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Worse than just "backed by the federal government," the loans are basically protected by the government. Being one of the small list of things you can't bankru

by taeric 3y ago

Worse than just "backed by the federal government," the loans are basically protected by the government. Being one of the small list of things you can't bankrupt out of, the risk in giving out the loans has been fully pulled from the lenders. It is frustrating to hear the discourse over the inappropriate students that are taking on too much debt, all the while ignoring the lenders that are taking on too much risk. At least, they would be taking on too much risk, if they hadn't captured the market so effectively.

GartzenDeHaes 3y ago
> lenders that are taking on too much risk The lenders are taking no risks since these loans cannot be discharged through bankruptcy. There are also very large late fees and penalties that can triple (or more) the amount owed.
- chiefalchemist 3y ago
  In other words, the government gave the leaders license to do "predatory".
  - pclmulqdq 3y ago
    In other words, the government has become a predatory lender with some intermediaries.
    - pixelatedindex 3y ago
      Which I find really weird, they take this stance against education but businesses don’t have to deal with such predatory loans - in fact govt loans for businesses tend to have low interest rates, or forgiven like the PPP loans. Why do we take anti-individual stances, but pro-business stances? Is that a byproduct of capitalism, or am I misreading the world?
      - mistrial9 3y ago
        you are right basically -- with the caveat that "business has shown the ability to be responsible with money" while individuals fail at this for a large variety of reasons. However, in many societies past and elsewhere, not every single individual adult has to manage money like a business. Zoom out a bit and you might imagine that government now treats corporations as a person, and persons like they have to behave like a business.
        taeric 3y ago
        In what world have businesses shown the ability to be responsible with money?
        mistrial9 3y ago
        I did put is quotes !! .. meaning that it is something that has been said, not something that is true in itself.
        taeric 3y ago
        Fair! I wrongly read that as an endorsement of the idea.
      - nightski 3y ago
        PPP loans weren't really loans. It was known they would be forgiven before taking them out. If that had not been the case, most businesses would not of participated. I believe they were structured as loans providing a mechanism for congress to pass the aid immediately. Actual business loans require assets/collateral, even those from the SBA. At least this has been my personal experience with my businesses. You can't get a loan with no credit or assets (like a student can).
        pixelatedindex 3y ago
        That’s the part that doesn’t make sense to me. Businesses make way more money than an individual, so why charge the individual more APR? And PPP really should not have been forgivable - if you run a business, then it’s your responsibility to have enough money in the coffers to survive any economic downturns. Individuals get punished way more harshly than businesses when things go south.
  - prepend 3y ago
    Comically, the government is the direct lender and is charging “predatory” rates. My loans are all through DEd. At time of issuance, they were double the 30 year mortgage and many multiples of prime. My payments go directly to the governments payment processor (AidVantage/Navient) and on to DEd.
- taeric 3y ago
  Right, this is what I meant by them having captured the market.
  - kortilla 3y ago
    But your comment seems to blame them for taking on risk, which they aren’t. Maybe reword it?
    - taeric 3y ago
      I can see that read. I meant that we should not have built a situation where lending money is risk free. It is a perverse incentive to do more lending, and ignores the actual risks that people will be unable to repay.
- TheRealDunkirk 3y ago
  Now I read that Wall Street is creating CDO's based on these loans, like they (continue to) do on mortgages. Some people die "early" without paying back these loans, and sometimes, they will owe more than they took out. Given the mounting problems with the numbers here, it seems a whole generation of people in the middle of this bubble are going to go to the grave while still owing on these loans. What happens to these CDO's? Are we headed for a smaller "meltdown?" I went to school from 87-91. I could already see the problem starting. I was hoping this bubble would burst before my own children went to school. Two of three have gone to public schools so far, and we've paid through the nose for it. We are pushing our third towards some sort of trade school.
  - Xeronate 3y ago
    Seems wrong to influence your son's decision based on your financial situation rather than his desires/passions. Of course if he's naturally interested in the trades then sure.
    - willcipriano 3y ago
      Most people desire not being poor over most other things.
      - Xeronate 3y ago
        There are a lot of ways to make money. Picking a job based on money is a good way to be absolutely miserable. My parents pushed me towards making money my entire life and there is nothing I regret more than following that advice. Every day I wake up dreading going to work and it seeps into every aspect of my life.
        deleted 3y ago
        [deleted]
        pixelatedindex 3y ago
        Presumably you have enough money now to switch to something that makes you happy? Personally, if you’re going to be miserable anyway (as most Americans are these days), it’s probably better to be miserable with money than without money, lol
- tylerhou 3y ago
  Student loans can be discharged through bankruptcy, if you pass hardship requirements. - https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy https://studentaid.gov/manage-loans/forgiveness-cancellation... - https://www.consumerfinance.gov/about-us/blog/busting-myths-about-bankruptcy-and-private-student-loans/ https://www.consumerfinance.gov/about-us/blog/busting-myths-...
