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How to fix student loans... The .gov backs student loans. And, they are non-dischargeable. So, it is zero risk for the lender to give loan to the 2.7 GPA moron
by chrischattin 7y ago
How to fix student loans...
The .gov backs student loans. And, they are non-dischargeable. So, it is zero risk for the lender to give loan to the 2.7 GPA moron getting a worthless basket weaving degree from the local private lib arts school for $100k. So, they give as many loans as possible, since they can't lose (taxpayer on the hook). Colleges are incentivized to drive up costs of tuition b/c tons of free money.
It's a classic moral hazard created by .gov guaranteeing the loans. Same thing we saw in the housing crisis.
Make student loans dischargeable in bankruptcy or take away the .gov guarantee and watch the market for student loans for worthless degrees dry up and tuition costs plummet.
- seiferteric 7y agoThis is my thought as well. These universities have had very little incentive to cut costs for a long time and have padded out administrators and built opulent and unnecessary facilities driving costs ever upward. Universities used to be little more than professors and classrooms with very few administrators.
- 1shooner 7y ago>Universities used to be little more than professors and classrooms with very few administrators. Correct. There was also no IT, counseling, healthcare, Title IX, and secondary public education was functional. Things are different now.
- seiferteric 7y agoWhy do those things have to be a part of a university?
- nitwit005 7y agoI wish it was getting spent on IT, counseling, healthcare and other practical services. Somehow I doubt the tiny staff at my university clinic, or the four IT people, were soaking all that money up.
- Ididntdothis 7y agoCounseling healthcare and secondary public education should be addressed somewhere else. University is the wrong place for that.
- vonmoltke 7y agoThe government isn't guaranteeing the loans, it's making the loans. It is the lender.
- snarf21 7y agoThe government giving anyone and everyone money and guaranteeing it is the problem. I don't think the bankruptcy plan works. A lot of people would just not pay.
- chrischattin 7y agoThat's exactly the point. Lenders would stop lending to people who couldn't/wouldn't pay.
- bluedevil2k 7y agoMake the college take a 10% stake in each loan. Suddenly they’ll start being more discerning about who they accept and what their majors are.
- Vaslo 7y agoWhat a great idea!
- paulcole 7y agoIf someone told me they'd give me $1 if I throw away a dime, why wouldn't I just keep taking their dollars all day long?
- bluedevil2k 7y agoYou don’t get a dollar (in your metaphor)...a student still requires variable costs so you’d be left with maybe a dime.
- paulcole 7y agoNo. If the school assumes 10% of the risk of the loan, they still get the other 90% guaranteed.
- dredmorbius 7y agoFuture risk-affected dollars != current risk-free dollars. You have a cost of production. The risks can be managed.
- pkaye 7y agoSuddenly costs go up 10%.
- deleted 7y ago[deleted]
- Consultant32452 7y agoI'd go one step further. Make the universities guarantee the loans. If a student earns a degree and isn't able to earn a living sufficient to pay back the loans then the University has failed.
- theflyinghorse 7y agoWhat you are effectively saying is that university education exists solely for providing job training. That's not something most universities will agree with.
- Consultant32452 7y agoRank and file students are there to get a job, and the University marketing is commensurate with that. I don't care what they agree with.
- AnimalMuppet 7y agoFor the non-wealthy, the university education is in fact about job training. The non-wealthy can't afford to pay that kind of money for something that doesn't pay them back. The wealthy can pay for a degree that doesn't pay them back. That's fine. They can study whatever they want with no regard for practicality.
- ptconroy 7y agoOption 3: Make the schools co-obligors on the debt. In a default, the school pays. I suggested that to a congressman once; he nearly spit out his drink.
- mc32 7y agoI was thinking the same thing except maybe place it at 50% or something. So they still want to give out loans but are more judicious about it. Also there might be scale correlated to market demand. So if doctors are in high demand the gov backs it more, if it’s something with little market demand, back it less.
- helpPeople 7y agoEveryone passes all of their classes?
- maxerickson 7y agoEasy classes and grading aren't going to help people not default. The school can really only improve the education they provide or make their admissions more stringent. If they are going to do the latter, we might as well go back to direct government support, no need to have a loans process and all that noise.
