> let students discharge student loans via bankruptcy

This is a fine idea, but you have to recognize that this just means approximately no one gets student loans (and those who do get them don't need them). Think about it: if you come out of college with, say, $20k of debt (granting that this might bring down prices) and no assets, bankruptcy is a very tempting option. Student loans are just inherently problematic - the people who need them have no assets, and the thing they pay for can't be used to secure the loan.

Sure, prices would come down, but partially because so many people would be priced out and demand would drop. The solution has to involve more than that.

A potential solution is HECS here in Australia for university.

It's a government loan that anyone who goes to a HELP approved course can obtain (nearly all proper university courses) and it gets taxed out of your future earnings, and is indexed at (almost) CPI (e.g. this year it was indexed at 2%).

There is still argument here on whether it should be free (University used to be free in Australia) or a higher rate of repayment (the government tried to index it at the bond rate which would make it an indefinite tax on a high proportion of those with HECS debts...) but it does work in the sense that it doesn't drive anyone into the ground and allows anyone with high enough marks to go to uni without worrying about course fees - and it still will eventually be repaid.

Can someone with better knowledge on these areas than I tell me why a loan system like HECS would or wouldn't work in the US?

> This is a fine idea, but you have to recognize that this just means approximately no one gets student loans (and those who do get them don't need them).

The vast majority of student loan loans are issued by the federal government since private lenders are cut out of the federally-guaranteed Stafford loan program, so changing rules on discharge won't meaningfully effect loan issuance without some other federal policy change.

> Think about it: if you come out of college with, say, $20k of debt (granting that this might bring down prices) and no assets, bankruptcy is a very tempting option.

So make them hard, as they are now, to discharge for some period of years after they would regularly first enter repayment, and then subject to discharge like normal unsecured debt.

Or, just eliminate the federal student loan program and special bankruptcy treatment of student loans in favor of robust federal need-based and public-service-based grants.

> The vast majority of student loan loans are issued by the federal government since private lenders are cut out of the federally-guaranteed Stafford loan program, so changing rules on discharge won't meaningfully effect loan issuance without some other federal policy change.

This is a good point - I think of Stafford loans as inextricably tied to the no-discharge terms, but that's probably not the case. Perhaps cutting out the no-discharge terms would just be a backdoor to government-provided university-level education.

Bull. Student loans did not become non-dischargeable until the mid-2000’s; and before that plenty of people got loans and there was no epidemic of graduates immediately declaring bankruptcy. You’re spouting propaganda talking points from predatory lenders.

There actually was. Particularly with doctors and lawyers.

Among regular students, not as much, but discharging hundreds of thousands of dollars of debt for a few years of bad credit when you're making hundreds of thousands of dollars is a great deal. It was a rational decision to make.

> Think about it: if you come out of college with, say, $20k of debt (granting that this might bring down prices) and no assets, bankruptcy is a very tempting option.

You actually have to convince a judge that's appropriate. And the court has a wide variety of tools at it's disposal to reach an equitable decision. From telling the petitioner to get stuffed all the way to telling the creditors to get stuffed.

Can you cite a case of this happening? As far as I can tell, chapter 7 cases are only ever denied for failing to file properly (missing deadlines, failure to disclose, etc), or kicked over to chapter 13 (which would be pretty remarkable in a case involving the little to no income of most students).

If we were being reasonable about student loan debt Chapter 13 or 11 would be more appropriate than Chapter 7. Both of those allow for debt service to be renegotiated.

Student loan debt is a particularly odious bit of neoliberal policy, forcing students to take on debt for something other societies provide for free, non dischargable and guaranteed by the state.

In Europe when the government subsidies things, they usually also put a cap on what the organisation is allowed to charge. See for example universities and trains in the UK.

> people call for X to be socialized

Alas it never gets to the final step: X is socialized.

> People call for X to be more affordable > government subsidizes X > X absorbs all subsidies and becomes even more expensive > people call for X to be socialized.

The problem is that government subsidizes loans. It doesn't do something like capped match. The government should just say, "We will cover your need-based education burden up to $20,000".

Something like this would make most state schools accessible to most kids and yet, put a big limitation on how much schools can raise tuition. Some schools will raise it up to 40k, others will keep it at 20k, both will try to maximize intake for their tuition.

Simply handing out unbounded, undischargeable loans is just crazy!

This sounds like government should pay people subsidiaries directly. Like an HSA but for more than just health. If you use the account for school it's tax free otherwise there are fee or the transaction is declined. How much more amazing would service from utilities be if they had to go through customer to get the same subsidiaries they get now.

I have taken an education loan from a bank in another country. They literally only approved me for a maximum of $30,000 loan. Let me explain how that worked.

I had to pay first 15% from my account, they would pay the remaining 85%. Every semester, once I showed a receipt that I paid 15% to the university, that bank would wire the remaining 85% directly to that University.

What did this do to my decision making? I literally only chose universities for which I could afford the upfront 15% and the max of $30k. I chose this university even though I had admit from other universities which had higher tuition.

What impact does it have on universities? Universities with higher tuition start seeing a decline in enrollments. I got out with a max $30k debt, of which I paid 15% out of pocket already, per semester.

I could've dropped out of school and joined again a few years later but that loan would still be available to me for 7 years.

Or, we could try just doing none of that, like back when college was actually affordable!

How?