  - taeric 3y ago
    I'd love to see numbers on how many are actually discharged. My understanding is this is almost as akin to saying that the lottery does, in fact, pay out.
    - gen220 3y ago
      There's more paths to discharging than bankruptcy. Somebody I know had a medical emergency while in their repayment period. They were unable to work and went on to disability insurance, and eventually had their loans forgiven. I think they had to be on disability for a certain period of time (measured in years, iirc) before they were discharged. Eventually, they recovered sufficiently to be able to return to the work force debt-free. I'm not sure if the hurdle for loan forgiveness ought to be "you have to basically die", but it's at least that high for now. There's also the well-known "public servant" path. I'm sure there's some ironic joke to be made comparing the two.
      - gorjusborg 3y ago
        Thanks for sharing the anecdotes. Doesn't it seem like a society shouldn't encourage people to financially self-immolate in order to start their adult life? I mean, giving the self-immolators some tweaky hacks to prevent being lit on fire is not really the best solution.
        gen220 3y ago
        I totally agree, I think most level-headed people do. It's a tricky problem. We want people to have equal opportunity to pursue college, even if their parents can't afford it. But at the same time, we don't want to subsidize cost creep. Clearly the current solution doesn't work. Alas, we're deeply invested in it (literally), and each passing year the entanglement grows. I think you can make a strong case for govt-funded tuition at public universities. But I don't know how to get to there from here without making a handful of people very unhappy.
- SoftTalker 3y ago
  I mean, you can't get blood out of a turnip. If the borrower has no money to pay, they aren't going to pay, bankruptcy or not.
  - jrockway 3y ago
    Since there is pretty much no social safety net, people are probably going to find some sort of work even if they have a lot of student loan debt. And, the debt servicer can garnish those wages. You are essentially selling yourself into slavery if you take a student loan! (And the reasoning is so weird to me; I went to a state school and tuition was $750/semester. Why are people paying more unless they are extremely gifted and they want to go into a highly regulated field like civil engineering or medicine?) Student loans not being dischargeable through bankruptcy creates a moral hazard, much like bailing out banks. Banks will lend an infinite amount of money for student loans, because there is no risk to them. Creating free money always devalues it; if you have to work for your money, an education is priced $X because that's the maximum people will pay. If everyone gets unearned money to pay for education, it becomes worth $X + $Y. This is just the SaaS model for people. (Consider AWS; "oh you want to make money selling a SaaS service? we'll take 10% of your revenue for servers." Student loans are the same thing, "oh, you want to go into a high-earning field? we'll take 30% of your income for the next 10 years.") Compare this to things where banks could lose money, like mortgages. If you bid $1,000,000 on a property that's worth $200,000, the bank will simply require a down payment of $840,000. They have no interest in your starry-eyed games. If you walk away, they can close out your loan by selling the property at the appraised value, and they're happy. Banks have the right amount of paranoia about lending for this kind of purchase; their goal is to never lose money. Student loans should be no different; current grades and expected job prospects should play heavily into the decision as to whether or not to lend money. This will reduce the cost of education because selling a $600,000 art history degree to straight-C students won't be viable in the market anymore. (Universities will fight hard against this, because the degrees are cheap and everyone pretends they have some value. If people realize degrees don't have much value, the cash cow dries up. But we have to kind of look at the effect on society as a whole and realize that work experience is actually what we value. After the first 4 years of your career, nobody cares about your GPA or where you went to school anymore. And incidentally, 4 years is exactly how long college takes!)
- bryanrasmussen 3y ago
  I believe that was the posters original point, because the lenders have no more risk it means that the market solution has been put out of balance, and the current situation is arguably a logical consequence of that imbalance.
- 015a 3y ago
  And yet, some lenders (Navient is the big one) have now lost so much money due to COVID forbearance that they've exited that industry entirely. There's inherent risk to everything, everywhere. Making the loans undischargable in bankruptcy doesn't negate the risk of non-repayment; it just hides it. Until, eventually, all the band-aids fall off, reality bares its ugly head, and we all wish we hadn't-a done that. Yet, in thirty years we'll forget about it and do it all over again, in some new, crazy, way.
- milsuj2 3y ago
  Just because the loan cannot be discharged doesn't mean there are no risks. The money doesn't just appear out of nowhere if the borrower doesn't already have the money.
rayiner 3y ago
What "lenders," and what "market" are you talking about? 92% of all student debt was issued by the federal government. As a matter of social policy, the government does not meaningfully consider credit risk when issuing student loans.
- mistrial9 3y ago
  where does that exact figure come from?
  - rayiner 3y ago
    https://www.bestcolleges.com/research/average-student-loan-debt/ https://www.bestcolleges.com/research/average-student-loan-d... Look at footnotes 1 and 3, which rely on the Department of Education’s and the Fed’s own numbers. $1.64 trillion/1.77 trillion = 92.6%.
