4 ms·

"contains a provision that falsely asserts that the Contract is a “qualified educational loan” ..." Did University of Phoenix qualify for "educational loans"?

"contains a provision that falsely asserts that the Contract is a “qualified educational loan” ..." Did University of Phoenix qualify for "educational loans"? I'm constantly surprised why this sector gets a pass like this from bankruptcy.

renewiltord 6y ago
The reason is that the applicants would not be loaned anything if they could discharge debt in bankruptcy. i.e. student loans would not exist unless collateralized and we don't want people to have to put up collateral equal to the value of the loan. This is because if I were a student, the optimal route would be to take the largest loan possible while on no assets, then go to the most expensive university, then declare bankruptcy on graduation. The lender knows this, so they won't give me any loan unless I can put up collateral equal to the value of the loan. The government knows this, and they also want kids to go to college, so they provide a mechanism by which kids can promise to pay back the money.
- yawnxyz 6y ago
  So this just creates an incentive to push as many kids through school as possible and to take out the biggest loans, right? Shouldn't there be a metric built in that says something like "the quality of education didn't meet the expectations of the loan, so the loan can be discharged"? Where's the warranty for the lender?
  - gruez 6y ago
    >Shouldn't there be a metric built in that says something like "the quality of education didn't meet the expectations of the loan, so the loan can be discharged"? How do you prove whether the failings are because of the student or the school? The fact that there are three parties involved (the student, the school, the lender) also complicates things. Finally, lenders would bake this risk into the loan itself, which means higher interest rates for people going to non-famous institutions.
  - dragonwriter 6y ago
    > Shouldn't there be a metric built in that says something like "the quality of education didn't meet the expectations of the loan, so the loan can be discharged"? There are, in fact, several policies in this area, the most significant is Borrower Defense to Repayment: https://studentaid.gov/borrower-defense/ https://studentaid.gov/borrower-defense/
- nrmitchi 6y ago
  For what it's worth (I learned this recently and was equally surprised by it) student loans were not non-dischargable until 2005. Ie, for all time before 2005, a student could do what you describe, and as far as I know it wasn't a widespread practice. It is a relatively new thing that really only came in to existance coincidentally around the same time that education became so expensive that going through the effort of bankrupcy became "worth it".
  - tedivm 6y ago
    Bankruptcies have to get approved by a judge, and often debt is restructured instead of being discharged. The scenario where someone takes on a bunch of debt then declares bankruptcy on graduation is a joke because judges wouldn't allow it. They may get their loan deferred or restructured to help buy time to get a job, but they wouldn't just discharge it like that. These kind of made up "what if" scenarios to justify broken laws are always weird to me especially when there aren't so far from reality.
    - nrmitchi 6y ago
      I may have been unclear and didn't mean to imply there there was a rush of students declaring bankrupcy, thus this law made sense. The law is, in my opinion, stupid. I was implying that education should never have been allowed to become so unreasonably expensive and unsustainable that it has to be propped up with special exceptions.
    - judge2020 6y ago
      Neither of us are lawyers (based on your profile), but there are two modern forms of bankruptcy in the U.S: Chapter 7, liquidation which does discharge your debts, or Chapter 13, which is restructuring. In a chapter 7 bankruptcy, you have to pass the means test, which checks if your household income is below the median income of your state: > The means test looks at the gross income of everyone in your household during the six months before you file. If your household income is below the median income in your state, you’ll qualify to file a Chapter 7 bankruptcy. If it isn't, then the courts can force your chapter 7 case be converted to a chapter 13. But if someone, say, lives alone and still works at their minimum-wage job from college, I don't see anything else that would prevent a chapter 7 from proceeding. https://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-means-test-household-size.html#block-3-content-right:~:text=The%20means%20test%20looks%20at%20the,to%20file%20a%20Chapter%207%20bankruptcy https://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy....
