5 ms·

Why was it necessary to change student loans to being non-dischargeable in bankruptcy? That is a recent change and it shifts the burden from banks having to eva

Why was it necessary to change student loans to being non-dischargeable in bankruptcy? That is a recent change and it shifts the burden from banks having to evaluate the loans they are making which would likely mean fewer loans and thus less money earned from interest. It seems like student loans should be treated like any other unsecured loan. And really student loans shouldn’t even be necessary for public universities but that’s another point.

Clubber 7y ago
>Why was it necessary to change student loans to being non-dischargeable in bankruptcy? I believe it was something along the lines of people borrowing for law degrees then discharging the debt right after graduation with the knowledge gained from their new degree. I'm sure it was done in other degrees as well.
- dillonmckay 7y ago
  So, nothing to do with undergraduate degrees?
  - Clubber 7y ago
    >I'm sure it was done in other degrees as well.
the_watcher 7y ago
> Why was it necessary to change student loans to being non-dischargeable in bankruptcy? That is a recent change It was in 1976, not very recent.
- techsupporter 7y ago
  > It was in 1976, not very recent. The person to whom you are replying is referring to the poorly-named Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. That law expanded the exemption from discharge in bankruptcy of student loans to be any student loan, including privately-issued student loans, not just ones issued by the government through a federal or state program. This is why you see companies like SoFi running around offering screamingly low rates on student loans. Because they are private, those companies need not offer any of the protections a government loan offers (income-based repayment, forbearance options in the event of loss of income or disability, and so on) but retain the power to garnish tax refunds and the loans cannot be discharged in bankruptcy.
shantly 7y ago
I'm guessing long-term unsecured debt in five to six figure amounts is ordinarily really hard for an 18- to 22-year-old to get, no matter what they're spending it on, and if they somehow manage it the interest rate would be very high. Making it non-dischargeable was likely intended to fix those problems. (not saying it's a good idea, but I'd imagine that was the plan)
rhino369 7y ago
>Why was it necessary to change student loans to being non-dischargeable in bankruptcy? To keep interest rates on student loans low and to make sure the loans are available to 18 year olds with no credit history. There was a real problem with medical students racking up huge sums, declaring bankruptcy when they were making low money during residency, but then making 6 figure salaries a few years later. >It seems like student loans should be treated like any other unsecured loan. Nobody loans 18-22 tens of thousands (and 22-26 years olds hundreds of thousands of dollars) in unsecured loans. And look at the interest rates for other unsecured loans. My credit card rate is 19%. Earnest gave me LIBOR + 3% on 200,000 dollars of student loans.
- azhenley 7y ago
  But federal student loan interest rates aren't low. Undergrads' loan options are determined by their parents' income, regardless of whether their parents are providing financial assistance. Graduate students can't take out subsidized loans at all anymore, even if they are on food stamps. My loan rates are 6.55%. After 10 years of continuous school, that really, really adds up. I even had scholarships but they wouldn't cover my dorm, the mandatory meal plan, or summer classes so that I could finish undergrad faster. I looked to refinance with 3-4 different companies, like SoFi, but the lowest they offered was around 7% despite my very good credit score.
  - plorkyeran 7y ago
    6.55% is low for an unsecured loan to someone without assets. Unsecured loans to people with good credit that can be discharged in bankruptcy have rates that are 3x that.
    - listenallyall 7y ago
      >> without assets and without an income
- dillonmckay 7y ago
  So, to lump medical degrees discharged in bankruptcy as a risk to undergrad loan financing is a bit disingenuous. Not addressed to you, personally. Lots of options here.
gwright 7y ago
Because it is an unsecured loan. It would be too easy for a newly minted graduate to declare bankruptcy, discharge the loan, and move on with their life. The only entity stupid enough to loan money to students in that world would be the government.
- swagasaurus-rex 7y ago
  The missing wisdom here is that maybe the government should take on a high-risk, societally high-reward investment like education.
  - gwright 7y ago
    That sounds nice but it requires there to be a definition of "societally high-reward education". That is difficult. Even if you find some methodology to identify the quality programs that have an appropriate "societal reward" you have to deal with the problem that the costs for those programs will inevitably rise in lock step to the amount of tax dollars used to subsidize them. (See https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...) I would suggest the federal government get out of educational loans entirely. Let the private loan market evaluate and take the risks, probably with an income based repayment contract that favored degrees/programs that are likely to lead to reasonable incomes.
    - vinniejames 7y ago
      The more you "favor" particular degrees, the faster you you saturate the market with new graduates. The eventual outcome being those jobs are no longer in high demand, nor pay a decent salary
      - gwright 7y ago
        Yep. That is called "the market". And I think the government shouldn't get in the way and "favor" anything. Let people decide their own careers and interests and let them balance the pros and cons.
swagasaurus-rex 7y ago
Nobody else is saying it so I will: Non-dischargeable loans have resulted in spiraling student loan debt. Lenders have no reason not to give out these loans as they will be repaid even if it is sub-prime. Schools have no reason not to jack up rates because students are given largely unlimited access to loans. Both parties have been repeating this and raising their incomes for decades ever since student loans have become non-dischargeable. Instead of ranking loans based on repayability, lenders have divorced themselves from financial reality because government intervention.
- listenallyall 7y ago
  >> Nobody else is saying it People have been saying this for many, many years! And using as an example of the Law of Unintended Consequences.
sokoloff 7y ago
> And really student loans shouldn’t even be necessary for public universities but that’s another point. Set aside the education component entirely. It costs money to be housed, fed, entertained, and consume other things. That’s getting paid for somehow and that somehow is often borrowing for undergrads.
vonmoltke 7y ago
The switch to non-dischargeable loans came along with cutting banks out of the federal student loan system. Non-dischargeable loans are issued and owned by the Department of Education, and only them.
- pnutjam 7y ago
  This predated that change. Sallie Mae use to directly fund student loans, now Navient only manages them for the Dept. of Ed. Edit: forgot to say non-dischargable goes back way before that switch. I have personal experience around 2001, but I'm pretty sure it goes back to the 80's.

