6 ms·

The solution is simple: make student loans dischargeable in bankruptcy, just like every other kind of loan. Otherwise there is no incentive for banks and colle

by breck 7y ago

The solution is simple: make student loans dischargeable in bankruptcy, just like every other kind of loan. Otherwise there is no incentive for banks and colleges to not charge infinity for college. The current system is like a legal modern form of slavery or mafioso. It's mind boggling how people don't see this simple explanation.

harryh 7y ago
This is a possible solution, but it's not simple. If you do this, the current system of student loans we have will collapse completely. Now, maybe that would be good...but it's not simple.
- breck 7y ago
  It is simple. Not easy, but simple. This is the solution. It works for all other industries. If I loan you money to buy a house or buy a car, without doing due diligence to that loan, the courts tell me "tough luck" if you file for bankruptcy. But if I lend you $250,000 for an arts degree, the power of the state will force you to pay me. That's insane!!!
  - harryh 7y ago
    Yes, and home and car loans still exist because if people don't pay it back there is an asset to repossess. That's not the case with college loans. Which is why they are fundamentally different.
    - breck 7y ago
      > they are fundamentally different. Perhaps it's good there are some things that are different. Some things are property. Some are not. In history there always seems to be a trend for those in power to try and enslave those not in power, by putting property laws on people. This student loan bankruptcy exception is one example. Intellectual slavery laws like copyright and patents are another.
      - tptacek 7y ago
        This is a non-sequitur response to the point 'harryh made. Regardless of the underlying moral dimension of college financing, you can't rationally extend dischargeable loans to students, because they can default and discharge the loan with minimal impact on their life. If dischargeability became the norm, most students would simply not be able to obtain loans at all. That may be a good thing, as 'harryh said. But that's not the point: the point is, at the point where you make student loans dischargeable, you might as well just concede that you're eliminating them altogether.
      - breck 7y ago
        In reply to tptacek: "at the point where you make student loans dischargeable, you might as well just concede that you're eliminating them altogether." Have you ever gone through bankruptcy? Luckily I have not, but from what I've read it's a horrible thing to go through with serious consequences to your finances that takes a minimum of 7 years to overcome. I think the cost of college would drop 10x. I went to Duke, and the gardens and pools were lovely, really, but perhaps some tables and books would have been the more appropriate use of my tuition money. I do agree the IS bit was somehwhat a non sequitor, but there is a common thread here I think when people try to put property and ownership rights on things that nature doesn't make that easy.
        tptacek 7y ago
        I have administered and underwritten bankruptcies for others and feel like I have some direct personal experience with the process. I do not feel like the consequences of bankruptcy are sufficient to make it irrational to discharge 6 figures of college debt through the process.
        kasey_junk 7y ago
        I would have declared bankruptcy in a heartbeat for my wife’s loans & it would have been rational. I a) make good money b) have good credit and c) don’t have financial hardships.
    - imtringued 7y ago
      The asset is a person who will have to undergo a repayment plan for 7 years.
  - vonmoltke 7y ago
    > But if I lend you $250,000 for an arts degree, the power of the state will force you to pay me. Why would the state not use the power of the state to make sure you pay back money it lent you?
    - breck 7y ago
      Because it's a dumb predatory loan that should never have been made in the first place. There is a type of business for making dumb loans and using force to ensure they are paid back: the mafia. The mafias of old are nothing in size when compared to the student loan industry.
      - vonmoltke 7y ago
        So you are calling the Department of Education a mafia? The Department of Education is the "student loan industry".
        breck 7y ago
        I think mafia is a poor word choice. At least the mafioso didn't pretend to be saints.
      - bumby 7y ago
        Discharging loans and the predatory nature of them are two different arguments. If they loans are predatory, make the loans harder to qualify for. It won't fix the predatory nature if they are easy to get rid of; if anything it will make them more predatory by likely increasing the interest rate to compensate for the increased risk to the lender.
        breck 7y ago
