6 ms·

Make student loans no longer exempt from bankruptcy. The rationale for making student loans persist through bankruptcy is that students could just declare bankr

Make student loans no longer exempt from bankruptcy. The rationale for making student loans persist through bankruptcy is that students could just declare bankruptcy after graduation, since they probably have no assets. Maybe make the exemption only last 10-15 years. The permanence of student loans means lenders have no qualms against writing loans for people who will likely not be able to pay them off for decades, or ever. Reducing ability to default makes the loans more accessible, yes, but in effect it's shifting the burden to students - students who are often young people not well equipped to make long term financial decisions. Yes, this will mean lenders will be much more reluctant to issue student loans. It will likely prompt lenders to offer loans contingent on certain majors. This is a big, big reason why universities are heavily opposed to student loan reforms. The uncomfortable reality is that many universities are funded through what essentially amounts to predatory loans, and halting the practice will cut into university funding.

WaitWaitWha 6y ago
>The permanence of student loans means lenders have no qualms against writing loans for people who will likely not be able to pay them off for decades, or ever. Worse, lenders write, and universities accept applications for people they know statistically 99.999% they will not get past the first year.
- throwaway0a5e 6y ago
  >And universities accept applications for people they know statistically 99.999% they will not get past the first year. Universities do this on purpose because between 500 student lectures and on-campus housing requirements undergrad freshmen and sophomores have a massive profit margin per body whereas juniors and seniors are in classes that have much more resources spent per student and often don't live on campus.
- Melting_Harps 6y ago
  > Worse, lenders write, and universities accept applications for people they know statistically 99.999% they will not get past the first year. Sounds like the subprime mortgage scam by the banks, given that they know the US government is going to subsidize the 'losses' and they will have extracted their profit one way or another. Anyone who thinks Socialism is some de-facto virtuous ideal needs to see that collusion between State and X happens in just about every Industry already for private largess. And often is sanctioned, regulated or at least likely to have light to no punishment if caught: see banking fraud. I honestly want COVID to make the University model obsolete, it will have been worth it if people see how nebulous and impractical the absurd expenses when in reality you can do 75% of courses online anyway; its entirely a predatory model. This is such a drag on young people's lives to have 50k+ in debt in your 20s and are some how sold the idea that you are 'making it' by working to pay that off just to get some entry level position you could have done with a 1-2 year apprenticeship by the time you were 16 like they do in many Germanic Countries. It's absurd to think this model can go on, and as you mentioned the pernicious statistic rates they are worse because not only is it short sighted thinking that doesn't add value to Society, it can only extract it from those least likely to afford it. I got honors and letters of recommendations while I was in my undergrad and the only time I ever too them out were to show employers when I applied/interviewed for jobs, and most didn't care either; otherwise they sat in a desk in an envelope as they're reminders of time poorly spent in something I had no interest in by the time I was a sophomore and would come to hate entirely but couldn't get out of until I was 26 due to the debt.
  - yyyymmddh 6y ago
    To the point about socialism, this book has blown my mind: https://www.amazon.com/Peoples-Republic-Walmart-Corporations-Foundation-ebook/dp/B075HY7DWZ https://www.amazon.com/Peoples-Republic-Walmart-Corporations...
warmwaffles 6y ago
> Make student loans no longer exempt from bankruptcy. The other problem is that education can not be retroactively taken from them. But garnished wages can.
- evilduck 6y ago
  Maybe we should set student loan rates to reflect the actual risk being assumed instead of offering deceptively low interest rates with the fallback of modern indentured servitude. People might think twice about going to school if their student loan interest rates reflected the actual risks they were taking on.
  - ryandrake 6y ago
    Exactly. Currently, since students cannot get rid of student debt, student loans are essentially risk-free for banks. They should be required to lend at the risk-free rate.
ntsplnkv2 6y ago
This is wishful thinking. There is no collateral for a school loan. Banks have to make up for that risk somewhere. Students will have nothing to lose by staging bankruptcy, and banks will stop giving out loans.
- manfredo 6y ago
  Bankruptcy tanks your credit rating for years. Most of a decade, ~7 years IIRC. If student loans could only be cancelled via bankruptcy after 10-15 years, that would mean students trying to cancel their loans through bankruptcy would be doing it in their early to mid 30s assuming they graduated at 21 years of age. Their credit scores would be ruined until their 40s at least. Few people would pursue this route just to save some money on education. If a graduate doesn't have enough assets by 30 to make bankruptcy a bad option, then I think it's fair to tell the lender that they made a bad investment and that the loss is reasonable. If this is how it worked, student loans to good universities would still yield a good return. It'd probably incentivize universities to track students' earnings after graduation, and focus on improving that figure. Lenders would probably stop writing loans to degree mills, or non-rigorous universities that don't substantially improve the employment prospects of students.
  - ntsplnkv2 6y ago
    What problem does that solve, then? Wow, you can be bankrupt, and never be able to buy a house or car. How is that a solution? It's the same problem as now - "you can't get a house/car because your loan makes you unable to afford it." This doesn't solve the problem. See, it's just a garbage solution thrown out because it "sounds" good but on inspection it's just BS.
    - manfredo 6y ago
      I'm not sure what I'm failing to explain. It's not feasible to make student loans able to be eliminated via bankruptcy without restriction, since students could just go through bankruptcy right after graduation and plan around being unable to get a mortgage or car loan until they're 30. If you graduated with a degree in CS, and landed a six figure tech job it'd still make sense financially to go through bankruptcy and save potentially hundreds of thousands of dollars in student loans, even though you could easily pay it off over several years. This let's the student exploit the lender. The status quo of making student loans not cancellable through bankruptcy makes it so that lenders can act in a predatory manner and issue loans to go to ineffective institutions that don't improve earning potential. They know students won't be able to pay for decades, but they don't care because the student is stuck with the debt and has no way of getting rid of it. This lets the lender exploit the student. Allowing student loans to be resolved through bankruptcy after 10-15 years is enough time so that most graduates have assets, and are probably looking for a mortgage on a home in the near future. Going through bankruptcy at 30 or 35 is a much bigger deal than doing so at 21. In this situation, the student can't easily exploit the lender. But at the same time the lender still has the potential for loss if they try to loan to a student studying basket weaving at a university with a 98% acceptance rate. The easier it is to eliminate a student loan the easier it is for a student to exploit the lender, and take the loan intending to go through bankruptcy. The harder it is to eliminate a student loan, the easier it is for banks to write loans they know students can't pay off. The optimal spot is somewhere in the middle, where the student has an escape valve - but one that is only feasible to take if you have no significant assets by the time you're 30 or 35. If the lender is worried that a student debtor won't have enough assets by 30-35 to make bankruptcy a bad option, then they will think twice about issuing the loan.

