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Student loans should be dischargeable in bankruptcy. This would provide balance in the college lending business, and a check on the ever increasing price of col
by pg_bot 6y ago
Student loans should be dischargeable in bankruptcy. This would provide balance in the college lending business, and a check on the ever increasing price of college tuition.
- arcticbull 6y agoWhile I agree in theory that would be nice, in practice what’s to stop someone from borrowing 100k and declaring bankruptcy on graduation day? Why would anyone lend to someone with this kind of adverse selection risk? College tuition just needs to be paid for by the state without the lending facilities, IMO. As evidenced here the state just gets left with the bag anyways.
- ska 6y ago> in practice what’s to stop someone from borrowing ... the same things as any other debt that is dischargeable?
- HideousKojima 6y agoThe problem is with other loans there's collateral the lender can sieze like a house or a car.
- ska 6y agoNot necessarily (e.g. credit cards), but that is one way to manage risk. Certainly removing this protection would likely reduce the number and/or size of loans that are approved, and other risk reduction methods applied. As it is , tuitions are being driven more by ability to pay than by costs, and ability to pay is being driven by this loan status. The system has terrible incentives for lenders and institutions.
- Judgmentality 6y agoWhy can't the university take back the degree? They can't take back the knowledge, but assuming the certificate itself is actually worth anything they could always revoke the diploma. And employers are already oddly adept at checking boxes, "actually has a degree" is just another checkbox to them. Anyone that says they have a degree and doesn't is untrustworthy and why would you hire that person? If someone has a job they have no need to do so. If someone doesn't, then assuming that person went to school with the intention of getting a job afterwards, then it seems the school failed (either in educating the student or choosing to accept a student who is unlikely to accept a job). It seems utterly bizarre to me anyone besides the university should be on the hook for this. If they're accepting the money, they should also be accepting the risk. It feels like nobody is willing to be held accountable for anything anymore and push the risk off onto those who are most vulnerable. This is a cancer in modern capitalism.
- likpok 6y agoThere are only some places where that actually works. For nursing, teaching and other basically-vocational degrees this works okay: you need the paper to get the degree. But a lot of degrees aren't like that, and a lot of places don't care which degree you have once you've had a similar job. Why would all employers buy into this? They can get someone with equivalent knowledge a little cheaper. It's a pain, but the graduate can certainly still launder their lack of degree into a job (or even just lie about it! people do that all the time, and are only sometimes caught). The idea you're suggesting sounds something like an ISA: no cost upfront, X% of your income when you get the job. Those have other problems: universities will be incentivized to get the most employable students. They're also more expensive (since the downside risk is all on the university).
- orangecat 6y agoWhy can't the university take back the degree? Employers don't care that your "has_degree" field is set to true in the college's database. They care that you demonstrated a sufficient level of IQ+conscientiousness by showing up and passing tests for several years, and in some cases they may care that you acquired relevant knowledge. Universities can't revoke either of those things because they're historical facts.
- dragonwriter 6y ago> The problem is with other loans there’s collateral the lender can sieze like a house or a car. No, other unsecured loans that are neither federally-backed nor endowed with harsher bankruptcy discharge terms exist.
- HideousKojima 6y agoYes, usually with much higher interest rates and much lower borrow limits, like credit cards.
- arcticbull 6y agoThe difference is a college student has a negative net worth on graduation much of the time, an average credit score of 630, with no assets, no collateral, and absolutely nothing to lose from declaring bankruptcy. If you have $100K in liberal arts debt that's worth way more to discharge than 7 more years as an authorized user on your parents credit card. On the other hand most other lending is collateralized, or even where not collateralized, the lender has a reasonable expectation of repayment or positive net worth.
- ska 6y agoSure that's a reason that the risk profile is different, but it's not fundamental. The current system is deeply flawed because of the guarantee. Maybe the answer is you can't discharge it through bankruptcy for a certain number of years (e.g. 10?). But also, it shouldn't be 6 figures.
- epicureanideal 6y ago> College tuition just needs to be paid for by the state without the lending facilities, IMO. No way. That just means the taxpayer gets defrauded rather than the student, and the "school" still gets their money. It encourages the further growth of fraud. The government should not guarantee loans for universities and programs of study that do not have a track record of financial benefit for the students.
- mewse 6y agoCan you be more specific about what “fraud” you’re saying the taxpayer is falling victim to in this scenario?
- arcticbull 6y ago> No way. That just means the taxpayer gets defrauded rather than the student, and the "school" still gets their money. It encourages the further growth of fraud. That's literally what just happened now. The department of education is eating the loans. I may have misunderstood but is that not what the article is about?
