In the 1970's a couple of doctors declared bankruptcy while they were residents (and thus getting paid peanuts) because of how large their school debts were and

In the 1970's a couple of doctors declared bankruptcy while they were residents (and thus getting paid peanuts) because of how large their school debts were and how small their income were at that moment. Since the law didn't include "most likely in the future you will be making a lot of money" as one of the factors they then got very good cram-downs of their debts and voila, soon were very wealthy doctors. The handful of people who did this attracted media coverage, and the Government stepped in. There was an immediate patch to this, and then longer term solutions as well. The basic, Econ101 level thought behind this is that if you go into debt to buy a car or a house or anything tangible and the debt proves too much the bank can take those assets back if you declare bankruptcy.[1] But how does that work for a degree or the knowledge in your head? What can they take from that? Another issue is fairness. If student loans paid attention to how likely they were to be paid back then, as a first approximation, they would only be offered to people with above average income attending elite schools and poor people would be cut out of college more completely than they currently are- and they would pay much more attention to your degree, school etc. Everyone who goes to a Ivy would get loans, many people who go to regional schools wouldn't, because they aren't good bets to pay off the loans (people who graduate, as a first approximation, pay off loans; people who drop out don't, and community colleges and regional schools which focus on non-traditional students who have real lives already have much higher drop-out rates than Harvard- this is different in practice because of Pell Grants but that's a different issue). The reason that they are offered student loans is because the government guarantees them, so they have lower interest rates (yes its higher than a mortgage, but its much lower than a credit card or payday loan, which are the other unsecured loans the average person has access to), ignore your school, major, etc. and are available to every US citizen. But if the government guarantees the loan, then isn't someone who defaults on this unsecured debt ripping off the American taxpayer? Easy to see how this can be gamed and the student portrayed as the bad guy, because of how the system works. Even those doctors at the beginning deserve a better system, but Americans first instinct wasn't 'let's fix this so that the doctors don't go into such debt' it was "lets make sure those cheaters don't profit off of ripping off the taxpayer." And that instinct is how we ended up here. [1]: Obviously if you buy a new car the debt will be greater than the value of the car (because the car loses so much value when you drive it off the lot) but they have fancy economic models to account for that, and the house has an appraisal to prove that it can be sold for more than they are loaning out.