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> The reason they aren't dischargeable is because what bank in their right mind would give a loan to an 18 year old with no collateral? If it's a bad bet for t

by gwd 7y ago

> The reason they aren't dischargeable is because what bank in their right mind would give a loan to an 18 year old with no collateral? If it's a bad bet for the bank, it must be far worse of a bet for young adults. That's the point -- right now we're essentially suckering millions of naive young adults into a life of wage slavery by giving them a "bet" which they are completely unequipped to evaluate; and many of them are making a bet when they shouldn't. What you're essentially arguing is, "We have to enslave these people or society wouldn't function". On the contrary: we must not enslave these people; if stop doing it, society will figure out some other way to get things done.

mlthoughts2018 7y ago
> “ If it's a bad bet for the bank, it must be far worse of a bet for young adults.“ That’s not a valid implication at all. 18 year olds change their mind all the time, base decisions on impulsive reasons, etc., that comes with immaturity, lack of experience and indecision. The loan being a bad risk for the bank is a function of youthful impulsiveness and a person without the means to pay it back yet. It’s not risky to the bank because college itself is risky or fails to deliver wage opportunities. Not saying college cost-benefit is always favorable, just that your implication is wrong.
jedberg 7y ago
To be clear, I don't think college should be paid for with loans. I agree with you that we shouldn't be enslaving people. But I also don't think allowing these loans to be discharged in bankruptcy will solve anything (and will arguably make things worse) without systemic changes in the way college is paid for.
- gwd 7y ago
  It will force "the system" to come up with some other way to pay for tuition. What do you think about Income Share Agreements? https://www.thesimpledollar.com/loans/student/income-share-agreements-a-new-way-to-pay-for-college/ https://www.thesimpledollar.com/loans/student/income-share-a...
  - jedberg 7y ago
    I love income share agreements.
  - btilly 7y ago
    I think that they help universities raise tuition as long as the projected lifetime income increase from going to college exceeds the cost of tuition. Which will just allow our unsustainable "tuition rises faster than inflation" trend to last a few more years before it falls apart. Note that "projected lifetime income increase" is generally overestimated. What we do is compare average income of a college graduate with a high school graduate and attribute the difference to college. However people who could get through college likely would have made more than people who couldn't, even if they hadn't gone to college!
    - VLM 7y ago
      Its also backwards looking, obviously. In the boomer working years, colleges were very selective and a degree was a stealth IQ test along with socioeconomic group membership. At this point the average IQ of a college grad is very close to 100. I guarantee that within the next 30 to 40 years someone will make the shocking discovery that the presence or absence of a degree has no influence on income, success, or happiness. At that point the ponzi scheme of higher ed can collapse. There's nothing wrong with designing and implementing an education system for the top 5% of society and the jobs that top 5% will likely have. There is a big problem with a marketing scam along the lines of every American is a temporarily inconvenienced millionaire. Surely, my favorite waitress at Dennys is making more money as a waitress than she would as a K12 educator, if she could get hired, which she cannot. The degree does not make her a better person nor a better waitress. It does signal that she's in maybe the top 50% of humanity WRT the skills required to get a degree. She's a somewhat better than average person because of who she is, not a meaningless piece of paper for training she will never use. The point of discussing my favorite waitress is we need "something" to signal in the job market who is in the upper half of potential employees, and $100K of debt and four years of labor seem a huge waste on a civilizational level.
      - 7y ago
- chrisco255 7y ago
  In my mind the problem is the system itself was designed for a world that doesn't exist. When the supply of college degrees was low 50 years ago, sure, it paid to have a degree. But now that it has become commoditized, it's not that valuable. There's no supply / demand pricing mechanism to influence a student's major. The cost of tuition is mainly based on an arbitrary credit hour. No matter how worthless a course is for your future, the price of the class is still the same. I've read this about socialist countries that have free education. You'll have folks with law degrees driving taxi cabs. It's a waste of resources.
  - wolco 7y ago