- slg 7y agoThis is fundamentally incompatible with the idea that everyone should be able to afford to go to college and private institutions need to foot the bill for the costs. We as a society prioritized availability of college education over costs. In order to get both you would likely have to change to some income percentage based repayment system instead of traditional loan repayments and that probably wouldn't be possible unless the government is heavily involved.
- chimi 7y agoDebt as an investment is fine. If you are investing in your future with your education, okay, but that requires the education be practical. It must have a value greater than its cost. That is not true for most education and thus we are not investing in our future as a society with this debt. I'd rather the debt we incur as a society be spent on infrastructure and engineers than wicker baskets. Wicker baskets don't last very long. Roads and bridges do. Engineers do.
- slg 7y agoSure, but once you bring financial value into the equation it starts limiting access. Not everyone can be an engineering major. Not everyone even belongs at college in the first place. But we as a society want everyone who wants to go to college to be able to afford it (at least initially). That is not compatible with a profit minded view of that education being a sound financial investment for each individual student.
- chimi 7y agoThis doesn't mesh with my perspective of education. Universities are non-profits for a reason. yes, there are profit minded University of Phoenix's but that is not the historical norm and they are the worst offenders. Not everyone should go to college. We shouldn't enable everyone to go to college. If you shouldn't go to college, going to college won't change that. You'll struggle and fail out or get a worthless degree because it's the only one you can pass enough classes to get. We have trade schools. We have apprenticeships and on the job training. Lots of folks for home those paths are better, are turned off to them by social pressure, not logic. I've taken welding classes and vehicle maintenance classes and they have shown themselves to be valuable assets to me. I can connect steel at the atomic level. I can keep my vehicles safe for me and my family and friends. There's no one-size-fits all approach to human evolution and we need all of us. Maybe I'm idealistic. We need to stop doing stuff that only makes sense to the banks. They are entirely self-interested and provide negative value back to society. We are squandering our futures to the fat cats.
- pastor_elm 7y ago>So, it is zero risk for the lender to give loan to the 2.7 GPA moron getting a worthless basket weaving degree from the local private lib arts school for $100k. I don't see how any degree LAC, Computer Science, Math etc is worth risking a dischargeable loan for from a bank's perspective. There's no reason to single out LAC degrees, which by the way can be pretty useful. The smartest thing for any student to do is declare bankruptcy right away after college when they have nothing and risk losing nothing. That makes no loan worth giving, which is the problem.
- fortran77 7y agoThe Government should stop backing student loans. Tuitions will drop like a rock.
- trgn 7y agoThe 100k basket weaving liberal arts student barely exists and is a meme to generate rage clicks.
- yowlingcat 7y agoThe 100k in debt grad student becoming an adjunct and needing food stamps not to die of starvation in poverty is a pretty stark reality. One would have to be tone-deaf to pretend it does not exist.
- trgn 7y agoSure. But I said the basket weaving liberal art student. The 100k grad student can be everything from a CS major to a soon-to-be-tenured ivy league history professor. These are not the same people, and it's not what I said.
- sodosopa 7y agoPick a major which ensures your financial survival. Spending 100k on a degree which cannot ensure survival is a hell of a way to learn that lesson.
- yowlingcat 7y agoI don't disagree with you, but when that cost is underwritten and inflated by nondischargeable, government-guaranteed debt that's the product of a decision made by folks scarcely old enough to vote or serve in the military -- it just feels wrong.
- sodosopa 7y agoThere are other options, not all require college. The world needs tradesmen/women. Some of their pay is on par with my data scientists. I also have a few on staff who do not have a degree but perform solid work and manage the same tasks as my degreed team members. There are options with college or military.
- jmpman 7y agoOr, track the loan payback percentage for each degree, let’s say 5 years after graduation. Publish those results, and stop making loans for programs where the repayment is less than X%. Then, basket weaving degrees won’t get loans, the cost for basket weaving programs will go down, as only those with parent’s stupid money will pay for basket weaving degrees. Students will be directed by market forces to degrees that actually pay, and repayment percentages will go up.
- belltaco 7y agoThat will automatically happen because lending banks will do it, just like car, home and health insurance.
- vonmoltke 7y agoThere are no lending banks. The money comes directly from the Department of Education.
- colejohnson66 7y agoEven a student loan from Wells Fargo?
- dredmorbius 7y agoThere are both US-government, and nongoverment private bank, student loans, in the US.
