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or just eliminate the nondischargability clause for private student loans, which then means the spigot will close and the sensible maximums built into federal l

by a-dub 5y ago

or just eliminate the nondischargability clause for private student loans, which then means the spigot will close and the sensible maximums built into federal loans will put back pressure on soaring tuitions...

542458 5y ago
Dumb question (and actually a question, I’m not trying to JAQ here) - wouldn’t that make the dominant strategy for many to as quickly as possible declare bankruptcy upon graduation? Sure it would make it way harder to buy a house in the future… but many are resigned to renting forever anyways. Also wouldn’t this make it very hard for the poor to ever get student loans?
- shadilay 5y ago
  I think the idea is that it would shift the incentives to take on less debt, make college cheaper, and encourage shorter payback times.
  - a-dub 5y ago
    that's correct. it would be market forces pushing down on tuition. that said, it also makes it harder for individuals to make big bets on themselves until the market corrects (assuming it even would)
- bachmeier 5y ago
  > wouldn’t that make the dominant strategy for many to as quickly as possible declare bankruptcy upon graduation Why not do that now as soon as you get any type of loan? You don't just "declare bankruptcy". And bankruptcy law can be changed as desired to prevent that. There's nothing special about student loan debt versus other types of debt. In any event, requiring repayment based on income (like 7% of income up to a certain monthly amount) is almost certainly a better policy. The students and lenders both have the right incentives with those schemes.
  - 542458 5y ago
    That makes sense. The only thing I’ll say is: > Why not do that now as soon as you get any type of loan? With other assets your bank can repossess something - but there’s no real way to repossess an education.
- ajsnigrutin 5y ago
  If you have $200k of student debt, yeah, sure... but you probably wouldnt even get that much credit, and you'd have to pick a cheaper college. Going bankrupt with eg. $30k debt is a lot harder, because you can realistically pay that back in some sane amount of time. Colleges will have to adapt though, because there are not that many rich people to sustain such high prices.
  - criticas 5y ago
    Colleges have already adapted - they've widened the net, looking for rich parents globally. They admit more foreign students, who pay full rate. That's particularly controversial for public schools because of taxpayer funding.
- Manuel_D 5y ago
  A better compromise might be Income Share Agreements. Yes, Lambda School did do some shady stuff with selling ISAs. But that payment structure does incentivize the school to actually improve the earning prospects of their students. The concept shouldn't be thrown out because Lambda School sold their ISAs while continuing to tell students that the company has a financial stake in their success. Some complain that this will make universities effectively become vocational schools and cut liberal arts and humanities programs. But I see that as a feature: putting more emphasis on education on the fields with higher labor demands.
gruez 5y ago
If you're going to do that you might as well remove federal backing for student loans. Otherwise it turns into a handout program disguised as "loans", but it wrecks the students' credit in the process.
- a-dub 5y ago
  federal loans are limited in total lent and interest. federal loans are also much more forgiving at repayment which protects student credit.
reducesuffering 5y ago
The problem with dischargeable student loans is it incentives people to follow the most rational choice. Accrue a spectacular amount of debt, get your degree, declare bankruptcy and discharge it. You can buy a house in 7 years when all those earnings you saved from not paying the debt adds up. Loaning to people with nothing to lose is going to look like 15% interest rates.
- a-dub 5y ago
  so the banks stop making those loans and as a result tuition stops climbing. as long as those loans are plentiful and uncapped, the upper bound on tuition remains so as well.

by a-dub 5y ago

542458 5y ago

Dumb question (and actually a question, I’m not trying to JAQ here) - wouldn’t that make the dominant strategy for many to as quickly as possible declare bankruptcy upon graduation? Sure it would make it way harder to buy a house in the future… but many are resigned to renting forever anyways. Also wouldn’t this make it very hard for the poor to ever get student loans?

shadilay 5y ago
I think the idea is that it would shift the incentives to take on less debt, make college cheaper, and encourage shorter payback times.
- a-dub 5y ago
  that's correct. it would be market forces pushing down on tuition. that said, it also makes it harder for individuals to make big bets on themselves until the market corrects (assuming it even would)
bachmeier 5y ago
> wouldn’t that make the dominant strategy for many to as quickly as possible declare bankruptcy upon graduation Why not do that now as soon as you get any type of loan? You don't just "declare bankruptcy". And bankruptcy law can be changed as desired to prevent that. There's nothing special about student loan debt versus other types of debt. In any event, requiring repayment based on income (like 7% of income up to a certain monthly amount) is almost certainly a better policy. The students and lenders both have the right incentives with those schemes.
- 542458 5y ago
  That makes sense. The only thing I’ll say is: > Why not do that now as soon as you get any type of loan? With other assets your bank can repossess something - but there’s no real way to repossess an education.
ajsnigrutin 5y ago
If you have $200k of student debt, yeah, sure... but you probably wouldnt even get that much credit, and you'd have to pick a cheaper college. Going bankrupt with eg. $30k debt is a lot harder, because you can realistically pay that back in some sane amount of time. Colleges will have to adapt though, because there are not that many rich people to sustain such high prices.
- criticas 5y ago
  Colleges have already adapted - they've widened the net, looking for rich parents globally. They admit more foreign students, who pay full rate. That's particularly controversial for public schools because of taxpayer funding.
Manuel_D 5y ago
A better compromise might be Income Share Agreements. Yes, Lambda School did do some shady stuff with selling ISAs. But that payment structure does incentivize the school to actually improve the earning prospects of their students. The concept shouldn't be thrown out because Lambda School sold their ISAs while continuing to tell students that the company has a financial stake in their success. Some complain that this will make universities effectively become vocational schools and cut liberal arts and humanities programs. But I see that as a feature: putting more emphasis on education on the fields with higher labor demands.

gruez 5y ago

If you're going to do that you might as well remove federal backing for student loans. Otherwise it turns into a handout program disguised as "loans", but it wrecks the students' credit in the process.

a-dub 5y ago
federal loans are limited in total lent and interest. federal loans are also much more forgiving at repayment which protects student credit.

reducesuffering 5y ago

The problem with dischargeable student loans is it incentives people to follow the most rational choice. Accrue a spectacular amount of debt, get your degree, declare bankruptcy and discharge it. You can buy a house in 7 years when all those earnings you saved from not paying the debt adds up. Loaning to people with nothing to lose is going to look like 15% interest rates.

a-dub 5y ago
so the banks stop making those loans and as a result tuition stops climbing. as long as those loans are plentiful and uncapped, the upper bound on tuition remains so as well.