    Why would having someone who knows the law and drives a taxi make it a waste of resources? Taxi drivers should be uneducated in your view. Why? How does that help society? Many lawyers need to drive taxis to get by. Being a lawyer doesn't mean instant riches unless you land at a high profile firm directly out of school. Studying law isn't a finite resource either.
    - chrisco255 7y ago
      "I never let schooling get in the way of my education." The problem with your view is you assume the only way to get educated is via academia. There is a lot of education when you become a mechanic, an electrician, a factory worker, a firefighter, etc. That is not academic. You learn on the job. There are also many certification courses for these fields that run outside of traditional college system. I believe in free schooling to teach basic, essential skills like reading, computing, math, etc. I'd even argue for a greater emphasis on financial education in K-12. But college is different. The college system is very expensive, it's heavily subsidized by the state even in the U.S. If it is not teaching people valuable skills that they will be using in their profession, then it is not serving it's purpose. It costs people resources in the form of taxes. In the meantime, we live in the information age. Teaching people to teach themselves is probably the most valuable skill we can teach.
      - bumby 7y ago
abnry 7y ago
I agree with what you are saying, except that we shouldn't say students are unequipped to evaluate the "bet" merely for being young and inexperienced. If we wanted to, we could train students to be much better at evaluating such a bet.
- gwd 7y ago
  But the reason interest-bearing loans were considered immoral for so long, and the reason that nearly every other kind of loan can be discharged through bankruptcy, is that it is too dangerous to allow anyone to offer such a loan. There's nothing magical about student loans that somehow makes them safe, and no amount of training will change that.
- rch 7y ago
  > we could train students to be much better at evaluating such a bet Maybe... but we could definitely alter the nature of risk involved. Why not reduce cost of tuition (e.g. <$1K/semester), while raising the bar on academic rigor as a means of controlling demand?
  - eldavido 7y ago
    This is probably what's going to happen, but only if we take a LOT of human labor out of it. Either that, or accept that every class will be huge (200-500 students) with minimal attention given to students, no office hours, and low-paid labor doing all the grunt work (grading, answering questions) I see a lot of parallels to medicine here. Both are highly regulated and seen as a "right" we ought to fund. Maybe, but until we achieve greater labor leverage (made even harder by professional credentialing in medicine), there just won't be a way to drive costs down much, so we're stuck with what we have.
    - freeone3000 7y ago
      College at $60k a semester while an adjunct earns $28k a year and somehow this doesn't result in a 1:1 student:teacher ratio means someone's skimming off a ton of money.
IG_Semmelweiss 7y ago
Bingo. Be careful, this is very dangerous informstion And it gets worse You forgot that these loans are subsidized, so when they Go sour (and they will) its the taxpayer holding the bag, not the banks In other words, its 2008 all over
jefftk 7y ago
> If it's a bad bet for the bank, it must be far worse of a bet for young adults. That doesn't follow: you could graduate, get your degree, and declare bankruptcy. You're fine, your loan is gone, and the bank regrets their investment.
- BurningFrog 7y ago
  Let's make that point clearer: Since the bank is absolved from making that bet, it is now the young adult making the same bet that no sane bank would take. A lot of people are now living with having lost that bet.
  - jefftk 7y ago
    The bank doesn't want the bet because "bankruptcy" means very different things to the bank and to the student. To the bank it means they lose all their money. For a just-graduated person with minimal assets it's not that bad -- sure you can't get a mortgage to buy a house for a while, but you probably couldn't have afforded that anyway with student loans. You still have the degree, they can't take that (well, https://www.jefftk.com/p/repossessing-degrees https://www.jefftk.com/p/repossessing-degrees).
    - iateanapple 7y ago
      > For a just-graduated person with minimal assets it's not that bad It is in fact bad. You can’t just declare bankruptcy and get a high paying job a year later and have no student debt.... When I looked into personal bankruptcy I was told by my lawyer that it would only make financial sense if there was no way I could pay back the amount owed in the next 7-10 years.
      - WalterBright 7y ago
        Having a bankruptcy on your record may make it difficult to get that high-paying job, as employers may not look favorably upon it.
bananabreakfast 7y ago