Clubber 7y ago

>Why was it necessary to change student loans to being non-dischargeable in bankruptcy? I believe it was something along the lines of people borrowing for law degrees then discharging the debt right after graduation with the knowledge gained from their new degree. I'm sure it was done in other degrees as well.

dillonmckay 7y ago
So, nothing to do with undergraduate degrees?
- Clubber 7y ago
  >I'm sure it was done in other degrees as well.

the_watcher 7y ago

> Why was it necessary to change student loans to being non-dischargeable in bankruptcy? That is a recent change It was in 1976, not very recent.

techsupporter 7y ago
> It was in 1976, not very recent. The person to whom you are replying is referring to the poorly-named Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. That law expanded the exemption from discharge in bankruptcy of student loans to be any student loan, including privately-issued student loans, not just ones issued by the government through a federal or state program. This is why you see companies like SoFi running around offering screamingly low rates on student loans. Because they are private, those companies need not offer any of the protections a government loan offers (income-based repayment, forbearance options in the event of loss of income or disability, and so on) but retain the power to garnish tax refunds and the loans cannot be discharged in bankruptcy.

shantly 7y ago

I'm guessing long-term unsecured debt in five to six figure amounts is ordinarily really hard for an 18- to 22-year-old to get, no matter what they're spending it on, and if they somehow manage it the interest rate would be very high. Making it non-dischargeable was likely intended to fix those problems. (not saying it's a good idea, but I'd imagine that was the plan)

rhino369 7y ago

>Why was it necessary to change student loans to being non-dischargeable in bankruptcy? To keep interest rates on student loans low and to make sure the loans are available to 18 year olds with no credit history. There was a real problem with medical students racking up huge sums, declaring bankruptcy when they were making low money during residency, but then making 6 figure salaries a few years later. >It seems like student loans should be treated like any other unsecured loan. Nobody loans 18-22 tens of thousands (and 22-26 years olds hundreds of thousands of dollars) in unsecured loans. And look at the interest rates for other unsecured loans. My credit card rate is 19%. Earnest gave me LIBOR + 3% on 200,000 dollars of student loans.