- FormerBandmate 3y ago
  The government taking credit risk into account would have such regressive results it would be hilarious. The cost of college would dramatically plunge for kids from rich families taking CS and finance classes and skyrocket for everyone else
  - peanuty1 3y ago
    That would be great if cost of college plunged for CS and finance students.
  - imtringued 3y ago
    You're saying this as if it hasn't happened already. Less money for borrowing means students can only afford lower tuitions and colleges are incentivized to efficiently use your money.
hospitalJail 3y ago
The first I had heard about this was from libertarians complaining about the government backing causing the tuition increase. This was among a debate where people were asking for more federal and state funding. Its crazy to see this point become so mainstream. I suppose it was inevitable if it was the truth.
- kalleboo 3y ago
  From an outside point of view, it looks like just another problem of the duality of the American self-image. "We want everyone to have a chance at school, but public schools are government indoctrination so we'll just make sure people are in un-releasable debt to private companies." "We don't want to see people dying in the streets, but universal health care is "socialist", so we're create these convoluted insurance systems, but still require hospitals to provide free ER care (that has to be covered by everyone else in the end)." "We're afraid of immigrants, but our agricultural industry is dependent on their cheap labor, so we'll make legal immigration difficult, and keep pretending that we're going to restrict illegal immigration, but never actually do anything effective to curb it." (I also want to add that mentalities like this are not at all exclusive to the US - you can find similar inconsistencies in every countries self-image, the US just seems to have them in more fundamental issues that other countries made a decision on long ago)
  - imtringued 3y ago
    Germany does this with their export policy. The country exports products to Greece which can only be financed by cheap loans from Germany and then when Greece can't pay they turn around and chastise it for buying German products.
tempsy 3y ago
Eh I think the impact of the federal government on undergraduate costs is largely overstated. The limits for dependent students, which is most undergrads, is really small over 4 years. https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized https://studentaid.gov/understand-aid/types/loans/subsidized... You can only borrow $31k over 4 years. That isn't a lot at all.
- macdaknife 3y ago
  I would disagree that 31K is not a lot of money, but then again, maybe it is not a lot of money and my opinion is warped. I think if the government took a few points off for performance as a preferred return on the massive endowments, all of this would go away.
  - tempsy 3y ago
    it's $8k a year. that wouldn't even cover rent for a school year at this point. i think a lot of people seem to believe that the federal government is handing out $50k+ a school year when theres a very small limit. people who need to borrow likely have to tap private lenders.
    - kortilla 3y ago
      Please stop. You’re completely misinformed here on how much is available for students to loan. I know multiple people that took out massive PLUS loans from the government that carry interest, are not discharged in bankruptcy, and far exceeded the limits you are talking about ($70k a year for grad schools).
      - macdaknife 3y ago
        I would also add that a lot of loans end up rolled up into a package, which you are given no forbearance.
  - deleted 3y ago
    [deleted]
wdb 3y ago
Aren’t they government issued loans? That’s how it worked over here
- adventured 3y ago
  Yes. It's not the bankers doing it, it's the US Government - the Feds are the market, they own 93% of student debt. What a coincidence they dictate whether you can discharge the debt too, not too difficult to spot the gigantic conflict of interest. It's designed by the US Government to bring in massive, on-going funding to help fill in the red ink in the entitlement programs now that those are no longer funding sources to steal from (entitlements used to produce persistent surplus funding the politicians used to steal from for decades). That's why they'll never allow it to be dischargeable. Their margin on the loans is de facto 100%: it's all magic printed dollars or otherwise taxpayer dollars (makes no difference to them).
  - brightlancer 3y ago
    > It's designed by the US Government to bring in massive, on-going funding to help fill in the red ink in the entitlement programs Massive? Even before COVID and the lockdowns (and the pause on repayment), the student loan program was operating at a _loss_. The Dept. of Education has presumed (because they're incompetent AND corrupt) the program would be net positive but only to $114B over 25 years -- that's an average $4.5B per year. In 2019, the federal government spent $4.4T, so the _expected_ return from student loans would have only been 0.1% of the federal budget. That money couldn't fill squat. ---- "From 1997 to 2021, the Education Department estimated that payments from federal direct student loans would generate $114 billion for the government. But the GAO found that, as of 2021, the program has actually cost the government an estimated $197 billion. "A percentage of that shortfall, $102 billion, stems from the unprecedented federal student loan payment pause that began under the CARES Act in 2020." https://www.npr.org/2022/07/29/1114560119/student-loan-program-cost https://www.npr.org/2022/07/29/1114560119/student-loan-progr... https://en.wikipedia.org/wiki/2019_United_States_federal_budget https://en.wikipedia.org/wiki/2019_United_States_federal_bud...
  - wdb 3y ago
adventured 3y ago