        This is completely wrong. The answer is simplicity, not more complexity that would come from "make the loans harder to qualify for". > It won't fix the predatory nature if they are easy to get rid of Yes, it will. People will stop hunting for more students to go to their schools with expensive landscaping if there were no government guarantees to ensure they get paid. This is a very simple issue. Any attempts to complexify the issue I suspect are merely attempts to divert attention from the question of human rights and equality. I paid all my student loans and personally have only to lose if they change the laws, but it's the right thing to do.
- libria 7y ago
  Collapse? Change maybe. It means underwriters will want proof of performance, High school GPA, SAT's, and intended college major. Good grades and signing up for pre-med? Here's a year of cash, you'll get your next payout if you're on the honor roll next year. Planning on majoring in Homeopathic Nutrition Science? Denied. Sounds like it'll make people a lot more focused on ROI and studying and that strikes me as a good thing. If it cuts down on a lot of frivolous choices, it'll also reduce the overall regret from those.
  - tptacek 7y ago
    The problem with dischargeable student loans isn't that the students won't profit from them; it's that, having obtained a dischargeable loan whose direct utility ends in their 21st year of life, the rational move for student borrowers would be to ruthlessly default. You can't repossess an education.
    - breck 7y ago
      That's false. My father and mother took out student loans when they were dischargeable and they paid them off. My dad via working as a taxi driver and bouncer, because there was downward pricing pressure back then. There are severe consequences to filing for bankruptcy. That is on your record for 7 years, minimum.
      - tptacek 7y ago
        This is also a non sequitur response. Doubtless many people would pay back their loans, for personal moral reasons. But a BK on your record from ages 21-28 is not a meaningful practical deterrent for ruthless default, because those are ages when personal credit history is not especially important; the BK would come off your record years before most people take out their first mortgage (the median age of first home purchase is 42, but a mortgage in your early 30s would be easily accomplished after a student loan default). There are annoying consequences to having a BK on your record --- it would be harder (though not impossible) to get a credit card, and your first couple apartment lessors might want cosigners (though it is extremely possible to get a lease with terrible credit). The problem is that these consequences are far less onerous than shouldering student debt, which takes most people decades to repay. What's worse is, the incentive would likely be to default as quickly as possible, since that's what starts the recovery countdown. Not defaulting right after graduation would be a significant gamble on your ability to either repay or practically default later in life, when you're more exposed to the credit system. Obviously, an important part of this analysis is that student loan amounts have gotten significantly larger in the last 2 decades. Another easily-made observation is that student loans stopped being dischargeable because of widespread ruthless default, even with tuition rates less than 1/3rd what they are now.
glofish 7y ago
yes, that is the real problem, college shouldn't cost a hundred grand a year in the first place ...
- scarface74 7y ago
  It doesn’t if you choose to go to a cheaper school...
  - glofish 7y ago
    this is like saying: it is even cheaper if you don't go do school at all... look at the facts: 1. the vast majority of colleges are very expensive, 2. career prospects suffer if you don't attend the "expensive" colleges... 3. finally, most people can't judge the value they get out of college, yet it is all set up in an almost predatory fashion.
    - scarface74 7y ago
      1. Is empirically easy to disprove. 2. This is also not true http://www.businessinsider.com/earnings-10-years-after-attending-the-most-expensive-colleges-in-america-2019-3 http://www.businessinsider.com/earnings-10-years-after-atten... https://www.vox.com/2014/8/5/5968681/expensive-college-worth-it https://www.vox.com/2014/8/5/5968681/expensive-college-worth... 3. The article is about wealthy families cheating. Do you think the average wealthy parents are ignorant?
      - glofish 7y ago
        You arguments are bit like: if you can't afford a car just move to place with good public transportation. Problem solved. Yet in the US that's not possible to do a larger scale. There are just not enough places to accommodate everyone that needs that. Hence you end up with people paying predatory car loans. I am not questioning that for one particular individual, it is possible to get a good education for far less than the average. Good for them. But that approach neither scales well nor is applicable to population levels, hence people try to game the system to get ahead. This is an example of gaming the system after all, we're looking at what leads here. As a note to the career prospects, how much you make in 10 years is not such an optimal measure. 10 years is a long time, and you do benefit more early on. The opportunities and overall quality of life is more impacted.
