5 ms·

the core problem with college loans is that they are non-dischargeable. this means that no matter what the student's ultimate financial situation (long term une

by lmg643 13y ago

the core problem with college loans is that they are non-dischargeable. this means that no matter what the student's ultimate financial situation (long term unemployed, finances wiped out, etc) they still have to pay down the debt, and it can't be wiped out in bankruptcy. This stands in contrast to virtually every kind of loan out there, which can be discharged (written off). As a result, there is less risk for the lender to give a loan to any old fool out there, regardless of the major they choose, regardless of the quality of school they go to, etc. anything that might correlate with the ability to pay it back. you might say, great, they don't discriminate against liberal arts students at no-name schools. and that might be something that suffers if reforms were made. but perhaps that student might be better served if funding were hard to come by. complain now versus complain more later, kind of thing. the great sin in the student loan market is the online degree mills, which target relatively vulnerable segments of the population, all funded by loans. for example: did you know that online universities cost almost the same as physical ones? that makes absolutely no sense when you think about it, but i don't think many of their students do. online only should be a fraction of the rate. Perhaps the online university is a market to be disrupted. not unstructured MOOCs, but credentialed degree schools that are a fraction of the cost of current ones. i can see the ycombinator startup already. and student loans should be dischargeable. it's the only fair thing to do.