> all the while ignoring the lenders that are taking on too much risk. At least, they would be taking on too much risk, if they hadn't captured the market so effectively The lenders? Risk? 93% of all student loan debt is owned by the US Government. What risk? How is it everybody pretends it's the Big Evil Bankers making all the money on this racket? It's equivalent to the false narrative about private prisons driving the high US incarceration rate (when in fact it was over 95% government prisons across the decades that the rate was skyrocketing). It's a government replacement funding system for the entitlement programs that are bleeding out. They had to find a new funding source as entitlements dipped red, so they're strapping young people with massive debt (forever rising interest payments) they can't discharge and that derives from magic fiat dollars the US Government 'prints' at will. This is another case of the government abusing the population. Anti abortion laws? Government. Anti gay marriage laws? Government. Anti trans laws? Government. Segregation laws? Government. The war on drugs? Government. The war on terrorism? Government. Foreign adventurism wars? Government. Vast illegal domestic espionage? Government. Non-existent social security 'lock box' (not filled with $10+ trillion like it should be; should be the world's largest sovereign wealth fund)? Government theft. How many examples do you all need?
- zeroonetwothree 3y ago
  People hate Comcast for raising their rate $10/month but when the government prints trillions causing you to lose 20% of your income and assets to inflation it’s not a big deal.
  - roamerz 3y ago
    It’s easy to miss the connection between printing money and the affect of printing money since there is always a time period between cause and affect. The example of comcast raising hour bill is immediate. Well comparatively. Eventually and hopefully people will wise up.
    - imtringued 3y ago
      It is easy to miss because there is hardly any money printing going on. Physical cash is nowadays pretty insignificant.
colordrops 3y ago
It's maddeningly frustrating to see such short-sighted greed dragging down the class of people meant to lead the future.
Consultant32452 3y ago
The simple solution is to remove student loans from that small list you mentioned. But then, how do you secretly replace the billions in bribes to your friends in the universities?
lr1970 3y ago
> Worse than just "backed by the federal government," the loans are basically protected by the government. It is really strange that government does not constrain tuitions of the colleges participating in the loan program. Currently, Universities have no incentives to control costs in any way.
- jjoonathan 3y ago
  Well yeah, the problem is never that prices are too high and always that customers can't afford it so therefore they need more debt to help them! (This message brought to you by people-with-thing-to-sell.)
- imtringued 3y ago
  Literally all they have to do is limit the maximum loan size. Max $50k per year. Anything beyond that is not subsidized or requires proof of academic performance or ability to repay.
  - hoosieree 3y ago
    How about a tuition capped at the median salaries of its graduates?
    - sudobash1 3y ago
      There goes philosophy, music, and many other liberal arts degrees.
      - leesalminen 3y ago
        There would just be fewer students in this major, they wouldn’t disappear entirely.
        sudobash1 3y ago
        Sorry, my comment was more snark than content. If tuition was limited to student income the universities would be incentivized to cut departments that don't produce high-income graduates.
tejohnso 3y ago
>It is frustrating to hear the discourse over the inappropriate students that are taking on too much debt, all the while ignoring the lenders that are taking on too much risk But as you point out, the lenders are not taking on risk. The only ones who are silly in the deal are the students. The system is really messed up. But when it comes to your individual student making that deal, it's often a dumb idea.
singleshot_ 3y ago
Curious for your opinion: do you think it’s really hard to discharge a student loan in personal bankruptcy in the US, or impossible?
thatfrenchguy 3y ago
The loans are mostly owned by the government too :)
paulddraper 3y ago
> lenders AFAIK virtually every financial institution has been pulled from student loans. The U.S. government is now the only major lender.
ShadowBanThis01 3y ago
It's also frustrating to see politicians trumpeting efforts to help Americans pay rip-offs like health insurance and tuition, instead of putting a stop to the rip-offs themselves. It's hugely wrong-headed and makes the problem worse. I went to a major private university, and several years after I graduated they raised the tuition 24% in one shot. When asked why, they basically answered, "Everyone else did it." It's time to revoke universities' tax exemptions when they pull shit like this, or are rolling in massive endowments, windfalls from sports programs, whatever. The regression of education in the USA at all levels marks the continuing decline of our society. We've gone back to book-burning in some areas. Now college is unreachable or a crushing burden. WTF.
8note 3y ago
They are and they aren't. Student loans can also be forgiven once you've paid them for a long enough time
musicale 3y ago
It makes little sense to treat student loan dollars differently from regular dollars.
captaincrisp 3y ago
Some of the interest rates I've seen on federal student loans - 7+% - seem exorbitant in general but particularly because the lender takes no risk. 7% interest on a loan in a year with 3% inflation (the real cost of having money that year) that is guaranteed to be repaid seems like evidence of corruption to me. But maybe I think too simplistically.
- loeg 3y ago
  It's not true to say the Federal government does not take on risk loaning to students. Students are frequently unable to pay. 7% probably does not cover costs.
- imtringued 3y ago
  8% is the usual rate for a "qualifiziertes Nachrangdarlehen" in Germany which is an equity based loan that is paid out only when the company is profitable. So you are right. The interest rate is too high.