randogogogo 7y ago
"Charge infinity for college" is the best way I've heard this put. If there is no pressure on a school to control costs then nothing will control costs.
- harshreality 7y ago
  When studies come out that the present value of the lifetime earnings boost from a college degree has dropped below the cost of tuition, the media will run a series of stories, the next year's matriculation rates will collapse, and schools will panic. What happens next, I don't know, but that is certainly one thing that will control costs... eventually.
  - breck 7y ago
    This is a good point. I graduated college $50K in debt, and was in debt from age 18 - 30, but in the end going to the school I went to was worth it, compared to not going to that. However, this does not make it just. Education should provide you with a huge economic surplus. That's the natural order of things. It's very unnatural to say "I educated you, and now I hope to collect 99% of your economic bonus, but you will still be 1% better off so it's a good deal for you". That's called slavery.
    - perl4ever 7y ago
      "It's very unnatural to say "I educated you, and now I hope to collect 99% of your economic bonus, but you will still be 1% better off so it's a good deal for you"" This seems to be a common attitude though, on the scale of one (developed) nation to another (developing) nation. That is, I'm thinking of the anger over "intellectual property theft".
- noonespecial 7y ago
  You forgot step 2 where they graciously negotiate it down to everything you're ever going to earn.
bumby 7y ago
I wonder if that's just treating the symptom and not the root problem. I don't pretend to know what the root is, but I could see how being able to discharge loans in bankruptcy could make the system worse. Students could take out massive debt still backed by the government and declare bankruptcy shortly after graduation. There's still plenty of time to recover from that and still be in your 20s. Meanwhile, the taxpayer just got hosed in the process. That may even mean non-college graduates subsidized a fellow citizens degree with nothing to gain from it. The school still got paid, so I don't see that incentivizing lowing tuition. I know some people claim the easy access to government backed student loans makes it too easy for college to increase costs by essentially inflating the supply of students. It's a very libertarian argument and the fix is to stop letting the government distort the marketplace for tuition. But something about reducing access to student loans doesn't sit well with me and feels like you'll still shut out large segments of the population.
- breck 7y ago
  The bankruptcy exception is the root of the problem. "the Bankruptcy Reform Act of 1978". https://info.legalzoom.com/did-laws-effect-preventing-bankruptcy-student-loans-26426.html https://info.legalzoom.com/did-laws-effect-preventing-bankru.... Price of college since then: http://blog.unibulmerchantservices.com/wp-content/uploads/2012/09/The-State-of-the-Student-Loan-Debt-3.png http://blog.unibulmerchantservices.com/wp-content/uploads/20...
  - bumby 7y ago
    I don't know if your links support that claim. Or, at least I could use help getting from the bankruptcy law change to a systemic rise in education costs. It doesn't seem to follow that an inability to discharge debt will lead a college to continually increase tuition costs. By the time the discharging of debt comes into play, the college is mostly out of the picture. Help me understand how that incentivizes a school to increase tuition. If anything, it seems like it would drive the cost down as it increases the risk to the borrower, incentivizing the borrower against taking excessive loans. It does however seem to make better sense that an over supply of loans will allow colleges to increase tuition.
ericd 7y ago
I agree that we should make that change, but it's important to note that if that happens, interest rates on new private student loans will jump upward to account for the risk of default. And they may start adjusting interest rates based on what you're studying.
- breck 7y ago
  I agree it might be a tough transition. But it's the right thing to do. Let's be that country that does things "not because they are easy, but because they are hard"
  - eanzenberg 7y ago
    More than half of this country wants to have the “easy” entitled way about things
- eanzenberg 7y ago
  Wow really? Good!!
froindt 7y ago