azhenley 7y ago
But federal student loan interest rates aren't low. Undergrads' loan options are determined by their parents' income, regardless of whether their parents are providing financial assistance. Graduate students can't take out subsidized loans at all anymore, even if they are on food stamps. My loan rates are 6.55%. After 10 years of continuous school, that really, really adds up. I even had scholarships but they wouldn't cover my dorm, the mandatory meal plan, or summer classes so that I could finish undergrad faster. I looked to refinance with 3-4 different companies, like SoFi, but the lowest they offered was around 7% despite my very good credit score.
- plorkyeran 7y ago
  6.55% is low for an unsecured loan to someone without assets. Unsecured loans to people with good credit that can be discharged in bankruptcy have rates that are 3x that.
  - listenallyall 7y ago
    >> without assets and without an income
dillonmckay 7y ago
So, to lump medical degrees discharged in bankruptcy as a risk to undergrad loan financing is a bit disingenuous. Not addressed to you, personally. Lots of options here.

gwright 7y ago

Because it is an unsecured loan. It would be too easy for a newly minted graduate to declare bankruptcy, discharge the loan, and move on with their life. The only entity stupid enough to loan money to students in that world would be the government.

swagasaurus-rex 7y ago
The missing wisdom here is that maybe the government should take on a high-risk, societally high-reward investment like education.
- gwright 7y ago
  That sounds nice but it requires there to be a definition of "societally high-reward education". That is difficult. Even if you find some methodology to identify the quality programs that have an appropriate "societal reward" you have to deal with the problem that the costs for those programs will inevitably rise in lock step to the amount of tax dollars used to subsidize them. (See https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf https://www.newyorkfed.org/medialibrary/media/research/staff...) I would suggest the federal government get out of educational loans entirely. Let the private loan market evaluate and take the risks, probably with an income based repayment contract that favored degrees/programs that are likely to lead to reasonable incomes.
  - vinniejames 7y ago
    The more you "favor" particular degrees, the faster you you saturate the market with new graduates. The eventual outcome being those jobs are no longer in high demand, nor pay a decent salary
    - gwright 7y ago
      Yep. That is called "the market". And I think the government shouldn't get in the way and "favor" anything. Let people decide their own careers and interests and let them balance the pros and cons.

swagasaurus-rex 7y ago

Nobody else is saying it so I will: Non-dischargeable loans have resulted in spiraling student loan debt. Lenders have no reason not to give out these loans as they will be repaid even if it is sub-prime. Schools have no reason not to jack up rates because students are given largely unlimited access to loans. Both parties have been repeating this and raising their incomes for decades ever since student loans have become non-dischargeable. Instead of ranking loans based on repayability, lenders have divorced themselves from financial reality because government intervention.

listenallyall 7y ago
>> Nobody else is saying it People have been saying this for many, many years! And using as an example of the Law of Unintended Consequences.

sokoloff 7y ago

> And really student loans shouldn’t even be necessary for public universities but that’s another point. Set aside the education component entirely. It costs money to be housed, fed, entertained, and consume other things. That’s getting paid for somehow and that somehow is often borrowing for undergrads.

vonmoltke 7y ago

The switch to non-dischargeable loans came along with cutting banks out of the federal student loan system. Non-dischargeable loans are issued and owned by the Department of Education, and only them.

pnutjam 7y ago
This predated that change. Sallie Mae use to directly fund student loans, now Navient only manages them for the Dept. of Ed. Edit: forgot to say non-dischargable goes back way before that switch. I have personal experience around 2001, but I'm pretty sure it goes back to the 80's.