WaitWaitWha 6y ago

>The permanence of student loans means lenders have no qualms against writing loans for people who will likely not be able to pay them off for decades, or ever. Worse, lenders write, and universities accept applications for people they know statistically 99.999% they will not get past the first year.

throwaway0a5e 6y ago
>And universities accept applications for people they know statistically 99.999% they will not get past the first year. Universities do this on purpose because between 500 student lectures and on-campus housing requirements undergrad freshmen and sophomores have a massive profit margin per body whereas juniors and seniors are in classes that have much more resources spent per student and often don't live on campus.
Melting_Harps 6y ago
> Worse, lenders write, and universities accept applications for people they know statistically 99.999% they will not get past the first year. Sounds like the subprime mortgage scam by the banks, given that they know the US government is going to subsidize the 'losses' and they will have extracted their profit one way or another. Anyone who thinks Socialism is some de-facto virtuous ideal needs to see that collusion between State and X happens in just about every Industry already for private largess. And often is sanctioned, regulated or at least likely to have light to no punishment if caught: see banking fraud. I honestly want COVID to make the University model obsolete, it will have been worth it if people see how nebulous and impractical the absurd expenses when in reality you can do 75% of courses online anyway; its entirely a predatory model. This is such a drag on young people's lives to have 50k+ in debt in your 20s and are some how sold the idea that you are 'making it' by working to pay that off just to get some entry level position you could have done with a 1-2 year apprenticeship by the time you were 16 like they do in many Germanic Countries. It's absurd to think this model can go on, and as you mentioned the pernicious statistic rates they are worse because not only is it short sighted thinking that doesn't add value to Society, it can only extract it from those least likely to afford it. I got honors and letters of recommendations while I was in my undergrad and the only time I ever too them out were to show employers when I applied/interviewed for jobs, and most didn't care either; otherwise they sat in a desk in an envelope as they're reminders of time poorly spent in something I had no interest in by the time I was a sophomore and would come to hate entirely but couldn't get out of until I was 26 due to the debt.
- yyyymmddh 6y ago
  To the point about socialism, this book has blown my mind: https://www.amazon.com/Peoples-Republic-Walmart-Corporations-Foundation-ebook/dp/B075HY7DWZ https://www.amazon.com/Peoples-Republic-Walmart-Corporations...

