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I don’t think that’s correct. You can’t put up “future earning potential” as collateral while simultaneously allowing for discharge of debt in bankruptcy. That
by bumby 3y ago
I don’t think that’s correct. You can’t put up “future earning potential” as collateral while simultaneously allowing for discharge of debt in bankruptcy. That results in an incentive to incur as much debt as possible and then declare bankruptcy shortly after graduation when the impact is negligible. That’s the whole reason why student loans aren’t generally dischargable in bankruptcy.
- BobaFloutist 3y agoYeah exactly. That's the original theory. It... doesn't seem like you disagree with me.
- bumby 3y agoI do not disagree, I’m just curious what ideas are out there to manage the unintended consequences.
- BobaFloutist 3y agoI'm glad you don't disagree, but that makes it confusing that you started your response with "I don't think that's correct"
- bumby 3y agoI agree that's the theory, I disagree that it actually is what would happen in practice. E.g., if the government stops guaranteeing the loans I seriously doubt banks will accept "future earning potential" as collateral. So I disagree that it's actually collateral (your initial claim). The real collateral is the govt promise to back up the loan. So the question still stands: if the government no longer guarantees the loans, what is the proposed solution to prevent banks from no longer lending to students?