by taeric 3y ago

GartzenDeHaes 3y ago

> lenders that are taking on too much risk The lenders are taking no risks since these loans cannot be discharged through bankruptcy. There are also very large late fees and penalties that can triple (or more) the amount owed.

chiefalchemist 3y ago
In other words, the government gave the leaders license to do "predatory".
- pclmulqdq 3y ago
  In other words, the government has become a predatory lender with some intermediaries.
  - pixelatedindex 3y ago
    Which I find really weird, they take this stance against education but businesses don’t have to deal with such predatory loans - in fact govt loans for businesses tend to have low interest rates, or forgiven like the PPP loans. Why do we take anti-individual stances, but pro-business stances? Is that a byproduct of capitalism, or am I misreading the world?
    - mistrial9 3y ago
      you are right basically -- with the caveat that "business has shown the ability to be responsible with money" while individuals fail at this for a large variety of reasons. However, in many societies past and elsewhere, not every single individual adult has to manage money like a business. Zoom out a bit and you might imagine that government now treats corporations as a person, and persons like they have to behave like a business.
      - taeric 3y ago
        In what world have businesses shown the ability to be responsible with money?
        mistrial9 3y ago
        I did put is quotes !! .. meaning that it is something that has been said, not something that is true in itself.
        taeric 3y ago
        Fair! I wrongly read that as an endorsement of the idea.
    - nightski 3y ago
      PPP loans weren't really loans. It was known they would be forgiven before taking them out. If that had not been the case, most businesses would not of participated. I believe they were structured as loans providing a mechanism for congress to pass the aid immediately. Actual business loans require assets/collateral, even those from the SBA. At least this has been my personal experience with my businesses. You can't get a loan with no credit or assets (like a student can).
      - pixelatedindex 3y ago
        That’s the part that doesn’t make sense to me. Businesses make way more money than an individual, so why charge the individual more APR? And PPP really should not have been forgivable - if you run a business, then it’s your responsibility to have enough money in the coffers to survive any economic downturns. Individuals get punished way more harshly than businesses when things go south.
- prepend 3y ago
  Comically, the government is the direct lender and is charging “predatory” rates. My loans are all through DEd. At time of issuance, they were double the 30 year mortgage and many multiples of prime. My payments go directly to the governments payment processor (AidVantage/Navient) and on to DEd.
taeric 3y ago
Right, this is what I meant by them having captured the market.
- kortilla 3y ago
  But your comment seems to blame them for taking on risk, which they aren’t. Maybe reword it?
  - taeric 3y ago
    I can see that read. I meant that we should not have built a situation where lending money is risk free. It is a perverse incentive to do more lending, and ignores the actual risks that people will be unable to repay.
TheRealDunkirk 3y ago
Now I read that Wall Street is creating CDO's based on these loans, like they (continue to) do on mortgages. Some people die "early" without paying back these loans, and sometimes, they will owe more than they took out. Given the mounting problems with the numbers here, it seems a whole generation of people in the middle of this bubble are going to go to the grave while still owing on these loans. What happens to these CDO's? Are we headed for a smaller "meltdown?" I went to school from 87-91. I could already see the problem starting. I was hoping this bubble would burst before my own children went to school. Two of three have gone to public schools so far, and we've paid through the nose for it. We are pushing our third towards some sort of trade school.
- Xeronate 3y ago
  Seems wrong to influence your son's decision based on your financial situation rather than his desires/passions. Of course if he's naturally interested in the trades then sure.
  - willcipriano 3y ago
    Most people desire not being poor over most other things.
    - Xeronate 3y ago
      There are a lot of ways to make money. Picking a job based on money is a good way to be absolutely miserable. My parents pushed me towards making money my entire life and there is nothing I regret more than following that advice. Every day I wake up dreading going to work and it seeps into every aspect of my life.
      - deleted 3y ago
        [deleted]
      - pixelatedindex 3y ago
        Presumably you have enough money now to switch to something that makes you happy? Personally, if you’re going to be miserable anyway (as most Americans are these days), it’s probably better to be miserable with money than without money, lol
tylerhou 3y ago
Student loans can be discharged through bankruptcy, if you pass hardship requirements. - https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy https://studentaid.gov/manage-loans/forgiveness-cancellation... - https://www.consumerfinance.gov/about-us/blog/busting-myths-about-bankruptcy-and-private-student-loans/ https://www.consumerfinance.gov/about-us/blog/busting-myths-...