- dhdhhdd 6y ago
  And so the education would get cheaper. Nothing drives up prices more than easy access to big loans.
  - renewiltord 6y ago
    I'm with you. I believe that we need the following reform: * Information Reform: Schools should be required to report median income of graduating class by major by year (with number of declined-to-disclose). Students should know what they're going to get out of this program. * Incentive Alignment: School programs above a certain cost should only be payable either up-front or via income share agreement. Schools should only be paid if their education yielded economic gain for students but students should be permitted escape valves if possible. * Bankruptcy Reform: Student loans should be discharged in bankruptcy, ISAs should not.
    - vineyardmike 6y ago
      > education yielded economic gain for student What a sad narrow view of education. I recognize that for many education is a vocational experience meant to provide accesss to better jobs, but really education can be so much more broad and valuable.
      - renewiltord 6y ago
        I think it is very rude of you to have removed the other part of that sentence that addressed that. To then insult me based on this misreading is really boorish. If you are interested in conversing with me, please do not do that. Now, for anyone else reading for whom it wasn't clear: I want schools to primarily receive economic benefit by providing economic benefit but (quoting from above) I believe students should have an escape valve to pay for education that does not have direct economic benefit. I believe that paying upfront is sufficient as an escape valve.
        vineyardmike 6y ago
        It was not meant to be an insult, i simply think framing higher education against economic gain at all misses a lot of the value people derive from attending. > Schools should only be paid if their education yielded economic gain for students but students should be permitted escape valves if possible. This sentence reads (to me) as if "schools should only get paid if it leads to students making money" and the "escape valve" part seems like "students have an escape from paying when its not profitable" not "they can pay when its not profitable". Under your new wording, I think that i still disagree. I think schools should charge however they want and instead of regulating how private institutions receive income, we should ensure that there are affordable options focused on vocational outcomes (state-run schools) that are so affordable that they are always economically gainful. Some taxes are already based on income, so maybe in a profit-sharing model, attending state school is free but you share X% of income in taxes per credit-hour or per-semester until a certain cost is repaid to the state. (eg. a 100 credit hour degree costs 10% income at 0.1% per credit hour until $50k is repaid while a drop-out who attended for a single 15 credit hour semester pays 1.5%, while Harvard can charge 50k per semester up front to any one willing, regardless of outcome)
- imtringued 6y ago
  Sounds like student loans simply don't work then. Why would you choose a free market mechanism only to then decide that you don't like it and corrupt it entirely for the sake of charity/welfare? If you want the government to play such a role in funding education why not let it simply do so? It's not like you are wasting the money by creating a productive workforce.
- mountainriver 6y ago
  Apparently you can discharge student loans in bankruptcy https://www.npr.org/2020/01/22/797330613/myth-busted-turns-out-bankruptcy-can-wipe-out-student-loan-debt-after-all https://www.npr.org/2020/01/22/797330613/myth-busted-turns-o...
- jbigelow76 6y ago
  Seems pretty simple... Student loans become dischargeable > lenders stop lending where tuition cost != market value > exorbitant tuition no longer affordable > universities forced to reprice to new market coniditions > paying back tuition now preferable to 7 year hit on credit for bankruptcy > diplomas for everyone :) The inability to discharge tuition via bankruptcy has become a moral hazard that society needs to deal with.
  - dnautics 6y ago
    > The inability to discharge tuition via bankruptcy has become a moral hazard that society needs to deal with. Keep in mind that society != government. It's government that is enabling nondischargeability; and it's not in the best interests of the political class to change this situation.
- jfrunyon 6y ago
  Except that declaring bankruptcy has actual consequences for people with no assets.
  - deleted 6y ago
    [deleted]