>The solution is simple: make student loans dischargeable in bankruptcy, just like every other kind of loan. I agree the incentives don't align well right now, but am curious about what corresponding policies you would implement. Right now we have policies supporting the idea of "you can start from nothing and graduate from any college with any degree". That notion is tough to maintain with a simple switch of policy. Education loans have no collateral. Even if college was only 10k/year, filing for bankruptcy right after graduation would be a rational choice for many people. If loans were dischargeable, would you include provisions such that "expected costs" must always be available as loans (similar to what we have now)? How would you ensure "adequate" access for people to receive an education and climb to the next socioeconomic level? I could see far fewer people going to college right after high school, struggling to save money in relatively low paying jobs since the modest loans they want aren't readily available.
- breck 7y ago
  > filing for bankruptcy right after graduation would be a rational choice for many people. It would mean 7 years of no credit, harder to get jobs, legal costs and time spent, etc., so there would be strong incentives not to. > I could see far fewer people going to college right after high school, struggling to save money in relatively low paying jobs since the modest loans they want aren't readily available. Or suddenly lots of new educational institutions would spring up, competing on price, since they wouldn't have the government enforcing their loan shark business anymore.
  - froindt 7y ago
    Sure it's a mark against you, but for many people in lower earning career paths, erasing 1-2x gross salary after attending a modestly priced college is well worth it. E.g. A journalism student who earns 40k and had 40k of debt would need to pay $5,700/year, before interest, to have the loans paid off in 7 years. At 5% interest, $6,800/year. I think it'd be great to have institutions competing on price and taking steps to knock down the costs of attendance. There are also ideas around for people to pay a percentage of their earnings post-graduation, though the cynic in me says those will become just as predatory as the current lending structure. My university has built 3 dorms in the last 30 years, and all are suite style and ridiculously expensive. Despite earning little money, middle class college students want to maintain the same standard of living they grew up throughout college and first jobs. Yet another of the many challenges in the space.
deleted 7y ago
[deleted]
vonmoltke 7y ago
> Otherwise there is no incentive for banks ... to not charge infinity for college. The vast majority of student loans are not made by banks, so I'm not sure what they have to do with this.
- breck 7y ago
  A business that loans money to people and charges them interest is a bank.
  - vonmoltke 7y ago
    So the Department of Education is a bank?
    - dragonwriter 7y ago
      The Department of Education isn't a business.
      - vonmoltke 7y ago
        Then, again, what do banks have to do with this if a business that loans money is a bank, but the Department of Education is not a business and so not a bank?
    - breck 7y ago
      I personally never dealt with the DOE, though I dealt with lots of private companies that actually did the lending and managing of the loans, even if the DOE was ultimately behind them.
      - vonmoltke 7y ago
        Private companies do not do the lending, the DOE does. Stafford loans, both subsidized and unsubsidized, are issued directly by the DOE to the university. There is no middleman. What private companies are you talking about? Edit: I see what you are talking about. You are referring to loans issued under the discontinued Federal Family Education Loan Program[1]. That program ended in 2010 and, I believe, remaining loans issued under that program represent a relatively small portion of the DOE's $1.4T holding. The vast majority of what the DOE currently holds are loans directly issued by the DOE, and any talk of current education expense inflation cannot be separated from that. There are no banks to blame this on anymore. [1] https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_Program https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_...
dragonwriter 7y ago
> Otherwise there is no incentive for banks and colleges to not charge infinity for college. Almost all student loans are government initiated with (very low) rates set by formulas in law that there are strong political reasons not to make higher, and even when private lenders could participate in the government-guaranteed loan program, the rates were set by the same law. Market incentives are irrelevant, because rates aren't set in the market, but by fiat. Your argument might apply to the miniscule private student loan market (which is pretty much entirely for nonaccredited schools that don't qualify for government loan programs), but that's a small part of the student loan universe.