- ShroudedNight 6y ago> That just means the taxpayer gets defrauded rather than the student The collective of taxpayers has a far larger collection of sticks than individual students.
- hobs 6y agoThe same thing that's stopping everyone from borrowing a bunch of money to go on vacations and then declaring bankruptcy?
- pg_bot 6y agoThere are long term consequences for declaring bankruptcy that would dissuade sane people from flippantly filing. You also have to convince a judge that you are actually bankrupt.
- sokoloff 6y agoMost new college grads who took loans are.
- likpok 6y agoThe long term consequences end in 7 years, when the bankruptcy falls off your credit report. That means that by 30 you'd be free and clear. Most people don't need much credit before then anyway: the median age of first time homebuyers is 33. You'd pay a lot more for a car loan or a credit card, but you don't really need either of those things either.
- testesttest 6y ago> College tuition just needs to be paid for by the state Ok, but not masters degree right? Were the last 2 years of high school actually useful to you? Free college will just make it defacto required and waste people's time.
- deleted 6y ago[deleted]
- hntrader 6y agoWhat about making it dischargeable starting 3-8 years after their last day/graduation? Then lenders have an incentive to stop supporting useless $150k degrees, and borrowers can't declare bankruptcy immediately after graduation as an intentional tactic to dodge the debt. Seems to address all major problems.
- AdamJacobMuller 6y agoIt seems like this would result in many just graduated college students choosing to declare bankruptcy immediately after graduating college. You're in an effectively perfect position to do so. You have massive debt, you have no job, you have no assets, you're not yet ready to do anything which requires credit and you're 7+ years away from buying a house. Also, technically, student loans are dischargeable in bankruptcy, it's just much harder than other debt[1] nearly impossibly so, but, perhaps it should be. I think the alternative is that the issuance of student loan debt becomes so risky that you enter a feedback cycle of increased interest rates leading to increased bankruptcies leading to more risk leading to increased rates leading to increased bankruptcies etc.... where there only exit point is that nobody can take loans for college. I also think there are much more elegant solutions to the problem. 1> https://studentloanhero.com/featured/student-loan-bankruptcy-discharge/ https://studentloanhero.com/featured/student-loan-bankruptcy...
- nemothekid 6y ago>It seems like this would result in many just graduated college students choosing to declare bankruptcy immediately after graduating college. You're in an effectively perfect position to do so. How is this different from any other kind of debt a 22 year old might have? The answer is, it's not - banks simply wouldn't loan outrageous sums of money to 18 year olds. If 18 year olds couldn't get 200k loans from banks, colleges wouldn't charge 50k/semester (unless you think colleges would simply close up shop if they can't charge 50k/year). Unbankruptable loans + incredibly high demand today means that colleges can simply charge whatever they want.
- spijdar 6y agoWell, a 22 year old is far more likely to be approved for said debt than other kinds. I doubt unemployed and uneducated 22 year olds are generally approved to e.g. $100k home loans.
- rafale 6y agoInstitutions will stop giving student loans unless the parents co-sign. The student loans issue is a hard one to fix. There is always a catch.
- sokoloff 6y agoThis would sharply curtail lending to lower socioeconomic groups/families as there is no collateral and co-signers would be harder to have qualify as well on a creditworthiness history basis. This would likely perpetuate/increase generational wealth inequality rather than reduce it.
- ZoomerCretin 6y agoHow would allowing bankruptcy on federal or private student loans affect universities who've already collected the money?
- dragonwriter 6y ago> Student loans should be dischargeable in bankruptcy The federal government should provide need-based grants (possibly with total-program-cost and course of study controls, but that’s another issue) and not loans or loan-guarantees in the first place.
- schoolornot 6y agoNothing should be discharged in bankruptcy, period. It shouldn't exist. Anyone reckless enough to take on considerable debt should have the right to go before a judge and have the payments restructured if their life changes. And they should spend the next 100 years paying it all off if that's what it takes. One's right to walk away from their responsibilities is insane to me.
- rini17 6y agoSlavery should not exist, either. And lender should share some responsibility for bad loans, too.
- hamilyon2 6y agoWhat about limited liability companies and sovereign debt? Inherited debt? Should legal entities and descendants be forced to spend eternity paying off insurmountable amounts of money? If death is the limit, then is disability too? Curious what you think.
- bandyaboot 6y agoWhy should they have the right to have their payments restructured? Why does your argument for saying that discharge should not exist not also apply to why people should be held responsible for abiding by the original terms of the debt agreement?