"Society" doesn't figure anything out. If "Society" wanted people to go to college then it would it give it to everybody for free. People are incentivized to act one way or the other. Less-wealthy people cannot afford college tuition, and the government cannot mandate that banks give away money to extremely risky but ambitious people. This same problem exists with extending loans in general to risky, low-income individuals. Yes their rates are insanely high, bordering on predatory, but they also have sky high default rates so the alternative is they simply cannot get a loan at all. This is essential economics.
- psadri 7y ago
  This argument is missing one important part. The prevalence of student loans has caused the cost of education to skyrocket, pushing it even further out of reach. So now even people who previously afforded higher education need to get loans. It’s a self-fulfilling system.
  - WalterBright 7y ago
    Ironically, every governmental attempt to make college more affordable has caused tuition to rise.
    - lonelappde 7y ago
      Except the original attempt: public schools.
      - WalterBright 7y ago
        Looks expensive to me: https://www.governing.com/gov-data/education-data/state-education-spending-per-pupil-data.html https://www.governing.com/gov-data/education-data/state-educ...
      - prostoalex 7y ago
        Those only look cheap if unfunded pension obligations are kept off-balance.
rahimnathwani 7y ago
"If it's a bad bet for the bank, it must be far worse of a bet for young adults." Not necessarily. Even if it's a good bet for the student, what's to stop them from declaring bankruptcy just after graduation, and before they start their lucrative career? They would then get all the upside, whilst the bank gets zero payments.
- TheOtherHobbes 7y ago
  Trashing your credit score, with unfortunate consequences for your ability to buy a car, rent accommodation, apply for a mortgage, and avoid predatory debt collectors, sounds like a superbly practical debt management plan. And if you have a job with decent money, obviously it wouldn't count as outright fraud at all. But even that is missing the point. These loans are an economic time bomb. They rely entirely on a functioning economy with adequate middle class job opportunities. If those disappear - if, for example, an unexpected black swan event happens to leaves a smoking crater where GDP growth used to be - banks lose a giant pile of money anyway. The debt will be sold at cents to the dollar to collection agencies who will hound the victims, and anyone else who gets in the way by sharing an address, or having any form of financial connection - for the rest of their natural lives.
BobbyJo 7y ago
If it's a bad bet for the bank, that just means it is a bad bet on average and right now. The thing is, a student can know a lot more about themselves than the bank can. A student can make a bet with an extremely high expected return, that the bank would be unable to appropriately risk-price. The problem with the current system, is we don't force the students to understand the price of the risk. The problem with making them normal loans is that the bank is unable to accurately price the risk. There are middle grounds, but arguments from the extremes seem to carry better.
- SuoDuanDao 7y ago
  I once read a setting resource for an RPG system set in a multidimensional university which cut out the middleman and offered its own student loans. Predatory as Illuminati University was, it seems like a better system than what we have now.
rayiner 7y ago
The “bank” is us. Almost all student loans are originated by the federal government. It’s a program the government offers to allow disadvantaged people to access higher education.
prostoalex 7y ago
> If it's a bad bet for the bank, it must be far worse of a bet for young adults Contrary to popular perception, there's no robust private investor market for student loans. US Treasury is the predominant buyer. https://www.advisorperspectives.com/dshort/commentaries/2020/03/16/the-fed-s-financial-accounts-what-is-uncle-sam-s-largest-asset https://www.advisorperspectives.com/dshort/commentaries/2020...
- AnimalMuppet 7y ago
  If students were able to escape the debt by bankruptcy, the Treasury might not be allowed to buy the loans. Don't they have to invest in safe stuff?
  - prostoalex 7y ago
    Correct, the entire market for such loans would pretty much collapse - current yields are comparable to those of commercial real estate or high-yield corporate bonds, with none of the downside protections. Unsecured personal loans (that are subject to bankruptcy) are a valid asset class, coveted by LendingClub and some banks, but they require solid credit history and carry a higher interest rate, more aggressive repayment schedule, or both.
    - mgleason_3 7y ago
      It’s like this entire thread is from another planet and has no knowledge of the college loan program (student loans used to be dischargeable in bankruptcy like any other loan), its origin or even presidents Obama’s attempts to overhaul it and concerns that it was actually driving up the cost of college.
      - AnimalMuppet 7y ago
        So, rather than criticize, you might share some of the knowledge you think we are missing...