by breck 7y ago

harryh 7y ago

This is a possible solution, but it's not simple. If you do this, the current system of student loans we have will collapse completely. Now, maybe that would be good...but it's not simple.

breck 7y ago
It is simple. Not easy, but simple. This is the solution. It works for all other industries. If I loan you money to buy a house or buy a car, without doing due diligence to that loan, the courts tell me "tough luck" if you file for bankruptcy. But if I lend you $250,000 for an arts degree, the power of the state will force you to pay me. That's insane!!!
- harryh 7y ago
  Yes, and home and car loans still exist because if people don't pay it back there is an asset to repossess. That's not the case with college loans. Which is why they are fundamentally different.
  - breck 7y ago
    > they are fundamentally different. Perhaps it's good there are some things that are different. Some things are property. Some are not. In history there always seems to be a trend for those in power to try and enslave those not in power, by putting property laws on people. This student loan bankruptcy exception is one example. Intellectual slavery laws like copyright and patents are another.
    - tptacek 7y ago
      This is a non-sequitur response to the point 'harryh made. Regardless of the underlying moral dimension of college financing, you can't rationally extend dischargeable loans to students, because they can default and discharge the loan with minimal impact on their life. If dischargeability became the norm, most students would simply not be able to obtain loans at all. That may be a good thing, as 'harryh said. But that's not the point: the point is, at the point where you make student loans dischargeable, you might as well just concede that you're eliminating them altogether.
    - breck 7y ago
      In reply to tptacek: "at the point where you make student loans dischargeable, you might as well just concede that you're eliminating them altogether." Have you ever gone through bankruptcy? Luckily I have not, but from what I've read it's a horrible thing to go through with serious consequences to your finances that takes a minimum of 7 years to overcome. I think the cost of college would drop 10x. I went to Duke, and the gardens and pools were lovely, really, but perhaps some tables and books would have been the more appropriate use of my tuition money. I do agree the IS bit was somehwhat a non sequitor, but there is a common thread here I think when people try to put property and ownership rights on things that nature doesn't make that easy.
      - tptacek 7y ago
        I have administered and underwritten bankruptcies for others and feel like I have some direct personal experience with the process. I do not feel like the consequences of bankruptcy are sufficient to make it irrational to discharge 6 figures of college debt through the process.
        kasey_junk 7y ago
        I would have declared bankruptcy in a heartbeat for my wife’s loans & it would have been rational. I a) make good money b) have good credit and c) don’t have financial hardships.
  - imtringued 7y ago
    The asset is a person who will have to undergo a repayment plan for 7 years.
- vonmoltke 7y ago
  > But if I lend you $250,000 for an arts degree, the power of the state will force you to pay me. Why would the state not use the power of the state to make sure you pay back money it lent you?
  - breck 7y ago
    Because it's a dumb predatory loan that should never have been made in the first place. There is a type of business for making dumb loans and using force to ensure they are paid back: the mafia. The mafias of old are nothing in size when compared to the student loan industry.
    - vonmoltke 7y ago
      So you are calling the Department of Education a mafia? The Department of Education is the "student loan industry".
      - breck 7y ago
        I think mafia is a poor word choice. At least the mafioso didn't pretend to be saints.
    - bumby 7y ago
      Discharging loans and the predatory nature of them are two different arguments. If they loans are predatory, make the loans harder to qualify for. It won't fix the predatory nature if they are easy to get rid of; if anything it will make them more predatory by likely increasing the interest rate to compensate for the increased risk to the lender.
      - breck 7y ago
        This is completely wrong. The answer is simplicity, not more complexity that would come from "make the loans harder to qualify for". > It won't fix the predatory nature if they are easy to get rid of Yes, it will. People will stop hunting for more students to go to their schools with expensive landscaping if there were no government guarantees to ensure they get paid. This is a very simple issue. Any attempts to complexify the issue I suspect are merely attempts to divert attention from the question of human rights and equality. I paid all my student loans and personally have only to lose if they change the laws, but it's the right thing to do.
libria 7y ago
Collapse? Change maybe. It means underwriters will want proof of performance, High school GPA, SAT's, and intended college major. Good grades and signing up for pre-med? Here's a year of cash, you'll get your next payout if you're on the honor roll next year. Planning on majoring in Homeopathic Nutrition Science? Denied. Sounds like it'll make people a lot more focused on ROI and studying and that strikes me as a good thing. If it cuts down on a lot of frivolous choices, it'll also reduce the overall regret from those.
- tptacek 7y ago
  The problem with dischargeable student loans isn't that the students won't profit from them; it's that, having obtained a dischargeable loan whose direct utility ends in their 21st year of life, the rational move for student borrowers would be to ruthlessly default. You can't repossess an education.
  - breck 7y ago
    That's false. My father and mother took out student loans when they were dischargeable and they paid them off. My dad via working as a taxi driver and bouncer, because there was downward pricing pressure back then. There are severe consequences to filing for bankruptcy. That is on your record for 7 years, minimum.
    - tptacek 7y ago
      This is also a non sequitur response. Doubtless many people would pay back their loans, for personal moral reasons. But a BK on your record from ages 21-28 is not a meaningful practical deterrent for ruthless default, because those are ages when personal credit history is not especially important; the BK would come off your record years before most people take out their first mortgage (the median age of first home purchase is 42, but a mortgage in your early 30s would be easily accomplished after a student loan default). There are annoying consequences to having a BK on your record --- it would be harder (though not impossible) to get a credit card, and your first couple apartment lessors might want cosigners (though it is extremely possible to get a lease with terrible credit). The problem is that these consequences are far less onerous than shouldering student debt, which takes most people decades to repay. What's worse is, the incentive would likely be to default as quickly as possible, since that's what starts the recovery countdown. Not defaulting right after graduation would be a significant gamble on your ability to either repay or practically default later in life, when you're more exposed to the credit system. Obviously, an important part of this analysis is that student loan amounts have gotten significantly larger in the last 2 decades. Another easily-made observation is that student loans stopped being dischargeable because of widespread ruthless default, even with tuition rates less than 1/3rd what they are now.