- taeric 3y ago
  I'd love to see numbers on how many are actually discharged. My understanding is this is almost as akin to saying that the lottery does, in fact, pay out.
  - gen220 3y ago
    There's more paths to discharging than bankruptcy. Somebody I know had a medical emergency while in their repayment period. They were unable to work and went on to disability insurance, and eventually had their loans forgiven. I think they had to be on disability for a certain period of time (measured in years, iirc) before they were discharged. Eventually, they recovered sufficiently to be able to return to the work force debt-free. I'm not sure if the hurdle for loan forgiveness ought to be "you have to basically die", but it's at least that high for now. There's also the well-known "public servant" path. I'm sure there's some ironic joke to be made comparing the two.
    - gorjusborg 3y ago
      Thanks for sharing the anecdotes. Doesn't it seem like a society shouldn't encourage people to financially self-immolate in order to start their adult life? I mean, giving the self-immolators some tweaky hacks to prevent being lit on fire is not really the best solution.
      - gen220 3y ago
        I totally agree, I think most level-headed people do. It's a tricky problem. We want people to have equal opportunity to pursue college, even if their parents can't afford it. But at the same time, we don't want to subsidize cost creep. Clearly the current solution doesn't work. Alas, we're deeply invested in it (literally), and each passing year the entanglement grows. I think you can make a strong case for govt-funded tuition at public universities. But I don't know how to get to there from here without making a handful of people very unhappy.
SoftTalker 3y ago
I mean, you can't get blood out of a turnip. If the borrower has no money to pay, they aren't going to pay, bankruptcy or not.
- jrockway 3y ago
  Since there is pretty much no social safety net, people are probably going to find some sort of work even if they have a lot of student loan debt. And, the debt servicer can garnish those wages. You are essentially selling yourself into slavery if you take a student loan! (And the reasoning is so weird to me; I went to a state school and tuition was $750/semester. Why are people paying more unless they are extremely gifted and they want to go into a highly regulated field like civil engineering or medicine?) Student loans not being dischargeable through bankruptcy creates a moral hazard, much like bailing out banks. Banks will lend an infinite amount of money for student loans, because there is no risk to them. Creating free money always devalues it; if you have to work for your money, an education is priced $X because that's the maximum people will pay. If everyone gets unearned money to pay for education, it becomes worth $X + $Y. This is just the SaaS model for people. (Consider AWS; "oh you want to make money selling a SaaS service? we'll take 10% of your revenue for servers." Student loans are the same thing, "oh, you want to go into a high-earning field? we'll take 30% of your income for the next 10 years.") Compare this to things where banks could lose money, like mortgages. If you bid $1,000,000 on a property that's worth $200,000, the bank will simply require a down payment of $840,000. They have no interest in your starry-eyed games. If you walk away, they can close out your loan by selling the property at the appraised value, and they're happy. Banks have the right amount of paranoia about lending for this kind of purchase; their goal is to never lose money. Student loans should be no different; current grades and expected job prospects should play heavily into the decision as to whether or not to lend money. This will reduce the cost of education because selling a $600,000 art history degree to straight-C students won't be viable in the market anymore. (Universities will fight hard against this, because the degrees are cheap and everyone pretends they have some value. If people realize degrees don't have much value, the cash cow dries up. But we have to kind of look at the effect on society as a whole and realize that work experience is actually what we value. After the first 4 years of your career, nobody cares about your GPA or where you went to school anymore. And incidentally, 4 years is exactly how long college takes!)
bryanrasmussen 3y ago
I believe that was the posters original point, because the lenders have no more risk it means that the market solution has been put out of balance, and the current situation is arguably a logical consequence of that imbalance.
015a 3y ago
And yet, some lenders (Navient is the big one) have now lost so much money due to COVID forbearance that they've exited that industry entirely. There's inherent risk to everything, everywhere. Making the loans undischargable in bankruptcy doesn't negate the risk of non-repayment; it just hides it. Until, eventually, all the band-aids fall off, reality bares its ugly head, and we all wish we hadn't-a done that. Yet, in thirty years we'll forget about it and do it all over again, in some new, crazy, way.
milsuj2 3y ago
Just because the loan cannot be discharged doesn't mean there are no risks. The money doesn't just appear out of nowhere if the borrower doesn't already have the money.

