4 ms·

Why should a bad options investment be better protected than studying?

by mrpopo 6y ago

winrid 6y ago
Because lobbying! https://www.google.com/amp/s/www.politico.com/amp/story/2019/08/15/student-loan-devos-lobbying-1464926 https://www.google.com/amp/s/www.politico.com/amp/story/2019...
- redis_mlc 6y ago
  Thanks for posting that. The idea that DeVos, whose family owns a school lending company, is in the administration is not just a conflict of interest, but an indictment of our entire political system.
newguy1234 6y ago
Because you need to qualify for margin and the person who lent you the money agreed to lend it to you knowing that you could BK it. With student loans, the student usually doesn't have an income or assets so there needs to be more incentives to convince lenders to lend money.
- throwaway2048 6y ago
  I don't see how that reasoning applies to one, but not the other circumstance.
  - jdminhbg 6y ago
    The answer is right there. Bankruptcy is legally a recourse of the credit extended by Robinhood, and it is legally not one of student loans. That may or may not be morally correct or good policy, but it's certainly the current state of the world.
    - tttp 6y ago
      Please don't drag the rest of the world in it, this student loan construction is certainly the current state of the USA
      - jdminhbg 6y ago
        The article is about something that happened in the US, so the situation in US law is relevant.
  - stevens32 6y ago
    Student loans are cheap and available because they can't be defaulted on. If lenders don't get those guarantees, they won't want to lend at the lower rates or approve people as easily.
    - readams 6y ago
      The federal government guarantees almost all student loans. This is why they are cheap. Default exists regardless of whether the debt can be easily discharged in bankruptcy.
  - yowlingcat 6y ago
    I agree with you, it's just that the one that I'd question would be the obverse. That is, student loans should either be dischargeable by bankruptcy or just not extended. If a lender can't make money in that asset class, they should fold. If that means it leaves the government the lender of last resort, that's how things should be. If that means the asset class implodes and it can't prop up a mispriced commodity, then so be it. Ironically, I get the sense that the implosion is probably going to come less from it being a previously bloated, overpriced commodity than for now being a perceivably fraudulent one -- IE, students are (justifiably) heated about having to pay the equivalent price of a home to take a glorified webinar from "Zoom University" -- and who can blame them, really? Now, back on topic -- what happened here was tragic. At some point, Robinhood is going to get actually sued by someone who expects peer level performance (IE TD/tastyworks/etc). It'll be interesting to see what happens there. And, it'll be interesting to see if they are sued (successfully) here. But, nothing is going to bring this young person's life back. How utterly harrowing. We hear so often about deaths of despair as a coded reference to opiate deaths. I know that suicide is a really major risk for startup founders when things go sideways (as well as gamblers), so seeing a new version of that makes me (despite the desensitization of the present moment) experience a new, unique kind of sadness. I hope this poor young man's soul rests in peace.
THE_PUN_STOPS 6y ago
I think I’m going to call my congresspeople with the same question.
Apocryphon 6y ago
Because the Bush administration was behind it
- lazyasciiart 6y ago
  No, multiple administrations over several decades were behind it. https://www.finaid.org/questions/bankruptcyexception.phtml https://www.finaid.org/questions/bankruptcyexception.phtml
bpodgursky 6y ago
The backing ethical stance is that EVERYONE should be protected, from everything. But there's a practical problem applying this to student loans -- nobody who needs student loans will come out of college with meaningful assets. No house, maybe no car, no income. If you could discharge student loans in bankruptcy... there's absolutely no reason to not do it immediately upon graduation. Everyone would do declare BK and clear their debts, for good reason. So nobody would ever give a student loan. Also for good reason. So BK doesn't apply to student loans. Obviously there are other fixes here (government paid tuition, income based repayment, online classes, whatever), but the naive fix ("allow students to discharge loans") would not get us to a better-functioning outcome. (unless your position is that burning the system down is a better outcome than status quo, which is a position, but it's then dishonest to argue that discharging loans is a "quick fix")
umanwizard 6y ago
Because otherwise nobody would offer student loans.
- unishark 6y ago
  They would certainly be a lot more careful in who they lend to. Which would go back to divisions between college-worthy and not that many people don't like.
gdulli 6y ago
Since student loans come right at the start of everyone's adult life, it would be very common to strategically declare bankruptcy upon graduation, writing off good credit in your mid 20s in exchange for free education. That's my understanding of why student loans have to stick with you.
smnrchrds 6y ago
For the record, I don't agree with the status quo. I think student loans should be dischargeable in bankruptcy. Other replies have brought many good points. I have one more to add: There is one important difference between student loan and other loans. If your mortgage gets foreclosed, you lose your house. Your car loan, you lose the vehicle. Margin, you lose your stocks and investments and the collateral. In all these cases, when you cannot pay back the loan, the lender takes away your right to continue enjoying any benefits from the loan. You cannot not repay your mortgage but keep the house free and clear. Thus there is a strong incentive not to default on these loans. This is fundamentally different from student loans. If you do not repay your student loans, the bank cannot wipe the knowledge you gained from your brain and sever the contacts you made in university. You will continue enjoying all the benefits of the education. Thus there would be a strong incentive to declare bankruptcy as soon as you graduate (because you have little to no assets to lose) if this were an option.