by gwd 7y ago

mlthoughts2018 7y ago

> “ If it's a bad bet for the bank, it must be far worse of a bet for young adults.“ That’s not a valid implication at all. 18 year olds change their mind all the time, base decisions on impulsive reasons, etc., that comes with immaturity, lack of experience and indecision. The loan being a bad risk for the bank is a function of youthful impulsiveness and a person without the means to pay it back yet. It’s not risky to the bank because college itself is risky or fails to deliver wage opportunities. Not saying college cost-benefit is always favorable, just that your implication is wrong.

jedberg 7y ago

To be clear, I don't think college should be paid for with loans. I agree with you that we shouldn't be enslaving people. But I also don't think allowing these loans to be discharged in bankruptcy will solve anything (and will arguably make things worse) without systemic changes in the way college is paid for.

gwd 7y ago
It will force "the system" to come up with some other way to pay for tuition. What do you think about Income Share Agreements? https://www.thesimpledollar.com/loans/student/income-share-agreements-a-new-way-to-pay-for-college/ https://www.thesimpledollar.com/loans/student/income-share-a...
- jedberg 7y ago
  I love income share agreements.
- btilly 7y ago
  I think that they help universities raise tuition as long as the projected lifetime income increase from going to college exceeds the cost of tuition. Which will just allow our unsustainable "tuition rises faster than inflation" trend to last a few more years before it falls apart. Note that "projected lifetime income increase" is generally overestimated. What we do is compare average income of a college graduate with a high school graduate and attribute the difference to college. However people who could get through college likely would have made more than people who couldn't, even if they hadn't gone to college!
  - VLM 7y ago
    Its also backwards looking, obviously. In the boomer working years, colleges were very selective and a degree was a stealth IQ test along with socioeconomic group membership. At this point the average IQ of a college grad is very close to 100. I guarantee that within the next 30 to 40 years someone will make the shocking discovery that the presence or absence of a degree has no influence on income, success, or happiness. At that point the ponzi scheme of higher ed can collapse. There's nothing wrong with designing and implementing an education system for the top 5% of society and the jobs that top 5% will likely have. There is a big problem with a marketing scam along the lines of every American is a temporarily inconvenienced millionaire. Surely, my favorite waitress at Dennys is making more money as a waitress than she would as a K12 educator, if she could get hired, which she cannot. The degree does not make her a better person nor a better waitress. It does signal that she's in maybe the top 50% of humanity WRT the skills required to get a degree. She's a somewhat better than average person because of who she is, not a meaningless piece of paper for training she will never use. The point of discussing my favorite waitress is we need "something" to signal in the job market who is in the upper half of potential employees, and $100K of debt and four years of labor seem a huge waste on a civilizational level.
    - 7y ago
chrisco255 7y ago
In my mind the problem is the system itself was designed for a world that doesn't exist. When the supply of college degrees was low 50 years ago, sure, it paid to have a degree. But now that it has become commoditized, it's not that valuable. There's no supply / demand pricing mechanism to influence a student's major. The cost of tuition is mainly based on an arbitrary credit hour. No matter how worthless a course is for your future, the price of the class is still the same. I've read this about socialist countries that have free education. You'll have folks with law degrees driving taxi cabs. It's a waste of resources.
- wolco 7y ago
  Why would having someone who knows the law and drives a taxi make it a waste of resources? Taxi drivers should be uneducated in your view. Why? How does that help society? Many lawyers need to drive taxis to get by. Being a lawyer doesn't mean instant riches unless you land at a high profile firm directly out of school. Studying law isn't a finite resource either.
  - chrisco255 7y ago
    "I never let schooling get in the way of my education." The problem with your view is you assume the only way to get educated is via academia. There is a lot of education when you become a mechanic, an electrician, a factory worker, a firefighter, etc. That is not academic. You learn on the job. There are also many certification courses for these fields that run outside of traditional college system. I believe in free schooling to teach basic, essential skills like reading, computing, math, etc. I'd even argue for a greater emphasis on financial education in K-12. But college is different. The college system is very expensive, it's heavily subsidized by the state even in the U.S. If it is not teaching people valuable skills that they will be using in their profession, then it is not serving it's purpose. It costs people resources in the form of taxes. In the meantime, we live in the information age. Teaching people to teach themselves is probably the most valuable skill we can teach.
    - bumby 7y ago

