5 ms·

End federal involvement in student loan and allow student loan debt to be discharged in bankruptcy. Problem solved.

outside1234 4y ago
Amen - tuitions are skyrocketing because of the "free money". It is also awful public policy to train people to get into debt right out of the gate - this just has all sorts of bad long term consequences.
- nradov 4y ago
  Debt isn't inherently evil, it's just a tool. But any tool whether it's a hammer or a gun or a student loan can be used for good or evil.
  - aksss 4y ago
    Predatory debt traps are evil. The student loan industry (the schools being the marketers and beneficiaries) seem like predatory debt traps to me.
throwawayboise 4y ago
This is the answer. Lenders would then have to do proper qualification on borrowers, would be more limited in their lending, and this would put downward pressure on tuition.
- mrep 4y ago
  So unsecured personal loans? Those depend on your credit which most students don't have much/any and your debt-to-income which is normally infinite for students because they don't work. You would massively screw over kids whose parents cannot pay/co-sign a normal loan as it would force them to work and study. Also, you normally cannot get very much with such low income and cherry on top, they have awful interest rates which range from about 6% to 36%. The APR on loans for borrowers with excellent credit is around 12%; it's about 29% for bad credit borrowers which students with no credit are likely to be. As an example: say you work at target for 2 8 hour days on the weekend making 15 an hour and with a 36% debt-to-income ratio limit, you could afford a payment of $374.4 a month. $15,000 punched in a 30 year repayment at 29% interest rate equals a $362.57 payment. So you might be able to do it but I would hate to be working every single day between weekend work and weekly school and that is assuming an entire 4 year degree could be pushed to to $15,000.
  - kevinsundar 4y ago
    Colleges already have a mechanism for determining chance of success in college, and degrees have data on the average income after graduation. It would be trivial for private lenders to take into account the school, factors in standard college applications, the degree, and expected income to make a loan decision instead of relying on credit, debt-to-income, etc.
    - mrep 4y ago
      And just hope students don't default right after they graduate? You realize how picky they'd have to get? 40% of undergrads drop out [0] who would probably all default alone which is completely unworkable to be profitable considering credit card default rates are between 1.5 and 7 percent [1] and look at the interest rates they charge. It would also create a massive false negative problem where kids whom could have succeeded never got to go to college because banks would get so picky if they even were too somehow make a loan like that work. [0]: https://educationdata.org/college-dropout-rates#:~:text=In%20the%20United%20States%2C%20the,drop%20out%20within%206%20years https://educationdata.org/college-dropout-rates#:~:text=In%2.... [1]: https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS
  - bombcar 4y ago
    Or just work for a year before college and pay the $15k in cash? Or cut out the middle-man entirely and have the government provide college education for free.
    - mrep 4y ago
      Fair point and I'm not against free public education, but $15k is also a magical fantasy number to get too if you include housing/food/utilities.
      - bombcar 4y ago
        To be fair, it's not like you don't have housing/food/utility costs if you choose to not go to college. Apparently the average community college costs about $10k to graduate from, less if you're on a 2 year degree. Cue "that's not real college" crowd, of course.
nostromo 4y ago
Unfortunately no politician will have the guts to do this. This is why people are skeptical of the federal government getting involved in just about anything. They passed this program to help students afford school, and it’s done the opposite. It was also passed as a revenue neutral program of loans that would be repaid, now they’re increasingly being forgiven or put into forbearance. Now to fix it, someone will have to feel significant pain, most likely both the educators and low-income students.
- greedo 4y ago
  People are skeptical of the federal government getting involved because of decades of propaganda and underfunding. Bad roads? Well, Congress and the states won't raise the fuel tax. Bad education? Congress lets loans go to shite diploma mills that have owners who make big campaign contributions. Just look at how underfunded (intentionally) the IRS is. How audits are primarily focused on the bottom 50% of earners, while the top 50% skate. The Federal government does a great job at many things, when given clear legislation, and funding. Unfortunately, Reagan did a great job with his BS about "I'm from the government and I'm here to help."
  - ch4s3 4y ago
