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The argument for bankruptcy protection for student loans is that, at the end of college, students are in a uniquely advantageous position to file for bankruptcy

• whyenot 7y ago
  It seems like having a bankruptcy on your credit report for the next seven years would be disincentive enough, especially now when everyone from the phone company, to your landlord, to your employer may look at your report.
  • ouid 7y ago
    why would any of those people care if you have declared bankruptcy? It's much worse for your credit to have a bunch of debt that has higher priority than what a creditor might extend to you. If I'm selling you a cell phone on a payment plan, I would much rather it be the case that you don't have 100k of student loans to pay for first.
    • heavyset_go 7y ago
      > why would any of those people care if you have declared bankruptcy? Landlords aren't in the business of providing housing for free, and seek restitution for damages and unpaid rent through the courts. A low credit score or bankruptcy shows that a potential tenant could incur significant damages and unpaid rent, and leave the landlord high-and-dry when the bill comes due. In today's owner's market, there are plenty of other potential tenants without a poor credit history or bankruptcies.
      • zulln 7y ago
        Did you read the comment? The presumption of that statement was a bad credit to start with. Aka. bankruptcy vs bad credit, not compared to a good credit score.
      • ouid 7y ago
        Tens of thousands of dollars in unpaid student loan debt is bad credit. Your credit score goes down the more money you owe. It is first and foremost a measure of how much you currently owe. This largely determines whether you will be able to take on another debt.
    • travisoneill1 7y ago
      In corporate finance it wouldn't. They would look at your cash flow and ability to service the debt. Personal finance is weirdly moralistic and backward looking.
      • toasterlovin 7y ago
        Corporations have assets and generally behave rationally and non-emotionally if you take them to court.
  • toasterlovin 7y ago
    Seems like a good trade off if you can discharge $100k or more of debt. That is a life changing amount of money for most people.
  • paul_f 7y ago
    Brilliant strategy - graduate college, file bankruptcy, get rid of the student loan debt. Most college graduates rent for the first few years and with the utility of VISA debit cards, no need for a credit card. Live in a city, use public transport ad Uber, no need for a car loan. In 7 years, you can buy a house.
    • heavyset_go 7y ago
      > Most college graduates rent for the first few years Many landlords are loath to rent to recent graduates, those with poor credit and a history of bankruptcy. It's an owner's market, and someone who checks all three risky boxes will be skipped over for another tenant who comes with less risk.
      • dodobirdlord 7y ago
        If it was a common practice for college graduates to declare bankruptcy in this manner then landlords would take that into consideration. But of course, if it were a common practice it would also promptly be banned and we would be back in the same place we are now.
        • colejohnson66 7y ago
          It is banned already. It just has another name: fraud. Taking out a loan with the intent to not pay it is fraud.
    • Mountain_Skies 7y ago
      You can get an FHA loan two years after bankruptcy. Twelve months in limited cases. An FHA loan has less desirable terms than a conventional loan but not so much so that it would dissuade anyone from getting $100k in student loans dismissed.
    • stevespang 7y ago
      10 years, not 7. The Gov't will most certainly appeal this ruling all the way to the Supreme Court - - they and their corporate bogeemen have too much to loose.
  • vanniv 7y ago
    Yeah, if I could borrow $250k+ at the start of my career knowing that I'll never have to repay a penny of it, and the only consequence is that I couldn't get a mortgage in the first two years out of university... ...why wouldn't I just borrow every cent I can without even intending to pay it back?
    • tonetheman 7y ago
      this .... so much this.
      • vanniv 7y ago
        All of which, I guess, says that if student loans can be trivially discharged in bankruptcy, then we should expect that non-government loans will quickly go away, and government loans will start to have a ~100% default rate (or this judge's decision won't become universally applicable, or the law will be changed to circumvent it)
        • MiroF 7y ago
          hot take: private educational loans largely going away would be a good thing for education pricing
          • vanniv 7y ago
            I think it's the government-guaranteed loans going away that would actually be the good thing for education pricing.
    • maxerickson 7y ago
      I doubt they would give you the whole amount up front if it were dischargeable, so your clock is wrong. It might be possible to declare bankruptcy a year or two before graduating still. Not sure what employers would make of it. Maybe they'd like the mercenary attitude.
      • 7y ago
  • redis_mlc 7y ago
    The opposite has been true since at least 2008. Credit card issuers actually target recent bk's since they have no debt. :) They're also ignoring medical debt, since otherwise a large percent of their applicants would be rejected.
    • bigjimmyk3 7y ago
      Also, since there is a waiting period between bankruptcy filings, the potential creditor knows that they have a specific window during which the debtor can't legally dodge the debt.
  • Nasrudith 7y ago
    Ironically the issue is that banks tend to be too forgiving for that to be the deterrent it used to be. I suppose medical bankruptcy also shares some of the "blame" from a number of no fault of their own bankruptcies. Of course the other two issues are that such a "retributive" system of treating debtors with a scarlet letter isn't productive even if it appeals to a sense of "fairness" to those who pay. Second, the reason banks don't care about old bankruptcies isn't anything high minded but because they like money and can make it if they don't pass them up.
