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The full reason is that preventing bankruptcy is the only way to keep interest rates low and make the loans widely available. If bankruptcy was allowed then th

The full reason is that preventing bankruptcy is the only way to keep interest rates low and make the loans widely available. If bankruptcy was allowed then the obvious play would be to take the loan, max out credit cards right before graduation, then declare bankruptcy before you get your first job. Lenders would respond by increasing interest rates dramatically and restricting loans to those who had assets. This would basically turn into loans being for people with wealthy parents or having eye-watering interest rates.

baq 4mo ago
…and in effect tuition would go down.
- scoofy 4mo ago
  To be fair, there would likely be fewer total slots for college education in aggregate. However, this probably isn't a bad thing as the marginal college degree probably isn't a practical one.
AngryData 4mo ago
If that was an actual problem wouldn't people be doing it without the college already? When I was in my early 20s I got non-stop credit offers and I could have easily pulled out tens of thousands in crappy debt.
- reddozen 4mo ago
  Ok. And the interest on unsecured debts like credit cards are like 25%. Sounds like the risk is properly priced in. What's your point?
  - AnthonyMouse 4mo ago
    On top of that, the amount of unsecured credit you can get with no/bad credit history is more like $500 than $250,000.
  - AngryData 4mo ago
    Why does the interest matter much if you are going to declare bankruptcy anyways?
    - reddozen 4mo ago
      This has to just be an IQ gap or something. Is it actually impossible for you to view agreements from different perspectives? From the individuals' perspective, overusing uncollateralized debt to be discharged is a good deal. That loss is offset by the creditor by issuing higher interest to unsecured credit lines because people can default on their debts. From the creditor's perspective, it's risk adjusted for people who default. It just logically follows. I can't help you understand past this.
- throw2ih020 4mo ago
  > If that was an actual problem wouldn't people be doing it without the college already? I see you haven't heard of /r/churning. Although it doesn't involve bankruptcy, because then the sheriff comes down and takes your property from you...
  - ashdksnndck 4mo ago
    Churning is not about taking out debt and not paying it off. It’s about signing up for credit cards and spending money to earn rewards points, and paying off the balance soon to avoid owing interest.
- Aurornis 4mo ago
  And what is the interest rate on those credit card offers? Is it the low single digits of a student loan which is not easily dischargeable? Or is it 18-30% like you’d expect from a loan where the recipient can discharge it more easily? This proves the point.
  - AngryData 4mo ago
    Why would it matter if I just declared bankruptcy?
    - arealaccount 4mo ago
      I think they’re saying people do do it, which is why the rates are high
sethammons 4mo ago
> The full reason is that preventing bankruptcy is the only way to keep interest rates low and make the loans widely available "They are eating the dogs and cats." It simply isn't true. I got my student loans a quarter century ago. Back then the loans were dischargeable and low. My loans came in at like 4% interest at the time. It is propaganda that it was a widespread problem and the "solution" was to legally protect banks from risk. Then rates exploded and regulatory capture kept people locked in.
- kentm 4mo ago
  In 1978 loans were made non dischargeable for the first 5 years and extended to 7 years in 1990. In 1998 the waiting period was eliminated making them non dischargeable in perpetuity. Private loans were made non dischargeable in 2005. So while student loans were technically dischargeable approx 28 years ago there were some big caveats.
  - sethammons 4mo ago
    Technically true is the best kind of true. Fact: they were dischargeable. Fact: there was no crisis else rates would have already factored in. Else the argument is they were losing money overall. They wouldn't do that for literal decades. Fact: after the loans were no longer dischargeable, banks were guaranteed their rates and stopped being competitive with them and rates increased.
    - Aurornis 4mo ago
      You're still getting your facts wrong. Loans are still dischargeable under certain conditions. You claimed that "a quarter century ago" student loans could be discharged in bankruptcy, but that's not really true either. The restrictions started in 1978 with waiting periods and those waiting periods were eliminated in 1998 for government loans and shortly after that for private loans. The period in which you got this 4% loan was within the period where bankruptcy protections were in place, not before it.
    - quickthrowman 4mo ago

baq 4mo ago

…and in effect tuition would go down.

scoofy 4mo ago
To be fair, there would likely be fewer total slots for college education in aggregate. However, this probably isn't a bad thing as the marginal college degree probably isn't a practical one.

AngryData 4mo ago

If that was an actual problem wouldn't people be doing it without the college already? When I was in my early 20s I got non-stop credit offers and I could have easily pulled out tens of thousands in crappy debt.

reddozen 4mo ago
Ok. And the interest on unsecured debts like credit cards are like 25%. Sounds like the risk is properly priced in. What's your point?
- AnthonyMouse 4mo ago
  On top of that, the amount of unsecured credit you can get with no/bad credit history is more like $500 than $250,000.
- AngryData 4mo ago
  Why does the interest matter much if you are going to declare bankruptcy anyways?
  - reddozen 4mo ago
    This has to just be an IQ gap or something. Is it actually impossible for you to view agreements from different perspectives? From the individuals' perspective, overusing uncollateralized debt to be discharged is a good deal. That loss is offset by the creditor by issuing higher interest to unsecured credit lines because people can default on their debts. From the creditor's perspective, it's risk adjusted for people who default. It just logically follows. I can't help you understand past this.
throw2ih020 4mo ago
> If that was an actual problem wouldn't people be doing it without the college already? I see you haven't heard of /r/churning. Although it doesn't involve bankruptcy, because then the sheriff comes down and takes your property from you...
- ashdksnndck 4mo ago
  Churning is not about taking out debt and not paying it off. It’s about signing up for credit cards and spending money to earn rewards points, and paying off the balance soon to avoid owing interest.
Aurornis 4mo ago
And what is the interest rate on those credit card offers? Is it the low single digits of a student loan which is not easily dischargeable? Or is it 18-30% like you’d expect from a loan where the recipient can discharge it more easily? This proves the point.
- AngryData 4mo ago
  Why would it matter if I just declared bankruptcy?
  - arealaccount 4mo ago
    I think they’re saying people do do it, which is why the rates are high

sethammons 4mo ago

> The full reason is that preventing bankruptcy is the only way to keep interest rates low and make the loans widely available "They are eating the dogs and cats." It simply isn't true. I got my student loans a quarter century ago. Back then the loans were dischargeable and low. My loans came in at like 4% interest at the time. It is propaganda that it was a widespread problem and the "solution" was to legally protect banks from risk. Then rates exploded and regulatory capture kept people locked in.

kentm 4mo ago
In 1978 loans were made non dischargeable for the first 5 years and extended to 7 years in 1990. In 1998 the waiting period was eliminated making them non dischargeable in perpetuity. Private loans were made non dischargeable in 2005. So while student loans were technically dischargeable approx 28 years ago there were some big caveats.
- sethammons 4mo ago
  Technically true is the best kind of true. Fact: they were dischargeable. Fact: there was no crisis else rates would have already factored in. Else the argument is they were losing money overall. They wouldn't do that for literal decades. Fact: after the loans were no longer dischargeable, banks were guaranteed their rates and stopped being competitive with them and rates increased.
  - Aurornis 4mo ago
    You're still getting your facts wrong. Loans are still dischargeable under certain conditions. You claimed that "a quarter century ago" student loans could be discharged in bankruptcy, but that's not really true either. The restrictions started in 1978 with waiting periods and those waiting periods were eliminated in 1998 for government loans and shortly after that for private loans. The period in which you got this 4% loan was within the period where bankruptcy protections were in place, not before it.
  - quickthrowman 4mo ago