glofish 7y ago

yes, that is the real problem, college shouldn't cost a hundred grand a year in the first place ...

scarface74 7y ago
It doesn’t if you choose to go to a cheaper school...
- glofish 7y ago
  this is like saying: it is even cheaper if you don't go do school at all... look at the facts: 1. the vast majority of colleges are very expensive, 2. career prospects suffer if you don't attend the "expensive" colleges... 3. finally, most people can't judge the value they get out of college, yet it is all set up in an almost predatory fashion.
  - scarface74 7y ago
    1. Is empirically easy to disprove. 2. This is also not true http://www.businessinsider.com/earnings-10-years-after-attending-the-most-expensive-colleges-in-america-2019-3 http://www.businessinsider.com/earnings-10-years-after-atten... https://www.vox.com/2014/8/5/5968681/expensive-college-worth-it https://www.vox.com/2014/8/5/5968681/expensive-college-worth... 3. The article is about wealthy families cheating. Do you think the average wealthy parents are ignorant?
    - glofish 7y ago
      You arguments are bit like: if you can't afford a car just move to place with good public transportation. Problem solved. Yet in the US that's not possible to do a larger scale. There are just not enough places to accommodate everyone that needs that. Hence you end up with people paying predatory car loans. I am not questioning that for one particular individual, it is possible to get a good education for far less than the average. Good for them. But that approach neither scales well nor is applicable to population levels, hence people try to game the system to get ahead. This is an example of gaming the system after all, we're looking at what leads here. As a note to the career prospects, how much you make in 10 years is not such an optimal measure. 10 years is a long time, and you do benefit more early on. The opportunities and overall quality of life is more impacted.