    > Bad roads? Well, Congress and the states won't raise the fuel tax. We overbuilt infrastructure based on Government accounting practices that don't adhere to Generally Accepted Accounting Principles (GAAP or US GAAP). Representatives get elected based on promises of new roads and highways, not on successful stewardship of what we have. People realize this misaligned incentive, that isn't propaganda. > Bad education? Congress lets loans go to shite diploma mills For profit schools account for 10% of students[1] and 15% of loans[2]. They're a problem in several ways but not the root cause. > Just look at how underfunded (intentionally) the IRS is. How audits are primarily focused on the bottom 50% of earners, while the top 50% skate. I agree that the IRS wrongly targets working class people, but the rest of this is wrong. The tax to GDP ratio in the US has been constant for decades, and we have the most progressive tax code in the OECD[3]. The US obtains more of its revenue from income taxes than any other OECD nation by a factor of 2 in percentage terms. We have no VAT which is regressive, and almost every other OECD nation has one. Americans distrust government for a lot of historical reasons. We are the 2nd largest democracy that was a former European colony, and our founders fought a revolution against a remote and disconnected government. Most large waves or immigrants to the US were fleeing some sort of government oppression. We also should remember that some 14% of the population was officially discriminated against by the government in living memory. The war on drugs also give people plenty of reasons to be suspicious about the government. We're an individualistic society that is multi-ethnic, multi-racial, multi-cultural and people practice a range of religions it should come as no surprise that people are wary of Washington. [1] https://www.brookings.edu/blog/how-we-rise/2021/01/12/the-for-profit-college-system-is-broken-and-the-biden-administration-needs-to-fix-it/ https://www.brookings.edu/blog/how-we-rise/2021/01/12/the-fo... [2] https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr811.pdf https://www.newyorkfed.org/medialibrary/media/research/staff... [3] https://www.oecd.org/tax/revenue-statistics-united-states.pdf https://www.oecd.org/tax/revenue-statistics-united-states.pd...
nradov 4y ago
The schools should also have some skin in the game. If a former student defaults on their loan then the school should have to eat part of the cost, and schools (or particular majors) with high default rates shouldn't be eligible for loans at all. This would fix the problem of irresponsible schools encouraging students to take on huge loans that leave them stuck in debt for decades.
- gedy 4y ago
  Agreed but, if someone tried this you know the schools and media would blast this as "Party X Robbing from Education, hurting students, the next generation", etc. It's tiresome.
snarf21 4y ago
This is a bad plan. Why would any 21 year old ever pay? Just ignore this debt until it is discharged. So you have to wait 7 years to buy a house? That sounds like no big deal. What we should do is have the fed define a maximum allowable charge for the school loan that can be protected by the government. Pick some number, like $10K a year all in. Any other school loans can be discharged as they aren't protected or schools could try to force the parents to co-sign. But either way, the government stops propping up runaway tuition inflation. We have to also look at why some of the cost is through the roof. When I was in school, housing was block buildings with bunk beds and a bathroom for the whole floor. Cafeteria was 2 choices and drinks. Now, everyone has a private bedroom and living room to hang out in and their own apartment bathroom. Cafeteria is like a commercial buffet with all you can eat Nutella. That money has to come from somewhere. People want it to feel like a 4 year cruise ship. That is one reason that the costs are out of control. This is also one factor in our healthcare. Everyone wants lower prices but they also want an Urgent Care on every corner so they can go when it is convenient to them. Someone has to pay for that building and staff to sit there all day waiting for customers to show up. Everyone seems to want it both ways and never stop to consider their complicity.
- bombcar 4y ago
  Federal student loans went unbankruptable in 1976, private ones in 2005. Did everyone routinely go bankrupt before 1976? I didn't before 2005.
bachmeier 4y ago
There's a reason the federal government is as involved as it is. When I started college, lots of students dropped out because they didn't have the money. My first semester, maybe five students I interacted with dropped out within a few weeks. "Going back home to work. The loan didn't come through." That was back in the old days, when tuition was cheap, before states decided to end support for university education. The better policy would have two parts: - A maximum (like 7%) of your after-tax income can go to student loan repayment. - Colleges have to partially repay loans they took for tuition if after five years the student isn't on track to pay the loan off. This would align the incentives of the college with those of the student. It would bring a fast end to students that borrow to pay $75,000 a year for worthless programs.
sudosysgen 4y ago
Then poor people won't qualify for loans. The only solution is some form of price controls, presumably by nationalising some universities or competing against them at the federal level.

