan.
  - dragonwriter 8y ago
    > Student loans cannot be discharged in a bankruptcy Student loans can be discharged in bankruptcy, but it is harder than other unsecured debt.
    - magduf 8y ago
      You're right, apparently you can file a lawsuit within a bankruptcy proceeding to show that the student loan imposes an unreasonable burden. Not as easy as other debt of course.
lotsofpulp 8y ago
Good, then maybe we wouldn’t have colleges trying to outcompete each other on who can ratchet up the unnecessary expenses of a school.
8y ago

Judgmentality 8y ago

Yeah, I feel like making the loans forgivable is the correct solution. It should be the lenders on the hook, not the schools. And if lenders offer fewer loans because they don't see it as cost effective, the schools will be pressured to provide a cheaper and/or better service in response.

notyourday 8y ago
Who is going to continue to give loans for basket weaving degrees if that happens?

save_ferris 8y ago

It would likely destroy the rating of the outstanding debt and would raise serious questions around the US Government's ability to honor debt in general. I don't disagree that student debt is a crisis that needs to be dealt with, but the US government coming out and saying "JK, we're not going to back this debt" would surely be a disaster.

ams6110 8y ago
I think GP implied removing the guarantee on new loans. Not retroactively changing the terms of existing loans.
creato 8y ago
I think it is pretty obvious the post you are replying to meant that we would stop backing new student loans. There would be no change to outstanding debt, which would be absurd for the reasons you pointed out.
- save_ferris 8y ago
  ah, I totally misunderstood.

geebee 8y ago

That is a serious question, worth asking. I'll try to summarize the arguments I've heard for justification for a government backed guarantee. 1) There's a widespread social benefit to having more highly educated citizens that won't be recouped by the institution making the loan. 2) The repayment term doesn't work well for very expensive professional degrees that confer huge long-term earning benefits, but aren't secured by those benefits (i.e.., it would make financial sense for a recent MD to declare bankruptcy to get out of $200k+ in med school bills, even though that person may be earning well over 300K/year for decades). In the end, I think it's all fallen apart, though. In fact, I think the wide availability of student loans has had the absolute opposite effect. If prices had stayed flat, the availability of low cost loans might have improved affordability, but as others have pointed out on this forum, prices inflated to reflect the wide availability large scale unsecured loans to people with no credit or collateral. As a result, the lower-cost approaches never emerged - instead of finding a way to offer a quality low cost education, universities figured out bigger and better ways to spend this new source of money. That alone would be bad enough, but these loans had a truly toxic element of not being dischargeable through ordinary bankruptcy. And now, add in the fact that most of the people taking these loans out were, by design, fairly young - we start college in the US around age 18, so many of the people encountering perhaps the most dangerous type of loan they'd ever encounter were signing paperwork and entering binding contracts maybe a week after they'd reached an age where they were permitted to do so as an adult! I agree that people need to take responsibility for the actions they take, especially as an adult, but this is... cruel. This is a really insidious trap, put out for people as they take their first steps out into the adult world of lasting consequences. I'm not saying this should be handled purely by the private sector... but seriously, if someone wouldn't touch a loan under standard bankruptcy laws with a 29 and a half foot pole... look, that should tell you something about the wisdom of subsidizing the loan though government programs. People need to pay their debts, but the credit system is kept in check by an incentive on the part of the lender not to be an idiot. This is why I and many people have a limited sympathy for lenders like credit cards. If you make a massive, unsecured loan to people with no assets and no reputation for paying their debts, well, there's a limit to how much the government is going to help you get your money back. The system works because lenders need to be careful about debt too. Yeah, this whole thing was a total disaster.