randogogogo 7y ago

"Charge infinity for college" is the best way I've heard this put. If there is no pressure on a school to control costs then nothing will control costs.

harshreality 7y ago
When studies come out that the present value of the lifetime earnings boost from a college degree has dropped below the cost of tuition, the media will run a series of stories, the next year's matriculation rates will collapse, and schools will panic. What happens next, I don't know, but that is certainly one thing that will control costs... eventually.
- breck 7y ago
  This is a good point. I graduated college $50K in debt, and was in debt from age 18 - 30, but in the end going to the school I went to was worth it, compared to not going to that. However, this does not make it just. Education should provide you with a huge economic surplus. That's the natural order of things. It's very unnatural to say "I educated you, and now I hope to collect 99% of your economic bonus, but you will still be 1% better off so it's a good deal for you". That's called slavery.
  - perl4ever 7y ago
    "It's very unnatural to say "I educated you, and now I hope to collect 99% of your economic bonus, but you will still be 1% better off so it's a good deal for you"" This seems to be a common attitude though, on the scale of one (developed) nation to another (developing) nation. That is, I'm thinking of the anger over "intellectual property theft".
noonespecial 7y ago
You forgot step 2 where they graciously negotiate it down to everything you're ever going to earn.

bumby 7y ago

I wonder if that's just treating the symptom and not the root problem. I don't pretend to know what the root is, but I could see how being able to discharge loans in bankruptcy could make the system worse. Students could take out massive debt still backed by the government and declare bankruptcy shortly after graduation. There's still plenty of time to recover from that and still be in your 20s. Meanwhile, the taxpayer just got hosed in the process. That may even mean non-college graduates subsidized a fellow citizens degree with nothing to gain from it. The school still got paid, so I don't see that incentivizing lowing tuition. I know some people claim the easy access to government backed student loans makes it too easy for college to increase costs by essentially inflating the supply of students. It's a very libertarian argument and the fix is to stop letting the government distort the marketplace for tuition. But something about reducing access to student loans doesn't sit well with me and feels like you'll still shut out large segments of the population.

breck 7y ago
The bankruptcy exception is the root of the problem. "the Bankruptcy Reform Act of 1978". https://info.legalzoom.com/did-laws-effect-preventing-bankruptcy-student-loans-26426.html https://info.legalzoom.com/did-laws-effect-preventing-bankru.... Price of college since then: http://blog.unibulmerchantservices.com/wp-content/uploads/2012/09/The-State-of-the-Student-Loan-Debt-3.png http://blog.unibulmerchantservices.com/wp-content/uploads/20...
- bumby 7y ago
  I don't know if your links support that claim. Or, at least I could use help getting from the bankruptcy law change to a systemic rise in education costs. It doesn't seem to follow that an inability to discharge debt will lead a college to continually increase tuition costs. By the time the discharging of debt comes into play, the college is mostly out of the picture. Help me understand how that incentivizes a school to increase tuition. If anything, it seems like it would drive the cost down as it increases the risk to the borrower, incentivizing the borrower against taking excessive loans. It does however seem to make better sense that an over supply of loans will allow colleges to increase tuition.

ericd 7y ago

I agree that we should make that change, but it's important to note that if that happens, interest rates on new private student loans will jump upward to account for the risk of default. And they may start adjusting interest rates based on what you're studying.

breck 7y ago
I agree it might be a tough transition. But it's the right thing to do. Let's be that country that does things "not because they are easy, but because they are hard"
- eanzenberg 7y ago
  More than half of this country wants to have the “easy” entitled way about things
eanzenberg 7y ago
Wow really? Good!!

