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Or maybe we should just do 2 things: 1) Allow student loans to be forgiven in bankruptcy like any other debt. I am tickled that this article makes an argument

Or maybe we should just do 2 things: 1) Allow student loans to be forgiven in bankruptcy like any other debt. I am tickled that this article makes an argument about "moral hazards"; ignoring the fact that student loans are unlike almost any other loan in that they can not be removed with a bankruptcy. That is not a moral hazard, that is a moral abomination. 2) Slowly get out of the business of having the federal government guarantee loans without regard to expected payment. We need to keep the immediate expectations in play to not upset too much. However, any loan made without consideration of repayment potential is absurd. Either just provide a grant or don't provide money.

kardos 6y ago
Re 1, the argument against discharging student loans in bankruptcy is that it incentivizes declaring bankruptcy upon graduation
- nine_zeros 6y ago
  >Re 1, the argument against discharging student loans in bankruptcy is that it incentivizes declaring bankruptcy upon graduation And that is a risk assessment lenders would need to make. This is how all debt works. Without avenues of discharge, this debt is like slavery.
  - jmpman 6y ago
    Without loans, the ability to climb to another economic tier exists only for those able to work hard, get academic scholarships, plan efficiently, study hard. Discharging student loans in bankruptcy, will make it so that nobody will lend to students. I wouldn’t. Would you? I could see a loan program where the terms can be no more then 20% of a graduates income for more than 7 years. But, then would we allow the lenders to discriminate on which degrees they’ll fund? Would you fund a degree in computer science? Maybe? Political science? Is the student studying to be a lawyer? Ok. Art History? Probably not. Even with a limit of 20% over 7 years, that’s roughly equivalent to 1.4 years of wages. Should the loan cover tuition and living expenses for 4 years of college? That’s a heck of a deal.
    - nine_zeros 6y ago
      > Discharging student loans in bankruptcy, will make it so that nobody will lend to students. I wouldn’t. Would you? I would lend, after carefully evaluating the educational track record of the student and the earning potential of the major. If a lazy kid tries to get a loan for philosophy without a clear path, they get a high interest loan or no loan at all until they figure out the most efficient major for themselves. If a poor kid with high GPA in high school wants to major in finance, sure I'll lend at a low interest rate without a collateral. If a rich kid with low GPA and poor track record comes for a loan, sure I'll lend with a collateral. If a poor kid with poor GPA and poor track record comes for a loan, sure I'll lend at a high interest rate or wait until they improve their track record to earn the low interest rate. This is literally how debt is supposed to signal prices. This will ensure that the most deserving kids get the easiest loans, least deserving get a signal that they need to change something. Universities also find it hard to raise tuition since the flood of free flowing loan money is gone.
      - jmpman 6y ago
        You do understand that if someone declares bankruptcy, you as a lender, would get $0. A newly minted graduate, now saddled with $100k in debt to you... why wouldn’t they declare bankruptcy immediately? Your willingness to lend either implies that you believe 22 year olds with $100k in debt aren’t willing to take 7 years of bad credit score, or you think people are inherently good, and wouldn’t declare bankruptcy because it’s not a moral thing to do? Where do you expect to find these students who are adverse to 7 years of bad credit, or with exceptional upbringing and ethics? I’m assuming you care about being repaid. Maybe you’re willing to take a loss on 99% of your loans? Maybe if you’re wealthy you can afford to make 10 of these loans a year instead of buying a new yacht? I don’t see how this scales beyond a few wealthy philanthropists.
  - biggermike 6y ago
    > And that is a risk assessment lenders would need to make. This is how all debt works. This is irrelevant as the federal government is the owner of nearly all student debt, which is how they are able to forgive them in the first place. Student loans were de-facto nationalized under Obamacare.
kop316 6y ago
As a different idea, federal loans like this means that universities have no risk in taking on more students and, if anything, incentivies higher tuition and more students. I personally think the univeristy should take on more risk if they have students on federal loans. Something like they get a structured payment to get a student, and the only way to get the full payment is the financial success of said student?

kardos 6y ago

Re 1, the argument against discharging student loans in bankruptcy is that it incentivizes declaring bankruptcy upon graduation

nine_zeros 6y ago
>Re 1, the argument against discharging student loans in bankruptcy is that it incentivizes declaring bankruptcy upon graduation And that is a risk assessment lenders would need to make. This is how all debt works. Without avenues of discharge, this debt is like slavery.
- jmpman 6y ago
  Without loans, the ability to climb to another economic tier exists only for those able to work hard, get academic scholarships, plan efficiently, study hard. Discharging student loans in bankruptcy, will make it so that nobody will lend to students. I wouldn’t. Would you? I could see a loan program where the terms can be no more then 20% of a graduates income for more than 7 years. But, then would we allow the lenders to discriminate on which degrees they’ll fund? Would you fund a degree in computer science? Maybe? Political science? Is the student studying to be a lawyer? Ok. Art History? Probably not. Even with a limit of 20% over 7 years, that’s roughly equivalent to 1.4 years of wages. Should the loan cover tuition and living expenses for 4 years of college? That’s a heck of a deal.
  - nine_zeros 6y ago
    > Discharging student loans in bankruptcy, will make it so that nobody will lend to students. I wouldn’t. Would you? I would lend, after carefully evaluating the educational track record of the student and the earning potential of the major. If a lazy kid tries to get a loan for philosophy without a clear path, they get a high interest loan or no loan at all until they figure out the most efficient major for themselves. If a poor kid with high GPA in high school wants to major in finance, sure I'll lend at a low interest rate without a collateral. If a rich kid with low GPA and poor track record comes for a loan, sure I'll lend with a collateral. If a poor kid with poor GPA and poor track record comes for a loan, sure I'll lend at a high interest rate or wait until they improve their track record to earn the low interest rate. This is literally how debt is supposed to signal prices. This will ensure that the most deserving kids get the easiest loans, least deserving get a signal that they need to change something. Universities also find it hard to raise tuition since the flood of free flowing loan money is gone.
    - jmpman 6y ago
      You do understand that if someone declares bankruptcy, you as a lender, would get $0. A newly minted graduate, now saddled with $100k in debt to you... why wouldn’t they declare bankruptcy immediately? Your willingness to lend either implies that you believe 22 year olds with $100k in debt aren’t willing to take 7 years of bad credit score, or you think people are inherently good, and wouldn’t declare bankruptcy because it’s not a moral thing to do? Where do you expect to find these students who are adverse to 7 years of bad credit, or with exceptional upbringing and ethics? I’m assuming you care about being repaid. Maybe you’re willing to take a loss on 99% of your loans? Maybe if you’re wealthy you can afford to make 10 of these loans a year instead of buying a new yacht? I don’t see how this scales beyond a few wealthy philanthropists.
- biggermike 6y ago
  > And that is a risk assessment lenders would need to make. This is how all debt works. This is irrelevant as the federal government is the owner of nearly all student debt, which is how they are able to forgive them in the first place. Student loans were de-facto nationalized under Obamacare.

kop316 6y ago

As a different idea, federal loans like this means that universities have no risk in taking on more students and, if anything, incentivies higher tuition and more students. I personally think the univeristy should take on more risk if they have students on federal loans. Something like they get a structured payment to get a student, and the only way to get the full payment is the financial success of said student?