warmwaffles 6y ago

> Make student loans no longer exempt from bankruptcy. The other problem is that education can not be retroactively taken from them. But garnished wages can.

evilduck 6y ago
Maybe we should set student loan rates to reflect the actual risk being assumed instead of offering deceptively low interest rates with the fallback of modern indentured servitude. People might think twice about going to school if their student loan interest rates reflected the actual risks they were taking on.
- ryandrake 6y ago
  Exactly. Currently, since students cannot get rid of student debt, student loans are essentially risk-free for banks. They should be required to lend at the risk-free rate.

ntsplnkv2 6y ago

This is wishful thinking. There is no collateral for a school loan. Banks have to make up for that risk somewhere. Students will have nothing to lose by staging bankruptcy, and banks will stop giving out loans.

manfredo 6y ago
Bankruptcy tanks your credit rating for years. Most of a decade, ~7 years IIRC. If student loans could only be cancelled via bankruptcy after 10-15 years, that would mean students trying to cancel their loans through bankruptcy would be doing it in their early to mid 30s assuming they graduated at 21 years of age. Their credit scores would be ruined until their 40s at least. Few people would pursue this route just to save some money on education. If a graduate doesn't have enough assets by 30 to make bankruptcy a bad option, then I think it's fair to tell the lender that they made a bad investment and that the loss is reasonable. If this is how it worked, student loans to good universities would still yield a good return. It'd probably incentivize universities to track students' earnings after graduation, and focus on improving that figure. Lenders would probably stop writing loans to degree mills, or non-rigorous universities that don't substantially improve the employment prospects of students.
- ntsplnkv2 6y ago
  What problem does that solve, then? Wow, you can be bankrupt, and never be able to buy a house or car. How is that a solution? It's the same problem as now - "you can't get a house/car because your loan makes you unable to afford it." This doesn't solve the problem. See, it's just a garbage solution thrown out because it "sounds" good but on inspection it's just BS.
  - manfredo 6y ago
    I'm not sure what I'm failing to explain. It's not feasible to make student loans able to be eliminated via bankruptcy without restriction, since students could just go through bankruptcy right after graduation and plan around being unable to get a mortgage or car loan until they're 30. If you graduated with a degree in CS, and landed a six figure tech job it'd still make sense financially to go through bankruptcy and save potentially hundreds of thousands of dollars in student loans, even though you could easily pay it off over several years. This let's the student exploit the lender. The status quo of making student loans not cancellable through bankruptcy makes it so that lenders can act in a predatory manner and issue loans to go to ineffective institutions that don't improve earning potential. They know students won't be able to pay for decades, but they don't care because the student is stuck with the debt and has no way of getting rid of it. This lets the lender exploit the student. Allowing student loans to be resolved through bankruptcy after 10-15 years is enough time so that most graduates have assets, and are probably looking for a mortgage on a home in the near future. Going through bankruptcy at 30 or 35 is a much bigger deal than doing so at 21. In this situation, the student can't easily exploit the lender. But at the same time the lender still has the potential for loss if they try to loan to a student studying basket weaving at a university with a 98% acceptance rate. The easier it is to eliminate a student loan the easier it is for a student to exploit the lender, and take the loan intending to go through bankruptcy. The harder it is to eliminate a student loan, the easier it is for banks to write loans they know students can't pay off. The optimal spot is somewhere in the middle, where the student has an escape valve - but one that is only feasible to take if you have no significant assets by the time you're 30 or 35. If the lender is worried that a student debtor won't have enough assets by 30-35 to make bankruptcy a bad option, then they will think twice about issuing the loan.