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Honest question from an outsider: how realistic would it be for the government to stop guaranteeing student loans over a "public university" (community college?

Honest question from an outsider: how realistic would it be for the government to stop guaranteeing student loans over a "public university" (community college?) level threshold? What are the unintended secondary effects? Would it help curb wild-growth of tuition fees?

mumblemumble 7y ago
It probably depends, more than anything else, on how much lobbying money is available to help convince our friends at Capitol Hill to keep the gravy train rolling.
LanceH 7y ago
The very first step should be to make student loans dischargeable in bankruptcy again.
- nothrabannosir 7y ago
  Ah, I always assumed that was the same thing. Thanks. What I mean is: treating student loans (at least above community college tuition levels) like any other loan.
- wtvanhest 7y ago
  I think the easy solution is to make loans over 20k dischargable. That would allow for some borrowing, but pretty soon that would be the max cost.
- bluedevil2k 7y ago
  This would be a mistake I think. The nature of a loan is that the lender can reclaim the asset when a default occurs. This works well for assets like cars and houses but obviously fails for knowledge. Combine that with the age and overall assets of graduates (22 and near-zero) and a bankruptcy becomes a less risky proposition to the student. As more and more default on the loans, interest rates will start to skyrocket, to the point that no one will be able to afford one at all.
  - garmaine 7y ago
    And then universities will stop assuming their students will be able to get them to afford insane tuition prices. That’s the point.
- sodafountan 7y ago
  You can't do that because it would be far more beneficial at this point to just declare bankruptcy out of college and get the loans dismissed than it would be to pay them back. Also there's nothing of value to repossess if you were to declare bankruptcy, banks can't repossess and then re-sell a college degree.
  - LanceH 7y ago
    Why are these loans special? Other loans without collateral exist. Maybe private lenders shouldn't have the full force of the government behind them. Maybe they shouldn't be offering some of these loans.
    - vonmoltke 7y ago
      They don't, and they aren't. The non-dischargeable loans are all issued directly by the US Government.
    - sodafountan 7y ago
      There are loans you can get without collateral, they're typically pretty small loans with higher interest and are only issued to people with good credit. The problem with student loans is students typically don't have any credit, don't have any collateral and what they're seeking can't be repossessed if they default - banks know that issuing loans to these people without the backing of the government is financial suicide, in other words the free market says these loans shouldn't exist at all. The student loan crisis was caused by government intervention, guaranteeing loans for people who otherwise wouldn't have even been eligible to receive that type of money allows institutions to jack the price of school up infinitely and banks to keep allowing it because neither can fail - in the long run it's only the student who has to bear the cost long term. We need to allow institutions and banks to fail again, that's the only way you correct this problem. As soon as you stop guaranteeing loans banks stop issuing them and college's are forced to bring prices down. That would hurt some students in the short term who wouldn't be able to afford college but eventually the free market would do it's work and make college more reasonably priced again.
oconnor663 7y ago
One secondary effect might be to reduce the percentage of minority students at 4-year universities, if those students are more likely than average to rely on loans to attend. Opponents of the policy change would ask some very loaded questions about that in any public debate, and they wouldn't be wrong to ask.

mumblemumble 7y ago

It probably depends, more than anything else, on how much lobbying money is available to help convince our friends at Capitol Hill to keep the gravy train rolling.

LanceH 7y ago

The very first step should be to make student loans dischargeable in bankruptcy again.

nothrabannosir 7y ago
Ah, I always assumed that was the same thing. Thanks. What I mean is: treating student loans (at least above community college tuition levels) like any other loan.
wtvanhest 7y ago
I think the easy solution is to make loans over 20k dischargable. That would allow for some borrowing, but pretty soon that would be the max cost.
bluedevil2k 7y ago
This would be a mistake I think. The nature of a loan is that the lender can reclaim the asset when a default occurs. This works well for assets like cars and houses but obviously fails for knowledge. Combine that with the age and overall assets of graduates (22 and near-zero) and a bankruptcy becomes a less risky proposition to the student. As more and more default on the loans, interest rates will start to skyrocket, to the point that no one will be able to afford one at all.
- garmaine 7y ago
  And then universities will stop assuming their students will be able to get them to afford insane tuition prices. That’s the point.
sodafountan 7y ago
You can't do that because it would be far more beneficial at this point to just declare bankruptcy out of college and get the loans dismissed than it would be to pay them back. Also there's nothing of value to repossess if you were to declare bankruptcy, banks can't repossess and then re-sell a college degree.
- LanceH 7y ago
  Why are these loans special? Other loans without collateral exist. Maybe private lenders shouldn't have the full force of the government behind them. Maybe they shouldn't be offering some of these loans.
  - vonmoltke 7y ago
    They don't, and they aren't. The non-dischargeable loans are all issued directly by the US Government.
  - sodafountan 7y ago
    There are loans you can get without collateral, they're typically pretty small loans with higher interest and are only issued to people with good credit. The problem with student loans is students typically don't have any credit, don't have any collateral and what they're seeking can't be repossessed if they default - banks know that issuing loans to these people without the backing of the government is financial suicide, in other words the free market says these loans shouldn't exist at all. The student loan crisis was caused by government intervention, guaranteeing loans for people who otherwise wouldn't have even been eligible to receive that type of money allows institutions to jack the price of school up infinitely and banks to keep allowing it because neither can fail - in the long run it's only the student who has to bear the cost long term. We need to allow institutions and banks to fail again, that's the only way you correct this problem. As soon as you stop guaranteeing loans banks stop issuing them and college's are forced to bring prices down. That would hurt some students in the short term who wouldn't be able to afford college but eventually the free market would do it's work and make college more reasonably priced again.

oconnor663 7y ago

One secondary effect might be to reduce the percentage of minority students at 4-year universities, if those students are more likely than average to rely on loans to attend. Opponents of the policy change would ask some very loaded questions about that in any public debate, and they wouldn't be wrong to ask.