- vonmoltke 7y agoWhich are not guaranteed by the government. When speaking of government-backed student loans, which this discussion is, there are no banks.
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- harwoodjp 7y ago"2.7 GPA moron getting a worthless basket weaving degree" You sound like a STEM-lord, anti-intellectual dork.
- vonmoltke 7y agoI don't like that line, either, but it's not an excuse to get personal and nasty.
- maxerickson 7y agoIt's a nasty line. Really, I think this site underestimates the value of "Go fuck yourself" when someone says stuff like that. Being polite isn't going to help them pull their head out of their ass.
- AnimalMuppet 7y agoThat approach is against site guidelines, and for good reason. If one nasty comment is grounds to engage in a flamewar, this place is going to lose any ability to have a reasoned conversation.
- maxerickson 7y agoI mean, if you reply "Go fuck yourself" you are probably done with the thread, not planning engaging further with the asshole. Really, my point is that there is too much effort to engage assholerly as if it is actually reasoned conversation, when it is just assholery. Maybe we could go with the milder "This is ridiculous" as a reply or something.
- AnimalMuppet 7y agoJust downvote and flag. If it's genuinely negative behavior, the mods will usually deal with it. If you're going to reply, it's better to give the uninformed reader some idea why it's ridiculous, rather than just the bare claim that it is. But hey, I just told someone that their post was "paranoid drivel", so I'm maybe not the best one to talk...
- bobloblaw45 7y agoI totally agree but unfortunately a lot of people can take the same situation and twist it up to fit their own views. Where I live we just passed a minimum wage increase. A fairly substantial one that keeps up with the rest of the country by increasing every year until we hit 15 an hour in a few years. It's been a couple of years into it and someone asked why local restaurants are ending services, closing some locations, increasing prices, shrinking their menus, and basically cutting costs. I saw a lot of answers that boiled down to "greed" and my favorite was "labor costs are increasing" because of "late stage capitalism". I wouldn't be surprised if a lot of answers you see in the wild involves doing exactly what we've been doing but on a larger scale.
- mortivore 7y agoKind of off topic, but I'm very much a fan of the "shrinking their menus" effect. Restaurants have way too many things on their menus. This usually means that they aren't very good at those things leading to lower quality food. Smaller menus generally mean a restaurant is going to be more focused, and able to produce quality food. I'm all for quality food.
- bobloblaw45 7y agoYeah from what I understand it's actually a good thing. I also love the small menu restaurants, especially the smaller hole in the wall places since you know it's probably going to be great stuff.
- rayiner 7y agoThe government doesn’t just back student loans, it makes the student loans. The government is the lender. More than 90% of all student debt is carried on the government’s books.
- onlyrealcuzzo 7y agoThe other 10% is still $156Bn... That's more than the GDP of Hungary. It's still worth considering.
- vonmoltke 7y agoThat 10% is also dischargeable in bankruptcy. Only the loans made by the US Government are non-dischargeable.
- angry_octet 7y agoI feel the need to remind people that going bankrupt is the worst thing you can do to yourself financially. It will set up back a long way in very basic things.
- mountainofdeath 7y agoNot only that, I remember reading that something like 1/3 of the US federal government's receivables are student loans. A mass default or forgiveness program would dramatically lower the governments ability to pay other obligations.
- AlexTWithBeard 7y agoYes, but blah-blah-blah poor people blah-blah-blah underprivileged minorities blah-blah-blah vicious cycle?
- oneplane 7y agoIn all countries? Here, we don't have that, the cost is fixed and so are the loans.
- julienb_sea 7y agoGood luck with that. You just made college out of reach for everyone that isn't already wealthy, exacerbating inequality and further entrenching class boundaries. To be clear, I agree with you, rip out the loan guarantees and let the private market deal. But progressives would never allow this.
- mountainofdeath 7y agoYou say that like it's a bad thing and not the real intent.
- smileysteve 7y ago> You just made college out of reach for everyone that isn't already wealthy Immediately yes, fortunately, there is a supply and demand curve, so if you cut the demand for a bunch of colleges that already exist; then the price should find a new equilibrium. Of course, as is the science of economics, time and outside influences matter.
- marrone12 7y agoSo what do you say to all the people for who college will be out of reach while the market "equalizes"?
- smileysteve 7y agoThe same thing we're telling financially concerned people now; public colleges, community colleges, trade schools. Fortunately, in a low unemployment world, also means that hiring should be very elastic to this change.