abnry 7y ago

I agree with what you are saying, except that we shouldn't say students are unequipped to evaluate the "bet" merely for being young and inexperienced. If we wanted to, we could train students to be much better at evaluating such a bet.

gwd 7y ago
But the reason interest-bearing loans were considered immoral for so long, and the reason that nearly every other kind of loan can be discharged through bankruptcy, is that it is too dangerous to allow anyone to offer such a loan. There's nothing magical about student loans that somehow makes them safe, and no amount of training will change that.
rch 7y ago
> we could train students to be much better at evaluating such a bet Maybe... but we could definitely alter the nature of risk involved. Why not reduce cost of tuition (e.g. <$1K/semester), while raising the bar on academic rigor as a means of controlling demand?
- eldavido 7y ago
  This is probably what's going to happen, but only if we take a LOT of human labor out of it. Either that, or accept that every class will be huge (200-500 students) with minimal attention given to students, no office hours, and low-paid labor doing all the grunt work (grading, answering questions) I see a lot of parallels to medicine here. Both are highly regulated and seen as a "right" we ought to fund. Maybe, but until we achieve greater labor leverage (made even harder by professional credentialing in medicine), there just won't be a way to drive costs down much, so we're stuck with what we have.
  - freeone3000 7y ago
    College at $60k a semester while an adjunct earns $28k a year and somehow this doesn't result in a 1:1 student:teacher ratio means someone's skimming off a ton of money.

IG_Semmelweiss 7y ago

Bingo. Be careful, this is very dangerous informstion And it gets worse You forgot that these loans are subsidized, so when they Go sour (and they will) its the taxpayer holding the bag, not the banks In other words, its 2008 all over

jefftk 7y ago

> If it's a bad bet for the bank, it must be far worse of a bet for young adults. That doesn't follow: you could graduate, get your degree, and declare bankruptcy. You're fine, your loan is gone, and the bank regrets their investment.

BurningFrog 7y ago
Let's make that point clearer: Since the bank is absolved from making that bet, it is now the young adult making the same bet that no sane bank would take. A lot of people are now living with having lost that bet.
- jefftk 7y ago
  The bank doesn't want the bet because "bankruptcy" means very different things to the bank and to the student. To the bank it means they lose all their money. For a just-graduated person with minimal assets it's not that bad -- sure you can't get a mortgage to buy a house for a while, but you probably couldn't have afforded that anyway with student loans. You still have the degree, they can't take that (well, https://www.jefftk.com/p/repossessing-degrees https://www.jefftk.com/p/repossessing-degrees).
  - iateanapple 7y ago
    > For a just-graduated person with minimal assets it's not that bad It is in fact bad. You can’t just declare bankruptcy and get a high paying job a year later and have no student debt.... When I looked into personal bankruptcy I was told by my lawyer that it would only make financial sense if there was no way I could pay back the amount owed in the next 7-10 years.
    - WalterBright 7y ago
      Having a bankruptcy on your record may make it difficult to get that high-paying job, as employers may not look favorably upon it.

bananabreakfast 7y ago

"Society" doesn't figure anything out. If "Society" wanted people to go to college then it would it give it to everybody for free. People are incentivized to act one way or the other. Less-wealthy people cannot afford college tuition, and the government cannot mandate that banks give away money to extremely risky but ambitious people. This same problem exists with extending loans in general to risky, low-income individuals. Yes their rates are insanely high, bordering on predatory, but they also have sky high default rates so the alternative is they simply cannot get a loan at all. This is essential economics.