newbie12 13y ago
Student loans are unsecured, so if they could be discharged, the market rate would be akin to a credit card with a huge balance-- 15% to 20% a year in the current interest rate environment. Plus if they could be discharged, such action would become commonplace, a rite of passage at graduation.
- 7Figures2Commas 13y ago
  Exactly. It amazes me how many people seem to believe that the solution to the student loan debt problem is to allow for discharge in bankruptcy. Not only will this necessarily force lenders to increase the cost of these loans to borrowers, a lot of folks apparently don't understand that the biggest lender in this market is the federal government. Of the more than $1 trillion in student loans outstanding, about 85% have been provided by the federal government. Just over one in five federal student loans is already in default or delayed default. If the law is changed to permit discharge of these loans in bankruptcy, Student Loan Debt will become Mortgage Market 2.0.
  - avenger123 13y ago
    Why would this be a bad thing? if loans are able to be discharged the federal government wouldn't be handing them out like free candy to anyone that wants it. It's exactly that there is no downside for the government that the situation is the way it is.
    - 7Figures2Commas 13y ago
      The problem here is that we can't just use a magic wand to fix the situation. There is over $1 trillion in outstanding student debt that needs to be dealt with. Much of it is already going bad. But the problem is bigger than the trillion dollars in debt you and I are already on the hook for. A lot of people like free candy, and if you take it away here, we'll go from "Tuition costs are too high, and I have too much debt!" to "Washington politicians are denying me an education!" The education lobby is strong and too many people are dependent on federal student loans for this to be "fixed" in a logical fashion. Everybody has been sold the idea that a college degree is a prerequisite for access to the middle class, and government-subsidized student loans are practically seen as an entitlement. As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return.
      - ansible 13y ago
        As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return. Well, in so far as the people (and our government) who are already in debt, I can't disagree. We're in bad shape. However, I do have hope. The online instruction revolution is still in its infancy, and I have much hope that quality education will be spread far and wide (at low cost). And that anyone with a reasonable amount of motivation can learn and grow and become more productive and wealthy as a result.
- RougeFemme 13y ago
  But credit card debt can be discharged; why not student loan debt? The inability to discharge it is relatively recent, I believe - a compromise reached when the private banks were pulled out of the federal student loan loop. Also, if they could only be discharged during bankruptcy - as was the case before - there would be no concern about it becoming a rite of passage.
  - 7Figures2Commas 13y ago
    The official overall unemployment rate for recent college graduates has been as high as 9.4% in the past three years. There is still significant underemployment, and many employed college graduates are in roles that don't even require college degrees. Most of the post-2008 college graduates who are fortunate enough to be employed are projected to have lower earnings than their pre-Great Recession counterparts. As I noted in another comment, one in five federal student loans outstanding is already in default or delayed default, and that number does obviously not include the number of loans that are in deferral still accumulating interest. Put simply, there are a lot of people out there who likely could and would consider filing for bankruptcy if it allowed them to discharge this debt. We can't have it both ways: if you want everybody who wants a college education to be able to obtain one, the federal government has to be in the lending business and it has to be all but impossible for borrowers to discharge their debt.
- danielweber 13y ago
  such action would become commonplace, a rite of passage at graduation Good. Then people will stop lending students tens or hundreds of thousands of dollars. Then schools will lower their prices.
  - 7Figures2Commas 13y ago
    > Then people will stop lending students tens or hundreds of thousands of dollars... Let's make your comment a little more accurate: Then the federal government, which is responsible for ~85% of the student loan market, will have to stop lending students tens or hundreds of thousands of dollars, and there will be no end to the cries that millions of young Americans are being denied a college education by well-to-do politicians who are out-of-touch with the economic realities of the average American.
    - danielweber 13y ago
      Maybe for a year. After that schools will lower costs and everyone will be better off. Well, except for the school administrators and the construction people who build new stuff for them. You don't make society's huge education bills go away just because the government is paying for them.
      - 7Figures2Commas 13y ago
        I think you're misreading my point, as I don't disagree at all. This problem is a government-created one, and it's bound to end badly, but it's important to be clear about who is doing the lending (it's not random "people") and what the "victims" of this system will complain about next. We're in a lose-lose situation here. If student loans are plentiful, tuition costs rise and the debt must be secured by laws preventing discharge in bankruptcy, which leads to complaints about the cost of an education and debt levels. If student loans become less plentiful, the complaints will shift to focus on lack of access to education. Even if costs decrease substantially from today's levels, there is sadly a sizable market of would-be students who simply don't have the funds to go to college. Telling them they can't go to college and major in [insert wacky subject here] is political suicide for politicians.
- RyJones 13y ago
  Bankruptcy for newly-minted medical doctors and dentists used to be a rite of passage. The law was changed because of this. What comes around goes around.
- jellicle 13y ago
  That's a fine prediction. And yet, student loans were only made so hard to discharge due to changes in the law in 1996 and 2000. And prior to 1996 and 2000, student loans were offered at much less than the exorbitant rates you predict, and lenders made nice fat profits on them even so. And no, there was no significant abuse of the system - after all, there's always a judge involved in bankruptcy proceedings, who has the authority NOT to discharge debts if there's any reasonable prospect of them being paid off. So... your prediction is wrong.
  - philwelch 13y ago
    Obviously there are zero confounding variables in the late 1990's and this is a perfectly controlled experiment.
    - deleted 13y ago
      [deleted]
  - 7Figures2Commas 13y ago
    You cannot simply look backward to assess what would happen to interest rates on student loans going forward if a) the federal government significantly reduces its role in the market and b) allows for discharge of student loan debt in bankruptcy. There are way too many factors that cannot be ignored, but that you choose to ignore. You need to look at the interest rate environment (which determines the cost of capital), banking regulations (which have changed dramatically in the past several years), the unemployment rate (you might have noticed we're in the slowest "recovery" since the Great Depression) and inflation-adjusted wage growth (hint: there basically is none), amongst other things. Finally, you fail to note that the federal government was a participant in the student loan market well before 1996, so you cannot look at the history of private student loans without understanding that the government has influenced the market to varying degrees for some time. If you want to assume that private lenders would rush to provide student loans at low rates at the same pace the federal government has in this economic environment and without the discharge restrictions currently in place, I'd love to introduce you to someone looking to sell you his 100 year J.C. Penney bonds. They yield over 11% and you can buy them at ~70 cents on the dollar - a great deal!
- toomuchtodo 13y ago
  My house was secured, had a 5% interest rate, and the bank lost over $150K when I walked away from it. People still default their mortgages when they're as little underwater as $10-15K, yet, the interest rate on mortgages has not shot up. Go figure.
  - danielweber 13y ago
    I overall agree with you, but the vast majority of mortgages are being backed by the Federal government right now.
dzeanah 13y ago
> the great sin in the student loan market is the online degree mills, which target relatively vulnerable segments of the population, all funded by loans. for example: did you know that online universities cost almost the same as physical ones? that makes absolutely no sense when you think about it, but i don't think many of their students do. online only should be a fraction of the rate. I believe part of this is the convenience issue. I finished my MBA 4 years ago, and at the time the school was pushing online classes pretty hard. And the online classes cost more than regular classes. (Faculty also commented that they were pressured to give higher grades than they believed were earned because of the profit component, and few argued they learned better online. But they sure can be convenient.)
BWStearns 13y ago
I would be interested to see if an App Academy model for a credentialed institution could work. Small deposit payment upfront, and a period of return dependent on salary. Definitely changes the incentive structure for the better.
nsxwolf 13y ago
I'm genuinely curious about the prospects of disrupting the online university market. The question "What makes a degree valuable?" is at the heart of its success. All these companies that demand a four year degree - what are their criteria? When they see that someone got their degree at a very inexpensive online school, will that hurt the perception of value?