Amen - tuitions are skyrocketing because of the "free money". It is also awful public policy to train people to get into debt right out of the gate - this just has all sorts of bad long term consequences.

nradov 4y ago
Debt isn't inherently evil, it's just a tool. But any tool whether it's a hammer or a gun or a student loan can be used for good or evil.
- aksss 4y ago
  Predatory debt traps are evil. The student loan industry (the schools being the marketers and beneficiaries) seem like predatory debt traps to me.

throwawayboise 4y ago

This is the answer. Lenders would then have to do proper qualification on borrowers, would be more limited in their lending, and this would put downward pressure on tuition.

mrep 4y ago
So unsecured personal loans? Those depend on your credit which most students don't have much/any and your debt-to-income which is normally infinite for students because they don't work. You would massively screw over kids whose parents cannot pay/co-sign a normal loan as it would force them to work and study. Also, you normally cannot get very much with such low income and cherry on top, they have awful interest rates which range from about 6% to 36%. The APR on loans for borrowers with excellent credit is around 12%; it's about 29% for bad credit borrowers which students with no credit are likely to be. As an example: say you work at target for 2 8 hour days on the weekend making 15 an hour and with a 36% debt-to-income ratio limit, you could afford a payment of $374.4 a month. $15,000 punched in a 30 year repayment at 29% interest rate equals a $362.57 payment. So you might be able to do it but I would hate to be working every single day between weekend work and weekly school and that is assuming an entire 4 year degree could be pushed to to $15,000.
- kevinsundar 4y ago
  Colleges already have a mechanism for determining chance of success in college, and degrees have data on the average income after graduation. It would be trivial for private lenders to take into account the school, factors in standard college applications, the degree, and expected income to make a loan decision instead of relying on credit, debt-to-income, etc.
  - mrep 4y ago
    And just hope students don't default right after they graduate? You realize how picky they'd have to get? 40% of undergrads drop out [0] who would probably all default alone which is completely unworkable to be profitable considering credit card default rates are between 1.5 and 7 percent [1] and look at the interest rates they charge. It would also create a massive false negative problem where kids whom could have succeeded never got to go to college because banks would get so picky if they even were too somehow make a loan like that work. [0]: https://educationdata.org/college-dropout-rates#:~:text=In%20the%20United%20States%2C%20the,drop%20out%20within%206%20years https://educationdata.org/college-dropout-rates#:~:text=In%2.... [1]: https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS
- bombcar 4y ago
  Or just work for a year before college and pay the $15k in cash? Or cut out the middle-man entirely and have the government provide college education for free.
  - mrep 4y ago
    Fair point and I'm not against free public education, but $15k is also a magical fantasy number to get too if you include housing/food/utilities.
    - bombcar 4y ago
      To be fair, it's not like you don't have housing/food/utility costs if you choose to not go to college. Apparently the average community college costs about $10k to graduate from, less if you're on a 2 year degree. Cue "that's not real college" crowd, of course.

nostromo 4y ago

Unfortunately no politician will have the guts to do this. This is why people are skeptical of the federal government getting involved in just about anything. They passed this program to help students afford school, and it’s done the opposite. It was also passed as a revenue neutral program of loans that would be repaid, now they’re increasingly being forgiven or put into forbearance. Now to fix it, someone will have to feel significant pain, most likely both the educators and low-income students.