• ethbro 7y ago
  College loans rates (costs) would certainly spike if they were made dischargeable. The bargain probably should have been "Cannot be discharged in bankruptcy, until 15 years have passed after loan origination." Like Prop 13, the overall effects of undischargeable loans have been overwhelmingly negative -- decoupling college tuition inflation from income growth / general inflation, via government underwriting of loans, while removing market influence on guiding students to choose majors with a return on investment.
  • mrfusion 7y ago
    Or they could just become more selective and only loan to people with good prospects of repaying. Maybe they’ll look at your major, maybe discourage private universities.
    • wgerard 7y ago
      > Maybe they’ll look at your major That wouldn't make much sense, many students aren't accepted into a major until a year or two into their education. "Intended major" would also be a poor choice, as I think we all know many people who intended to go into one field and ended up in a completely different one.
      • mrfusion 7y ago
        Well you won’t switch your major if your loan depends on it. Someone else is lending you the money, they can add any strings they want. Banks deny mortgages for problems with homes all the time. You aren’t able to swap in a different house after the bank approves it.
        • wgerard 7y ago
          > Well you won’t switch your major if your loan depends on it. I'm not sure what this has to do with anything I said. If you're referring to my second statement, I met many people in school who intended to go into engineering or computer science or medicine and had to change their career path once it was clear they weren't going to make it through the first year of introductory classes. I doubt I was alone in seeing that happen.
• FireBeyond 7y ago
  And yet you can declare bankruptcy over most other forms of unsecured debt. Student loans aren't unique in that regard.
• bradleyjg 7y ago
  > I think the original intent was to incentivize more lending, and thus more access to higher education, by giving lenders more protection. I think that's correct, however meanwhile the system dramatically changed and now the vast majority of student loans are made by the government without any underwriting. The largest private sector role is poaching the best risks to refinance. Allowing these refinanced loans to continue to be non-discharable has the net effect of enabling the private sector to more effectively engage in adverse selection against the government-as-lender! It's hard to imagine anyone would actually sit down and design this policy set.
• james_s_tayler 7y ago
  I see a number of replies in the comments saying you could just take out the loan, get the degree, declare bankruptcy, get a job and 7 years later buy a house and be all good. I wonder if this is just a very American thing because the loans are so ridiculously big? In NZ student loans can be forgiven through bankruptcy. See http://www.studentloan.org.nz/options.html http://www.studentloan.org.nz/options.html But the loan is only around like $30k anyway and I basically never hear of anyone purposely declaring bankruptcy to get out of it. The whole thing is pretty much a non-issue. People take them out, people pay them back. Some people used to go overseas in order to avoid paying it back but they changed the law, so that you can't do that anymore.
  • pkaye 7y ago
    What is the cost of a typical New Zealand 4 year college education including tuition/fees, books, room and board?
    • teruakohatu 7y ago
      Here in NZ Bachelor's degrees are usually three years. The first year is not supposed to be exploratory, you should more or less know your major before you start. A Bachelor of Science might cost $20,000 NZD ($13,000 USD), extra fees are pretty low, textbooks are not cheap but professors usually try to avoid you having to buy them. In your first year you might get away without having to buy a textbook (in the maths departments at least). A Bachelor of Arts would could a few thousand less. Fully catered accommodation is expensive. Higher end would be $14,000 NZD ($9,200) for a year. Not many students continue in halls of residence past the first year. Staying in a shared flat would cost a LOT less. A lot of students also live with parents and commute. The Student Loan is interest free and covers course costs as well as a portion of living costs. Domestic students also can get a Student Allowance of about $220 NZD/week (or more depending on circumstances). The allowance is welfare, not a loan. Walking away with a degree and $30,000 - $40,000 NZD ($20,000 USD - $26,000 USD) interest free debt is reasonable. Some people will be more, others will be less because they worked part time while studying. Repayments are taken out of your paycheck (12% of income over $19,670 NZD, so probably 8-11% of total grad compensation per year). There is no incentive to repay it faster due to the lack of interest. Most students I think would have it paid back in 11 years or less. If you learn less than $19,670, you don't have to make any payments. The catch is you pay 4% interest if you go work overseas. Salaries are higher overseas so you will still win. There is little to no incentive to declare bankruptcy. I have never even heard of it discussed.
• BurningFrog 7y ago
  > I think the original intent was to incentivize more lending, and thus more access to higher education If so, that is a classic intellectual mistake that comes from not understanding any Economics. If you increase demand by pumping out extra education dollars to students, and the supply doesn't increase accordingly, all you've done is raise prices and give the suppliers a huge windfall profit. Why the supply of college spots doesn't respond to a demand increase, like most goods and services do, is an interesting question!