froindt 7y ago

>The solution is simple: make student loans dischargeable in bankruptcy, just like every other kind of loan. I agree the incentives don't align well right now, but am curious about what corresponding policies you would implement. Right now we have policies supporting the idea of "you can start from nothing and graduate from any college with any degree". That notion is tough to maintain with a simple switch of policy. Education loans have no collateral. Even if college was only 10k/year, filing for bankruptcy right after graduation would be a rational choice for many people. If loans were dischargeable, would you include provisions such that "expected costs" must always be available as loans (similar to what we have now)? How would you ensure "adequate" access for people to receive an education and climb to the next socioeconomic level? I could see far fewer people going to college right after high school, struggling to save money in relatively low paying jobs since the modest loans they want aren't readily available.

breck 7y ago
> filing for bankruptcy right after graduation would be a rational choice for many people. It would mean 7 years of no credit, harder to get jobs, legal costs and time spent, etc., so there would be strong incentives not to. > I could see far fewer people going to college right after high school, struggling to save money in relatively low paying jobs since the modest loans they want aren't readily available. Or suddenly lots of new educational institutions would spring up, competing on price, since they wouldn't have the government enforcing their loan shark business anymore.
- froindt 7y ago
  Sure it's a mark against you, but for many people in lower earning career paths, erasing 1-2x gross salary after attending a modestly priced college is well worth it. E.g. A journalism student who earns 40k and had 40k of debt would need to pay $5,700/year, before interest, to have the loans paid off in 7 years. At 5% interest, $6,800/year. I think it'd be great to have institutions competing on price and taking steps to knock down the costs of attendance. There are also ideas around for people to pay a percentage of their earnings post-graduation, though the cynic in me says those will become just as predatory as the current lending structure. My university has built 3 dorms in the last 30 years, and all are suite style and ridiculously expensive. Despite earning little money, middle class college students want to maintain the same standard of living they grew up throughout college and first jobs. Yet another of the many challenges in the space.

deleted 7y ago

[deleted]

vonmoltke 7y ago

> Otherwise there is no incentive for banks ... to not charge infinity for college. The vast majority of student loans are not made by banks, so I'm not sure what they have to do with this.

breck 7y ago
A business that loans money to people and charges them interest is a bank.
- vonmoltke 7y ago
  So the Department of Education is a bank?
  - dragonwriter 7y ago
    The Department of Education isn't a business.
    - vonmoltke 7y ago
      Then, again, what do banks have to do with this if a business that loans money is a bank, but the Department of Education is not a business and so not a bank?
  - breck 7y ago
    I personally never dealt with the DOE, though I dealt with lots of private companies that actually did the lending and managing of the loans, even if the DOE was ultimately behind them.
    - vonmoltke 7y ago
      Private companies do not do the lending, the DOE does. Stafford loans, both subsidized and unsubsidized, are issued directly by the DOE to the university. There is no middleman. What private companies are you talking about? Edit: I see what you are talking about. You are referring to loans issued under the discontinued Federal Family Education Loan Program[1]. That program ended in 2010 and, I believe, remaining loans issued under that program represent a relatively small portion of the DOE's $1.4T holding. The vast majority of what the DOE currently holds are loans directly issued by the DOE, and any talk of current education expense inflation cannot be separated from that. There are no banks to blame this on anymore. [1] https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_Program https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_...

dragonwriter 7y ago

> Otherwise there is no incentive for banks and colleges to not charge infinity for college. Almost all student loans are government initiated with (very low) rates set by formulas in law that there are strong political reasons not to make higher, and even when private lenders could participate in the government-guaranteed loan program, the rates were set by the same law. Market incentives are irrelevant, because rates aren't set in the market, but by fiat. Your argument might apply to the miniscule private student loan market (which is pretty much entirely for nonaccredited schools that don't qualify for government loan programs), but that's a small part of the student loan universe.