rayiner 3y ago

What "lenders," and what "market" are you talking about? 92% of all student debt was issued by the federal government. As a matter of social policy, the government does not meaningfully consider credit risk when issuing student loans.

mistrial9 3y ago
where does that exact figure come from?
- rayiner 3y ago
  https://www.bestcolleges.com/research/average-student-loan-debt/ https://www.bestcolleges.com/research/average-student-loan-d... Look at footnotes 1 and 3, which rely on the Department of Education’s and the Fed’s own numbers. $1.64 trillion/1.77 trillion = 92.6%.
FormerBandmate 3y ago
The government taking credit risk into account would have such regressive results it would be hilarious. The cost of college would dramatically plunge for kids from rich families taking CS and finance classes and skyrocket for everyone else
- peanuty1 3y ago
  That would be great if cost of college plunged for CS and finance students.
- imtringued 3y ago
  You're saying this as if it hasn't happened already. Less money for borrowing means students can only afford lower tuitions and colleges are incentivized to efficiently use your money.

hospitalJail 3y ago

The first I had heard about this was from libertarians complaining about the government backing causing the tuition increase. This was among a debate where people were asking for more federal and state funding. Its crazy to see this point become so mainstream. I suppose it was inevitable if it was the truth.

kalleboo 3y ago
From an outside point of view, it looks like just another problem of the duality of the American self-image. "We want everyone to have a chance at school, but public schools are government indoctrination so we'll just make sure people are in un-releasable debt to private companies." "We don't want to see people dying in the streets, but universal health care is "socialist", so we're create these convoluted insurance systems, but still require hospitals to provide free ER care (that has to be covered by everyone else in the end)." "We're afraid of immigrants, but our agricultural industry is dependent on their cheap labor, so we'll make legal immigration difficult, and keep pretending that we're going to restrict illegal immigration, but never actually do anything effective to curb it." (I also want to add that mentalities like this are not at all exclusive to the US - you can find similar inconsistencies in every countries self-image, the US just seems to have them in more fundamental issues that other countries made a decision on long ago)
- imtringued 3y ago
  Germany does this with their export policy. The country exports products to Greece which can only be financed by cheap loans from Germany and then when Greece can't pay they turn around and chastise it for buying German products.

tempsy 3y ago

Eh I think the impact of the federal government on undergraduate costs is largely overstated. The limits for dependent students, which is most undergrads, is really small over 4 years. https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized https://studentaid.gov/understand-aid/types/loans/subsidized... You can only borrow $31k over 4 years. That isn't a lot at all.

macdaknife 3y ago
I would disagree that 31K is not a lot of money, but then again, maybe it is not a lot of money and my opinion is warped. I think if the government took a few points off for performance as a preferred return on the massive endowments, all of this would go away.
- tempsy 3y ago
  it's $8k a year. that wouldn't even cover rent for a school year at this point. i think a lot of people seem to believe that the federal government is handing out $50k+ a school year when theres a very small limit. people who need to borrow likely have to tap private lenders.
  - kortilla 3y ago
    Please stop. You’re completely misinformed here on how much is available for students to loan. I know multiple people that took out massive PLUS loans from the government that carry interest, are not discharged in bankruptcy, and far exceeded the limits you are talking about ($70k a year for grad schools).
    - macdaknife 3y ago
      I would also add that a lot of loans end up rolled up into a package, which you are given no forbearance.
- deleted 3y ago
  [deleted]

wdb 3y ago

Aren’t they government issued loans? That’s how it worked over here

adventured 3y ago
Yes. It's not the bankers doing it, it's the US Government - the Feds are the market, they own 93% of student debt. What a coincidence they dictate whether you can discharge the debt too, not too difficult to spot the gigantic conflict of interest. It's designed by the US Government to bring in massive, on-going funding to help fill in the red ink in the entitlement programs now that those are no longer funding sources to steal from (entitlements used to produce persistent surplus funding the politicians used to steal from for decades). That's why they'll never allow it to be dischargeable. Their margin on the loans is de facto 100%: it's all magic printed dollars or otherwise taxpayer dollars (makes no difference to them).
- brightlancer 3y ago
  > It's designed by the US Government to bring in massive, on-going funding to help fill in the red ink in the entitlement programs Massive? Even before COVID and the lockdowns (and the pause on repayment), the student loan program was operating at a _loss_. The Dept. of Education has presumed (because they're incompetent AND corrupt) the program would be net positive but only to $114B over 25 years -- that's an average $4.5B per year. In 2019, the federal government spent $4.4T, so the _expected_ return from student loans would have only been 0.1% of the federal budget. That money couldn't fill squat. ---- "From 1997 to 2021, the Education Department estimated that payments from federal direct student loans would generate $114 billion for the government. But the GAO found that, as of 2021, the program has actually cost the government an estimated $197 billion. "A percentage of that shortfall, $102 billion, stems from the unprecedented federal student loan payment pause that began under the CARES Act in 2020." https://www.npr.org/2022/07/29/1114560119/student-loan-program-cost https://www.npr.org/2022/07/29/1114560119/student-loan-progr... https://en.wikipedia.org/wiki/2019_United_States_federal_budget https://en.wikipedia.org/wiki/2019_United_States_federal_bud...
- wdb 3y ago