greedo 4y ago
People are skeptical of the federal government getting involved because of decades of propaganda and underfunding. Bad roads? Well, Congress and the states won't raise the fuel tax. Bad education? Congress lets loans go to shite diploma mills that have owners who make big campaign contributions. Just look at how underfunded (intentionally) the IRS is. How audits are primarily focused on the bottom 50% of earners, while the top 50% skate. The Federal government does a great job at many things, when given clear legislation, and funding. Unfortunately, Reagan did a great job with his BS about "I'm from the government and I'm here to help."
- ch4s3 4y ago
  > Bad roads? Well, Congress and the states won't raise the fuel tax. We overbuilt infrastructure based on Government accounting practices that don't adhere to Generally Accepted Accounting Principles (GAAP or US GAAP). Representatives get elected based on promises of new roads and highways, not on successful stewardship of what we have. People realize this misaligned incentive, that isn't propaganda. > Bad education? Congress lets loans go to shite diploma mills For profit schools account for 10% of students[1] and 15% of loans[2]. They're a problem in several ways but not the root cause. > Just look at how underfunded (intentionally) the IRS is. How audits are primarily focused on the bottom 50% of earners, while the top 50% skate. I agree that the IRS wrongly targets working class people, but the rest of this is wrong. The tax to GDP ratio in the US has been constant for decades, and we have the most progressive tax code in the OECD[3]. The US obtains more of its revenue from income taxes than any other OECD nation by a factor of 2 in percentage terms. We have no VAT which is regressive, and almost every other OECD nation has one. Americans distrust government for a lot of historical reasons. We are the 2nd largest democracy that was a former European colony, and our founders fought a revolution against a remote and disconnected government. Most large waves or immigrants to the US were fleeing some sort of government oppression. We also should remember that some 14% of the population was officially discriminated against by the government in living memory. The war on drugs also give people plenty of reasons to be suspicious about the government. We're an individualistic society that is multi-ethnic, multi-racial, multi-cultural and people practice a range of religions it should come as no surprise that people are wary of Washington. [1] https://www.brookings.edu/blog/how-we-rise/2021/01/12/the-for-profit-college-system-is-broken-and-the-biden-administration-needs-to-fix-it/ https://www.brookings.edu/blog/how-we-rise/2021/01/12/the-fo... [2] https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr811.pdf https://www.newyorkfed.org/medialibrary/media/research/staff... [3] https://www.oecd.org/tax/revenue-statistics-united-states.pdf https://www.oecd.org/tax/revenue-statistics-united-states.pd...

nradov 4y ago

The schools should also have some skin in the game. If a former student defaults on their loan then the school should have to eat part of the cost, and schools (or particular majors) with high default rates shouldn't be eligible for loans at all. This would fix the problem of irresponsible schools encouraging students to take on huge loans that leave them stuck in debt for decades.

gedy 4y ago
Agreed but, if someone tried this you know the schools and media would blast this as "Party X Robbing from Education, hurting students, the next generation", etc. It's tiresome.

snarf21 4y ago

This is a bad plan. Why would any 21 year old ever pay? Just ignore this debt until it is discharged. So you have to wait 7 years to buy a house? That sounds like no big deal. What we should do is have the fed define a maximum allowable charge for the school loan that can be protected by the government. Pick some number, like $10K a year all in. Any other school loans can be discharged as they aren't protected or schools could try to force the parents to co-sign. But either way, the government stops propping up runaway tuition inflation. We have to also look at why some of the cost is through the roof. When I was in school, housing was block buildings with bunk beds and a bathroom for the whole floor. Cafeteria was 2 choices and drinks. Now, everyone has a private bedroom and living room to hang out in and their own apartment bathroom. Cafeteria is like a commercial buffet with all you can eat Nutella. That money has to come from somewhere. People want it to feel like a 4 year cruise ship. That is one reason that the costs are out of control. This is also one factor in our healthcare. Everyone wants lower prices but they also want an Urgent Care on every corner so they can go when it is convenient to them. Someone has to pay for that building and staff to sit there all day waiting for customers to show up. Everyone seems to want it both ways and never stop to consider their complicity.

bombcar 4y ago
Federal student loans went unbankruptable in 1976, private ones in 2005. Did everyone routinely go bankrupt before 1976? I didn't before 2005.

bachmeier 4y ago

There's a reason the federal government is as involved as it is. When I started college, lots of students dropped out because they didn't have the money. My first semester, maybe five students I interacted with dropped out within a few weeks. "Going back home to work. The loan didn't come through." That was back in the old days, when tuition was cheap, before states decided to end support for university education. The better policy would have two parts: - A maximum (like 7%) of your after-tax income can go to student loan repayment. - Colleges have to partially repay loans they took for tuition if after five years the student isn't on track to pay the loan off. This would align the incentives of the college with those of the student. It would bring a fast end to students that borrow to pay $75,000 a year for worthless programs.

sudosysgen 4y ago

Then poor people won't qualify for loans. The only solution is some form of price controls, presumably by nationalising some universities or competing against them at the federal level.