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I feel like the government should be offering some type of non predatory debt relief comparable to this. This service is only a detriment to the borrower due to
by notus 7y ago
I feel like the government should be offering some type of non predatory debt relief comparable to this. This service is only a detriment to the borrower due to the crazy high interest rates, but I think the government could break even with much more reasonable interest rates, consumers would be better off financially, and the predatory industries would disappear since they can't compete.
- TylerE 7y agoI am leery of government-backed loans. Look what FHA did to the housing market and what student loans have done to the cost of college.
- notus 7y agoI'm not entirely sure what FHA did to the housing market, but as for student loans, yes it wasn't a great outcome, but it is a substantially better outcome than everyone being in debt with high interest rates with predatory lenders.
- entropicdrifter 7y agoExcept that student loans can't be abandoned even if you declare bankruptcy. That one little factor makes them some of the worst loans imaginable in terms of long-term prospects.
- notus 7y agoStill not worse than triple digit interest rates
- godzillabrennus 7y agoThose unpaid predatory loans fall off your credit report after about a decade. Student loans are forever.
- deleted 7y ago[deleted]
- chasd00 7y agothe tradeoff is insanely low interest rates. Without the federal backstop student loans would have the interest rates of credit cards because as soon as new graduates get into the workforce, can't find a job, they'll file for bankruptcy to get out of the loan. Managing that risk without a backstop means incredibly high interest rate to cover for the losses of loans lost in bankruptcy.
- deleted 7y ago[deleted]
- dsfyu404ed 7y agoStudent loans didn't have those kinds of interest rates back when they could be discharged in bankruptcy 20+yr ago. Why would they now?
- mrguyorama 7y agoThe downside/risk to the lender is about 10x higher per loan than it was 20+ years ago
- deleted 7y ago[deleted]
- woeirua 7y agoNo, it's not a better outcome than if the market was private because frankly no one would graduate with $150k in debt for a degree in basket weaving if private lenders were backing the loans. A well regulated private market would prevent the extreme situations that we are seeing today. You can make a (somewhat legitimate) argument that we shouldn't require young kids to major in subjects that result in good paying jobs, but on the other hand you wind up with the mess that we are in if you don't. The status quo cannot go on. I'm in favor of either fully privatizing the system again, OR fully socializing it. In either case, the government would absolutely not be backing loans anymore.
- heavenlyblue 7y agoWhat does it mean to “fully socialise it” in the context of being from the US? Do you mean buying out all of the universities? PS: I come from Europe, studied in the UK when the tuition was capped at £3K/year.
- woeirua 7y agoNo, it would mirror the European experience. Essentially just capping the cost of tuition, fees and room/board and subsidizing the schools to an extent to make up the difference.
- heavyset_go 7y ago> No, it's not a better outcome than if the market was private because frankly no one would graduate with $150k in debt for a degree in basket weaving if private lenders were backing the loans People get private loans for bullshit degrees all of the time. Lenders don't care, because private student loans are non-dischargeable.
- woeirua 7y agoIn a privatized system student loans would be dischargeable under the existing bankruptcy laws, as they were before Congress changed the law.
- rootusrootus 7y agoI think that would be a terrible idea. The gov't would want to make the debt non-dischargeable like they do with student loans. It would be devastating. Maybe we could try to actually tackle things like medical costs so people aren't getting so deeply into debt to begin with.
- notus 7y ago> I think that would be a terrible idea. The gov't would want to make the debt non-dischargeable like they do with student loans. It would be devastating. I fail to see how this is worse than current predatory loan scenarios.
- kaikai 7y agoBecause current predatory loans can be discharged through bankruptcy.
- heavyset_go 7y ago> The gov't would want to make the debt non-dischargeable like they do with student loans That's a strange assertion, considering there are dischargeable government loans, and private student loans cannot be discharged.
- papln 7y agoYou must be too young to remember when loans were dischargeable before the banks got the laws changed.
- papln 7y agoThe solution to bad credit can't be more credit -- people will (and do) just take the credit, waste it, and then seek more credit. A better solution is to allow discharge of private debt so that lenders put more effort into validating debtors. If a creditor want to get money back from a debtor, they need to put the effort in to validate that the debtor has sufficient assets to pay it back and isn't paycheck-to-paycheck buying highly depreciating products. If you need to buy a house or a car on credit, you can. For almost anything else, you don't need credit unless you have an (usually illiquid) asset to back it -- a slowly-depreciating asset like a house or car, or a steady job. If you want a loan for a business, the creditor is on the hook for your default. Perhaps they'll insist on keeping your funds under trustee in escrow so you don't waste your loan on a luxury car and WeWork. And while we're at it, term-limits on secured loans that cannot extend much beyond the depreciation of the loan-enabled purchased. There's no reason that non-dischargable debt has to be arbitrarily easy to obtain.
- snagglegaggle 7y agoNo debt besides student loans is truly undischargeable. Historically it seems like it was pretty easy to avoid paying, for better or wose; unfortunately, now judges are more likely to set up unreasonable payment plans and to hold people in contempt for being unable to meet those plans. That this has not received more attention is troubling -- debtors prisons are illegal, and this is de facto creating a debtors prison. And that is often the only legal test required. That no one who can change the situation cares is indicative of societal rot.
- streblo 7y agoWhy can't the government just regulate the parameters of lending? Isn't that sufficient? Why does the government have to actually get into the business to help solve the problem?
- Litmus2336 7y agoBecause, theoretically, these companies would not be profitable if their interest rates were regulated, and therefore nobody would offer loans. But I don't have statistics on default rate or anything of that sort.
- streblo 7y agoThese companies wouldn't be profitable, but other companies that are founded post-regulation could be. Companies have a remarkable ability to mold their business models around regulation.
- rohit2412 7y agoIt will be ugly, just like the venezuelan government setting prices of food items led to farmers abandoning agriculture.
- sem000 7y agoThere is regulation in many states. The problem is the default rate. Example: An investor issues loans for $100k at $1k each. He charges the legal 30% interest to make $30k profit / return on his money. However, 30-40% of the borrowers default and these are unsecured loans. He makes 0% return. He stops offering these loans and now these people don’t have the access to these credit facilities.
- Kalium 7y ago> I think the government could break even with much more reasonable interest rates This is a big claim to make. Do you have some data to back it up?
- streblo 7y ago> I feel like the government should be offering some type of non predatory debt relief comparable to this. Just want to point out the fact that US government-backed student loans are non-dischargeable through bankruptcy. You will have that albatross around your neck until you pay it off or die. This is the ultimate predatory loan and it's provided by the government.
- driverdan 7y agoThis is the market at work. The reason the rates are so high is that the market put them there. These are high risk borrowers and many will default. Lower interest rates would result in a negative ROI. Tax dollars should not be subsidizing defaulted loans.