adventured 3y ago

> all the while ignoring the lenders that are taking on too much risk. At least, they would be taking on too much risk, if they hadn't captured the market so effectively The lenders? Risk? 93% of all student loan debt is owned by the US Government. What risk? How is it everybody pretends it's the Big Evil Bankers making all the money on this racket? It's equivalent to the false narrative about private prisons driving the high US incarceration rate (when in fact it was over 95% government prisons across the decades that the rate was skyrocketing). It's a government replacement funding system for the entitlement programs that are bleeding out. They had to find a new funding source as entitlements dipped red, so they're strapping young people with massive debt (forever rising interest payments) they can't discharge and that derives from magic fiat dollars the US Government 'prints' at will. This is another case of the government abusing the population. Anti abortion laws? Government. Anti gay marriage laws? Government. Anti trans laws? Government. Segregation laws? Government. The war on drugs? Government. The war on terrorism? Government. Foreign adventurism wars? Government. Vast illegal domestic espionage? Government. Non-existent social security 'lock box' (not filled with $10+ trillion like it should be; should be the world's largest sovereign wealth fund)? Government theft. How many examples do you all need?

zeroonetwothree 3y ago
People hate Comcast for raising their rate $10/month but when the government prints trillions causing you to lose 20% of your income and assets to inflation it’s not a big deal.
- roamerz 3y ago
  It’s easy to miss the connection between printing money and the affect of printing money since there is always a time period between cause and affect. The example of comcast raising hour bill is immediate. Well comparatively. Eventually and hopefully people will wise up.
  - imtringued 3y ago
    It is easy to miss because there is hardly any money printing going on. Physical cash is nowadays pretty insignificant.

colordrops 3y ago

It's maddeningly frustrating to see such short-sighted greed dragging down the class of people meant to lead the future.

Consultant32452 3y ago

The simple solution is to remove student loans from that small list you mentioned. But then, how do you secretly replace the billions in bribes to your friends in the universities?

lr1970 3y ago

> Worse than just "backed by the federal government," the loans are basically protected by the government. It is really strange that government does not constrain tuitions of the colleges participating in the loan program. Currently, Universities have no incentives to control costs in any way.

jjoonathan 3y ago
Well yeah, the problem is never that prices are too high and always that customers can't afford it so therefore they need more debt to help them! (This message brought to you by people-with-thing-to-sell.)
imtringued 3y ago
Literally all they have to do is limit the maximum loan size. Max $50k per year. Anything beyond that is not subsidized or requires proof of academic performance or ability to repay.
- hoosieree 3y ago
  How about a tuition capped at the median salaries of its graduates?
  - sudobash1 3y ago
    There goes philosophy, music, and many other liberal arts degrees.
    - leesalminen 3y ago
      There would just be fewer students in this major, they wouldn’t disappear entirely.
      - sudobash1 3y ago
        Sorry, my comment was more snark than content. If tuition was limited to student income the universities would be incentivized to cut departments that don't produce high-income graduates.

tejohnso 3y ago

>It is frustrating to hear the discourse over the inappropriate students that are taking on too much debt, all the while ignoring the lenders that are taking on too much risk But as you point out, the lenders are not taking on risk. The only ones who are silly in the deal are the students. The system is really messed up. But when it comes to your individual student making that deal, it's often a dumb idea.

singleshot_ 3y ago

Curious for your opinion: do you think it’s really hard to discharge a student loan in personal bankruptcy in the US, or impossible?

thatfrenchguy 3y ago

The loans are mostly owned by the government too :)

paulddraper 3y ago

> lenders AFAIK virtually every financial institution has been pulled from student loans. The U.S. government is now the only major lender.

ShadowBanThis01 3y ago

It's also frustrating to see politicians trumpeting efforts to help Americans pay rip-offs like health insurance and tuition, instead of putting a stop to the rip-offs themselves. It's hugely wrong-headed and makes the problem worse. I went to a major private university, and several years after I graduated they raised the tuition 24% in one shot. When asked why, they basically answered, "Everyone else did it." It's time to revoke universities' tax exemptions when they pull shit like this, or are rolling in massive endowments, windfalls from sports programs, whatever. The regression of education in the USA at all levels marks the continuing decline of our society. We've gone back to book-burning in some areas. Now college is unreachable or a crushing burden. WTF.

8note 3y ago

They are and they aren't. Student loans can also be forgiven once you've paid them for a long enough time

musicale 3y ago

It makes little sense to treat student loan dollars differently from regular dollars.

captaincrisp 3y ago

Some of the interest rates I've seen on federal student loans - 7+% - seem exorbitant in general but particularly because the lender takes no risk. 7% interest on a loan in a year with 3% inflation (the real cost of having money that year) that is guaranteed to be repaid seems like evidence of corruption to me. But maybe I think too simplistically.

loeg 3y ago
It's not true to say the Federal government does not take on risk loaning to students. Students are frequently unable to pay. 7% probably does not cover costs.
imtringued 3y ago
8% is the usual rate for a "qualifiziertes Nachrangdarlehen" in Germany which is an equity based loan that is paid out only when the company is profitable. So you are right. The interest rate is too high.