renewiltord 6y ago

The reason is that the applicants would not be loaned anything if they could discharge debt in bankruptcy. i.e. student loans would not exist unless collateralized and we don't want people to have to put up collateral equal to the value of the loan. This is because if I were a student, the optimal route would be to take the largest loan possible while on no assets, then go to the most expensive university, then declare bankruptcy on graduation. The lender knows this, so they won't give me any loan unless I can put up collateral equal to the value of the loan. The government knows this, and they also want kids to go to college, so they provide a mechanism by which kids can promise to pay back the money.

yawnxyz 6y ago
So this just creates an incentive to push as many kids through school as possible and to take out the biggest loans, right? Shouldn't there be a metric built in that says something like "the quality of education didn't meet the expectations of the loan, so the loan can be discharged"? Where's the warranty for the lender?
- gruez 6y ago
  >Shouldn't there be a metric built in that says something like "the quality of education didn't meet the expectations of the loan, so the loan can be discharged"? How do you prove whether the failings are because of the student or the school? The fact that there are three parties involved (the student, the school, the lender) also complicates things. Finally, lenders would bake this risk into the loan itself, which means higher interest rates for people going to non-famous institutions.
- dragonwriter 6y ago
  > Shouldn't there be a metric built in that says something like "the quality of education didn't meet the expectations of the loan, so the loan can be discharged"? There are, in fact, several policies in this area, the most significant is Borrower Defense to Repayment: https://studentaid.gov/borrower-defense/ https://studentaid.gov/borrower-defense/
nrmitchi 6y ago
For what it's worth (I learned this recently and was equally surprised by it) student loans were not non-dischargable until 2005. Ie, for all time before 2005, a student could do what you describe, and as far as I know it wasn't a widespread practice. It is a relatively new thing that really only came in to existance coincidentally around the same time that education became so expensive that going through the effort of bankrupcy became "worth it".
- tedivm 6y ago
  Bankruptcies have to get approved by a judge, and often debt is restructured instead of being discharged. The scenario where someone takes on a bunch of debt then declares bankruptcy on graduation is a joke because judges wouldn't allow it. They may get their loan deferred or restructured to help buy time to get a job, but they wouldn't just discharge it like that. These kind of made up "what if" scenarios to justify broken laws are always weird to me especially when there aren't so far from reality.
  - nrmitchi 6y ago
    I may have been unclear and didn't mean to imply there there was a rush of students declaring bankrupcy, thus this law made sense. The law is, in my opinion, stupid. I was implying that education should never have been allowed to become so unreasonably expensive and unsustainable that it has to be propped up with special exceptions.
  - judge2020 6y ago
    Neither of us are lawyers (based on your profile), but there are two modern forms of bankruptcy in the U.S: Chapter 7, liquidation which does discharge your debts, or Chapter 13, which is restructuring. In a chapter 7 bankruptcy, you have to pass the means test, which checks if your household income is below the median income of your state: > The means test looks at the gross income of everyone in your household during the six months before you file. If your household income is below the median income in your state, you’ll qualify to file a Chapter 7 bankruptcy. If it isn't, then the courts can force your chapter 7 case be converted to a chapter 13. But if someone, say, lives alone and still works at their minimum-wage job from college, I don't see anything else that would prevent a chapter 7 from proceeding. https://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-means-test-household-size.html#block-3-content-right:~:text=The%20means%20test%20looks%20at%20the,to%20file%20a%20Chapter%207%20bankruptcy https://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy....
dhdhhdd 6y ago
And so the education would get cheaper. Nothing drives up prices more than easy access to big loans.
- renewiltord 6y ago
  I'm with you. I believe that we need the following reform: * Information Reform: Schools should be required to report median income of graduating class by major by year (with number of declined-to-disclose). Students should know what they're going to get out of this program. * Incentive Alignment: School programs above a certain cost should only be payable either up-front or via income share agreement. Schools should only be paid if their education yielded economic gain for students but students should be permitted escape valves if possible. * Bankruptcy Reform: Student loans should be discharged in bankruptcy, ISAs should not.
  - vineyardmike 6y ago
    > education yielded economic gain for student What a sad narrow view of education. I recognize that for many education is a vocational experience meant to provide accesss to better jobs, but really education can be so much more broad and valuable.
    - renewiltord 6y ago
      I think it is very rude of you to have removed the other part of that sentence that addressed that. To then insult me based on this misreading is really boorish. If you are interested in conversing with me, please do not do that. Now, for anyone else reading for whom it wasn't clear: I want schools to primarily receive economic benefit by providing economic benefit but (quoting from above) I believe students should have an escape valve to pay for education that does not have direct economic benefit. I believe that paying upfront is sufficient as an escape valve.
      - vineyardmike 6y ago
        It was not meant to be an insult, i simply think framing higher education against economic gain at all misses a lot of the value people derive from attending. > Schools should only be paid if their education yielded economic gain for students but students should be permitted escape valves if possible. This sentence reads (to me) as if "schools should only get paid if it leads to students making money" and the "escape valve" part seems like "students have an escape from paying when its not profitable" not "they can pay when its not profitable". Under your new wording, I think that i still disagree. I think schools should charge however they want and instead of regulating how private institutions receive income, we should ensure that there are affordable options focused on vocational outcomes (state-run schools) that are so affordable that they are always economically gainful. Some taxes are already based on income, so maybe in a profit-sharing model, attending state school is free but you share X% of income in taxes per credit-hour or per-semester until a certain cost is repaid to the state. (eg. a 100 credit hour degree costs 10% income at 0.1% per credit hour until $50k is repaid while a drop-out who attended for a single 15 credit hour semester pays 1.5%, while Harvard can charge 50k per semester up front to any one willing, regardless of outcome)
imtringued 6y ago
Sounds like student loans simply don't work then. Why would you choose a free market mechanism only to then decide that you don't like it and corrupt it entirely for the sake of charity/welfare? If you want the government to play such a role in funding education why not let it simply do so? It's not like you are wasting the money by creating a productive workforce.
mountainriver 6y ago
Apparently you can discharge student loans in bankruptcy https://www.npr.org/2020/01/22/797330613/myth-busted-turns-out-bankruptcy-can-wipe-out-student-loan-debt-after-all https://www.npr.org/2020/01/22/797330613/myth-busted-turns-o...
jbigelow76 6y ago
Seems pretty simple... Student loans become dischargeable > lenders stop lending where tuition cost != market value > exorbitant tuition no longer affordable > universities forced to reprice to new market coniditions > paying back tuition now preferable to 7 year hit on credit for bankruptcy > diplomas for everyone :) The inability to discharge tuition via bankruptcy has become a moral hazard that society needs to deal with.
- dnautics 6y ago
  > The inability to discharge tuition via bankruptcy has become a moral hazard that society needs to deal with. Keep in mind that society != government. It's government that is enabling nondischargeability; and it's not in the best interests of the political class to change this situation.
jfrunyon 6y ago
Except that declaring bankruptcy has actual consequences for people with no assets.
- deleted 6y ago
  [deleted]