Why should a bad options investment be better protected than studying?

by mrpopo 6y ago

Why should a bad options investment be better protected than studying?

Because lobbying! https://www.google.com/amp/s/www.politico.com/amp/story/2019/08/15/student-loan-devos-lobbying-1464926 https://www.google.com/amp/s/www.politico.com/amp/story/2019...

redis_mlc 6y ago
Thanks for posting that. The idea that DeVos, whose family owns a school lending company, is in the administration is not just a conflict of interest, but an indictment of our entire political system.

newguy1234 6y ago

Because you need to qualify for margin and the person who lent you the money agreed to lend it to you knowing that you could BK it. With student loans, the student usually doesn't have an income or assets so there needs to be more incentives to convince lenders to lend money.

throwaway2048 6y ago
I don't see how that reasoning applies to one, but not the other circumstance.
- jdminhbg 6y ago
  The answer is right there. Bankruptcy is legally a recourse of the credit extended by Robinhood, and it is legally not one of student loans. That may or may not be morally correct or good policy, but it's certainly the current state of the world.
  - tttp 6y ago
    Please don't drag the rest of the world in it, this student loan construction is certainly the current state of the USA
    - jdminhbg 6y ago
      The article is about something that happened in the US, so the situation in US law is relevant.
- stevens32 6y ago
  Student loans are cheap and available because they can't be defaulted on. If lenders don't get those guarantees, they won't want to lend at the lower rates or approve people as easily.
  - readams 6y ago
    The federal government guarantees almost all student loans. This is why they are cheap. Default exists regardless of whether the debt can be easily discharged in bankruptcy.
- yowlingcat 6y ago
  I agree with you, it's just that the one that I'd question would be the obverse. That is, student loans should either be dischargeable by bankruptcy or just not extended. If a lender can't make money in that asset class, they should fold. If that means it leaves the government the lender of last resort, that's how things should be. If that means the asset class implodes and it can't prop up a mispriced commodity, then so be it. Ironically, I get the sense that the implosion is probably going to come less from it being a previously bloated, overpriced commodity than for now being a perceivably fraudulent one -- IE, students are (justifiably) heated about having to pay the equivalent price of a home to take a glorified webinar from "Zoom University" -- and who can blame them, really? Now, back on topic -- what happened here was tragic. At some point, Robinhood is going to get actually sued by someone who expects peer level performance (IE TD/tastyworks/etc). It'll be interesting to see what happens there. And, it'll be interesting to see if they are sued (successfully) here. But, nothing is going to bring this young person's life back. How utterly harrowing. We hear so often about deaths of despair as a coded reference to opiate deaths. I know that suicide is a really major risk for startup founders when things go sideways (as well as gamblers), so seeing a new version of that makes me (despite the desensitization of the present moment) experience a new, unique kind of sadness. I hope this poor young man's soul rests in peace.

THE_PUN_STOPS 6y ago

I think I’m going to call my congresspeople with the same question.

Apocryphon 6y ago

Because the Bush administration was behind it

lazyasciiart 6y ago
No, multiple administrations over several decades were behind it. https://www.finaid.org/questions/bankruptcyexception.phtml https://www.finaid.org/questions/bankruptcyexception.phtml

bpodgursky 6y ago

The backing ethical stance is that EVERYONE should be protected, from everything. But there's a practical problem applying this to student loans -- nobody who needs student loans will come out of college with meaningful assets. No house, maybe no car, no income. If you could discharge student loans in bankruptcy... there's absolutely no reason to not do it immediately upon graduation. Everyone would do declare BK and clear their debts, for good reason. So nobody would ever give a student loan. Also for good reason. So BK doesn't apply to student loans. Obviously there are other fixes here (government paid tuition, income based repayment, online classes, whatever), but the naive fix ("allow students to discharge loans") would not get us to a better-functioning outcome. (unless your position is that burning the system down is a better outcome than status quo, which is a position, but it's then dishonest to argue that discharging loans is a "quick fix")

umanwizard 6y ago

Because otherwise nobody would offer student loans.

unishark 6y ago
They would certainly be a lot more careful in who they lend to. Which would go back to divisions between college-worthy and not that many people don't like.

gdulli 6y ago

Since student loans come right at the start of everyone's adult life, it would be very common to strategically declare bankruptcy upon graduation, writing off good credit in your mid 20s in exchange for free education. That's my understanding of why student loans have to stick with you.

smnrchrds 6y ago

For the record, I don't agree with the status quo. I think student loans should be dischargeable in bankruptcy. Other replies have brought many good points. I have one more to add: There is one important difference between student loan and other loans. If your mortgage gets foreclosed, you lose your house. Your car loan, you lose the vehicle. Margin, you lose your stocks and investments and the collateral. In all these cases, when you cannot pay back the loan, the lender takes away your right to continue enjoying any benefits from the loan. You cannot not repay your mortgage but keep the house free and clear. Thus there is a strong incentive not to default on these loans. This is fundamentally different from student loans. If you do not repay your student loans, the bank cannot wipe the knowledge you gained from your brain and sever the contacts you made in university. You will continue enjoying all the benefits of the education. Thus there would be a strong incentive to declare bankruptcy as soon as you graduate (because you have little to no assets to lose) if this were an option.