by lmg643 13y ago

newbie12 13y ago

Student loans are unsecured, so if they could be discharged, the market rate would be akin to a credit card with a huge balance-- 15% to 20% a year in the current interest rate environment. Plus if they could be discharged, such action would become commonplace, a rite of passage at graduation.

7Figures2Commas 13y ago
Exactly. It amazes me how many people seem to believe that the solution to the student loan debt problem is to allow for discharge in bankruptcy. Not only will this necessarily force lenders to increase the cost of these loans to borrowers, a lot of folks apparently don't understand that the biggest lender in this market is the federal government. Of the more than $1 trillion in student loans outstanding, about 85% have been provided by the federal government. Just over one in five federal student loans is already in default or delayed default. If the law is changed to permit discharge of these loans in bankruptcy, Student Loan Debt will become Mortgage Market 2.0.
- avenger123 13y ago
  Why would this be a bad thing? if loans are able to be discharged the federal government wouldn't be handing them out like free candy to anyone that wants it. It's exactly that there is no downside for the government that the situation is the way it is.
  - 7Figures2Commas 13y ago
    The problem here is that we can't just use a magic wand to fix the situation. There is over $1 trillion in outstanding student debt that needs to be dealt with. Much of it is already going bad. But the problem is bigger than the trillion dollars in debt you and I are already on the hook for. A lot of people like free candy, and if you take it away here, we'll go from "Tuition costs are too high, and I have too much debt!" to "Washington politicians are denying me an education!" The education lobby is strong and too many people are dependent on federal student loans for this to be "fixed" in a logical fashion. Everybody has been sold the idea that a college degree is a prerequisite for access to the middle class, and government-subsidized student loans are practically seen as an entitlement. As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return.
    - ansible 13y ago
      As much as one can hope for a better system, it isn't likely to come. We're well beyond the point of no return. Well, in so far as the people (and our government) who are already in debt, I can't disagree. We're in bad shape. However, I do have hope. The online instruction revolution is still in its infancy, and I have much hope that quality education will be spread far and wide (at low cost). And that anyone with a reasonable amount of motivation can learn and grow and become more productive and wealthy as a result.
RougeFemme 13y ago
But credit card debt can be discharged; why not student loan debt? The inability to discharge it is relatively recent, I believe - a compromise reached when the private banks were pulled out of the federal student loan loop. Also, if they could only be discharged during bankruptcy - as was the case before - there would be no concern about it becoming a rite of passage.
- 7Figures2Commas 13y ago
  The official overall unemployment rate for recent college graduates has been as high as 9.4% in the past three years. There is still significant underemployment, and many employed college graduates are in roles that don't even require college degrees. Most of the post-2008 college graduates who are fortunate enough to be employed are projected to have lower earnings than their pre-Great Recession counterparts. As I noted in another comment, one in five federal student loans outstanding is already in default or delayed default, and that number does obviously not include the number of loans that are in deferral still accumulating interest. Put simply, there are a lot of people out there who likely could and would consider filing for bankruptcy if it allowed them to discharge this debt. We can't have it both ways: if you want everybody who wants a college education to be able to obtain one, the federal government has to be in the lending business and it has to be all but impossible for borrowers to discharge their debt.
danielweber 13y ago
such action would become commonplace, a rite of passage at graduation Good. Then people will stop lending students tens or hundreds of thousands of dollars. Then schools will lower their prices.
- 7Figures2Commas 13y ago
  > Then people will stop lending students tens or hundreds of thousands of dollars... Let's make your comment a little more accurate: Then the federal government, which is responsible for ~85% of the student loan market, will have to stop lending students tens or hundreds of thousands of dollars, and there will be no end to the cries that millions of young Americans are being denied a college education by well-to-do politicians who are out-of-touch with the economic realities of the average American.
  - danielweber 13y ago
    Maybe for a year. After that schools will lower costs and everyone will be better off. Well, except for the school administrators and the construction people who build new stuff for them. You don't make society's huge education bills go away just because the government is paying for them.