psadri 7y ago
This argument is missing one important part. The prevalence of student loans has caused the cost of education to skyrocket, pushing it even further out of reach. So now even people who previously afforded higher education need to get loans. It’s a self-fulfilling system.
- WalterBright 7y ago
  Ironically, every governmental attempt to make college more affordable has caused tuition to rise.
  - lonelappde 7y ago
    Except the original attempt: public schools.
    - WalterBright 7y ago
      Looks expensive to me: https://www.governing.com/gov-data/education-data/state-education-spending-per-pupil-data.html https://www.governing.com/gov-data/education-data/state-educ...
    - prostoalex 7y ago
      Those only look cheap if unfunded pension obligations are kept off-balance.

rahimnathwani 7y ago

"If it's a bad bet for the bank, it must be far worse of a bet for young adults." Not necessarily. Even if it's a good bet for the student, what's to stop them from declaring bankruptcy just after graduation, and before they start their lucrative career? They would then get all the upside, whilst the bank gets zero payments.

TheOtherHobbes 7y ago
Trashing your credit score, with unfortunate consequences for your ability to buy a car, rent accommodation, apply for a mortgage, and avoid predatory debt collectors, sounds like a superbly practical debt management plan. And if you have a job with decent money, obviously it wouldn't count as outright fraud at all. But even that is missing the point. These loans are an economic time bomb. They rely entirely on a functioning economy with adequate middle class job opportunities. If those disappear - if, for example, an unexpected black swan event happens to leaves a smoking crater where GDP growth used to be - banks lose a giant pile of money anyway. The debt will be sold at cents to the dollar to collection agencies who will hound the victims, and anyone else who gets in the way by sharing an address, or having any form of financial connection - for the rest of their natural lives.

BobbyJo 7y ago

If it's a bad bet for the bank, that just means it is a bad bet on average and right now. The thing is, a student can know a lot more about themselves than the bank can. A student can make a bet with an extremely high expected return, that the bank would be unable to appropriately risk-price. The problem with the current system, is we don't force the students to understand the price of the risk. The problem with making them normal loans is that the bank is unable to accurately price the risk. There are middle grounds, but arguments from the extremes seem to carry better.

SuoDuanDao 7y ago
I once read a setting resource for an RPG system set in a multidimensional university which cut out the middleman and offered its own student loans. Predatory as Illuminati University was, it seems like a better system than what we have now.

rayiner 7y ago

The “bank” is us. Almost all student loans are originated by the federal government. It’s a program the government offers to allow disadvantaged people to access higher education.

prostoalex 7y ago

> If it's a bad bet for the bank, it must be far worse of a bet for young adults Contrary to popular perception, there's no robust private investor market for student loans. US Treasury is the predominant buyer. https://www.advisorperspectives.com/dshort/commentaries/2020/03/16/the-fed-s-financial-accounts-what-is-uncle-sam-s-largest-asset https://www.advisorperspectives.com/dshort/commentaries/2020...

AnimalMuppet 7y ago
If students were able to escape the debt by bankruptcy, the Treasury might not be allowed to buy the loans. Don't they have to invest in safe stuff?
- prostoalex 7y ago
  Correct, the entire market for such loans would pretty much collapse - current yields are comparable to those of commercial real estate or high-yield corporate bonds, with none of the downside protections. Unsecured personal loans (that are subject to bankruptcy) are a valid asset class, coveted by LendingClub and some banks, but they require solid credit history and carry a higher interest rate, more aggressive repayment schedule, or both.
  - mgleason_3 7y ago
    It’s like this entire thread is from another planet and has no knowledge of the college loan program (student loans used to be dischargeable in bankruptcy like any other loan), its origin or even presidents Obama’s attempts to overhaul it and concerns that it was actually driving up the cost of college.
    - AnimalMuppet 7y ago
      So, rather than criticize, you might share some of the knowledge you think we are missing...