- aikah 7y ago> Good luck with that. You just made college out of reach for everyone that isn't already wealthy, exacerbating inequality and further entrenching class boundaries. You could apply that argument to anything. "Good luck with that, now people can't afford mansions, Good luck with that now people can't afford private jets". Should everybody be able to afford mansions or private jets? No. College should either be free, thus directly paid for by the government, or not everybody should go to college, you can't have it both ways, or that's how you'll get your big next financial crisis. The government should not back private loans, period. Cost of education has skyrocketed BECAUSE banks started to loan crazy amounts of money to every students. This is free money for the banks.
- qaq 7y agoU of Chicago is ranked #6 in US 2.7 GPA morons are nor likely to be accepted.
- mountainofdeath 7y agoThis. To the lender, it's a virtually risk-free loan and a very high yielding one at that (10%+ interest). I don't think there is even a way of discharging it, even death.
- AcerbicZero 7y agoI mean, you're not wrong. I'd say 9/10. Its pretty easy to see the parallels to gov involvement in many other areas, where they create a special type of problem, by only being partially involved. Then everyone can stake out their positions, and just work on fighting over the middle of the issue, never letting gov be involved enough to be effective, nor entirely removed enough to let the market fix it. Its the worst kind of half assed capitalism, that only benefits the political class. Kinda like our healthcare system, among others.
- ChicagoBoy11 7y agoIt is incredible to me how straightforward and undoubtedly true the point you are making is, yet I've had 0% success in bringing it up in conversation without immediately being called all sorts of names or accused of hating poor people.
- dragonwriter 7y ago> It is incredible to me how straightforward and undoubtedly true the point you are making is Even the part when it relies on private lending behavior being driven by security provided to lenders by federal loan guarantees that haven't been available to private lenders since July 1, 2010?
- scrumbledober 7y agothat may be true but the non-dischargeable by bankruptcy part still holds true. A student loan is still one of the lowest risk investments a bank can make.
- wolco 7y agoOr keep them private but set a max cost per year. You can't give student loans and have no control over the price.
- tqi 7y agoLoans for education are different from loans for a house or car since your lender cant repossess your degree/the connections you made while in school, which is the original reason these loans were made to be non dischargeable.
- kpU8efre7r 7y agoLoans should not be guaranteed by the government. Banks should be able to tell shitheads no.
- ChrisLomont 7y ago>Make student loans dischargeable in bankruptcy And watch default rates rise, and interest rates on these unsecured loans skyrocket, so that very few can go to college, and even more people get screwed by them due to higher rates. Or people will simply not get loans, since they'd become too risky, and less people will get college skills, likely hurting the entire economy over time. Educating people is a good national goal. Balancing the various pieces is much harder than simplistic changes to the current system.
- dragonwriter 7y ago> The .gov backs student loans. And, they are non-dischargeable. So, it is zero risk for the lender to give loan to the 2.7 GPA moron getting a worthless basket weaving degree from the local private lib arts school for $100k. So, they give as many loans as possible, since they can't lose (taxpayer on the hook). The only lender who is allowed to issue government-backed student loans for many years is the federal government, and their policy on what loans they’ll issue and on what terms are set in law, not a response to market incentives.
- crusty 7y agoThe ad hominem hyperbole turned me against your much simpler - add moral hazard - argument. Do tell, which universities provide this degree in basket weaving that you denigrate? Sure, you may have drawn on this often invoked mythical degree as a standin for courses of study that you see as useless and valueless but implicitly know would quickly and easily get called out for revealing your bias about obviously subjective determinations of worth. Maybe basket weaving is really art or history or the study of native cultures. And there are plenty of smart people who have been 2.6 GPA students at some point, as GPA is not a measure of intelligence but an abstraction that simply measures one's ability to adhere to and excel at a fairly arbitrary framework. Moral hazard may or may not be a simple, good solution but your argument for it, as presented, disincentivizes me from even considering it, since so much seemed to be missed in the argument, the same was probably true for consideration of the solution.
- akhilcacharya 7y agoThose colleges exist, but they exist in the form of for-profits like Strayer and University of Phoenix. They prey on veterans and marginalized folks, many of whom don’t get jobs that can a pay off the debt afterward. It’s not “basket weaving”