    - 7Figures2Commas 13y ago
      I think you're misreading my point, as I don't disagree at all. This problem is a government-created one, and it's bound to end badly, but it's important to be clear about who is doing the lending (it's not random "people") and what the "victims" of this system will complain about next. We're in a lose-lose situation here. If student loans are plentiful, tuition costs rise and the debt must be secured by laws preventing discharge in bankruptcy, which leads to complaints about the cost of an education and debt levels. If student loans become less plentiful, the complaints will shift to focus on lack of access to education. Even if costs decrease substantially from today's levels, there is sadly a sizable market of would-be students who simply don't have the funds to go to college. Telling them they can't go to college and major in [insert wacky subject here] is political suicide for politicians.
RyJones 13y ago
Bankruptcy for newly-minted medical doctors and dentists used to be a rite of passage. The law was changed because of this. What comes around goes around.
jellicle 13y ago
That's a fine prediction. And yet, student loans were only made so hard to discharge due to changes in the law in 1996 and 2000. And prior to 1996 and 2000, student loans were offered at much less than the exorbitant rates you predict, and lenders made nice fat profits on them even so. And no, there was no significant abuse of the system - after all, there's always a judge involved in bankruptcy proceedings, who has the authority NOT to discharge debts if there's any reasonable prospect of them being paid off. So... your prediction is wrong.
- philwelch 13y ago
  Obviously there are zero confounding variables in the late 1990's and this is a perfectly controlled experiment.
  - deleted 13y ago
    [deleted]
- 7Figures2Commas 13y ago
  You cannot simply look backward to assess what would happen to interest rates on student loans going forward if a) the federal government significantly reduces its role in the market and b) allows for discharge of student loan debt in bankruptcy. There are way too many factors that cannot be ignored, but that you choose to ignore. You need to look at the interest rate environment (which determines the cost of capital), banking regulations (which have changed dramatically in the past several years), the unemployment rate (you might have noticed we're in the slowest "recovery" since the Great Depression) and inflation-adjusted wage growth (hint: there basically is none), amongst other things. Finally, you fail to note that the federal government was a participant in the student loan market well before 1996, so you cannot look at the history of private student loans without understanding that the government has influenced the market to varying degrees for some time. If you want to assume that private lenders would rush to provide student loans at low rates at the same pace the federal government has in this economic environment and without the discharge restrictions currently in place, I'd love to introduce you to someone looking to sell you his 100 year J.C. Penney bonds. They yield over 11% and you can buy them at ~70 cents on the dollar - a great deal!
toomuchtodo 13y ago
My house was secured, had a 5% interest rate, and the bank lost over $150K when I walked away from it. People still default their mortgages when they're as little underwater as $10-15K, yet, the interest rate on mortgages has not shot up. Go figure.
- danielweber 13y ago
  I overall agree with you, but the vast majority of mortgages are being backed by the Federal government right now.

dzeanah 13y ago

> the great sin in the student loan market is the online degree mills, which target relatively vulnerable segments of the population, all funded by loans. for example: did you know that online universities cost almost the same as physical ones? that makes absolutely no sense when you think about it, but i don't think many of their students do. online only should be a fraction of the rate. I believe part of this is the convenience issue. I finished my MBA 4 years ago, and at the time the school was pushing online classes pretty hard. And the online classes cost more than regular classes. (Faculty also commented that they were pressured to give higher grades than they believed were earned because of the profit component, and few argued they learned better online. But they sure can be convenient.)

BWStearns 13y ago

I would be interested to see if an App Academy model for a credentialed institution could work. Small deposit payment upfront, and a period of return dependent on salary. Definitely changes the incentive structure for the better.

nsxwolf 13y ago

I'm genuinely curious about the prospects of disrupting the online university market. The question "What makes a degree valuable?" is at the heart of its success. All these companies that demand a four year degree - what are their criteria? When they see that someone got their degree at a very inexpensive online school, will that hurt the perception of value?