Woah there... govt subsidizes what? This isn't about subsidies (except for loan guarantees), it's about unsecured credit and debt that can't be discharged in bankruptcy. That (like credit card spending, 8 year car loans, and payday lending) is a recipe for rising prices and high eventual bankruptcy rstes, but it's not govt subsidy. It is regulatory capture.

The government backing a huge portion of the loans and creating special treatment for the loans are both, ya know, subsidies. They are slightly indirect.

Yes, that is why I called out loan guarantees. Regulatory capture (special treatment) on the other hand, is not subsidy any more than granting a patent/trademark is a subsidy... it's regulatory capture (the opposite of effective regulation). Corporations don't get to blame the govt for the rules that industry paid for... see what you made me do!

To bring down cost you don’t bring down the subsidies, but you let the government negotiate price limits on subsidized goods and services.

This is how health care and college subsidies work in my country. The government negotiates with the universities and medical industry what the price and the subsidy level will be. Schools and health care can opt out of the subsidy scheme and shrink their market to the rich or opt in and have lower margins with higher quantities. Most choose to opt in, even the top tier.

The trick is using the negotiating power of government, which is something U.S. politicians are unwilling to do.

== That would give financiers pause and would put an upper bound on what many universities could charge.==

It would also limit the pool of people who could get a loan for college in the first place. Maybe we can take a page from other developed countries who don't seem to have the same problem.

It seems to be a pattern in America where we act like a problem has no answers, meanwhile the rest of the world contains many potential solutions to the problem.

Remember when college used to be cheap enough for people to afford working summers? I don't remember because that was before my time, but that was also before the subsidies and loans were made available by the feds. Turns out, if you dump money into an industry while increasing demand and not changing supply, prices will increase.

That was because states covered most of the budget. Austerity policies changed that. And supply and demand is not applicable to macroeconomics, which education is part of.

States still cover most of the budget. As someone who went to school while poor and on a scholarship, I hated this, the price was so inflated because

1) The government pays the majority of it if you're poor, schools know you'll pay 2) If you're middle class your parents pay half of it, the government pays half of it, schools know they'll pay 3) If you're upper class, you might have a legacy admission and the school knows your parents will pay and probably donate to the school too

There's a difference between the government funding education and the government funding students. Costs are high because the government funds students (sometimes), not education.

And very few people get government scholarships, most get loans which must be repayed: essentially an extra tax on the middle class.

Government funds most public universities to an absurd degree. Tuition is a drop in the bucket for most schools. Government loans are an extra tax on everyone, and are best seen as a money transfer from all taxpayers to public institutions.

Government loans aren't a tax on those who don't need them, who are the very people who should be taxed the most.

And states only fund roughly half of school's out of their budgets and that number has decreased in recent years.

> And very few people get government scholarships,

Untrue. Lots of people get Pell Grants, but the value of each is very small.

Grants and scholarships are different, FWIW. Pell grants can be an extreme amount of money depending on your income bracket, but given the prior knowledge that people at each income bracket will make up the difference in amount (for a service like education), it can be seen as increasing school prices by the highest paid amount.

Yes I suppose you're technically correct. But government grants hardly pay for poor people's education, especially considering they trap them in the cycle of being unable to pay for books and food without earning too much to lose the grant.

I'm not following your comment, Federal student loans started in 1958 [1] but costs didn't start to skyrocket until the late-80s/90s. Since the late-80s costs have more than tripled at public universities after adjusting for inflation from about $3,000 to almost $10,000 [2].

==dump money into an industry while increasing demand==

Did the money create the demand or are you saying they dumped the money while also creating demand?

==not changing supply==

Do public universities have the same number of available seats as they did in 1958? 1980? 2000?

[1] https://en.wikipedia.org/wiki/Student_loans_in_the_United_St...

[2] https://www.cnbc.com/2017/11/29/how-much-college-tuition-has...

> For example: let students discharge student loans via bankruptcy.

Ataturk's reply to this is dead below but I must agree with the (spirit of the) comment. While I support letting students discharge loans via bankruptcy, I VEHEMENTLY oppose making this applicable to loans already signed. This is absolutely ridiculous and anyone who supports this kind of position should be barred from public office on grounds of insanity.

EDIT: I also think income and means testing ought for any government program or service ought to be illegal. You cannot say "you must make below $n to be eligible for this government program". I know the economists in the audience will bellow and bicker and say that we have limited resources that we must allocate "logically" but guess what macroeconomics is nonsense anyway because out here in the real world people don't behave logically. We need to make it against the law to use income, means, or property testing for any government program or service. Can't afford to offer it to the entire population regardless of income? Either increase taxes or rollback the program. Can't have it both ways.

I'd say that a politician who stares at a problem head on and refuses to deal with it, because we didn't deal with it in the past, is the insane one.

Student loans have become incredibly predatory and the banks were the ones who had the information to realise these were bad loans, but they lobbied the government to make it so they had to do no due diligence. Now they've fucked up and unless something is done about the loans they are all going to start defaulting anyway.

The default rate is already growing[1]. Based on the number of people I know who are making minimum payments and waiting 20 years for the loans to be forgiven based on income levels, I expect a large portion of expected revenue on these loans is going to evaporate starting after 2028 when everyone who got bad terms and a shit job after the great recession start to become eligible.

It's already a house of cards and we should just deal with it instead of tying large portions of the population to these bad deals

[1]https://www.forbes.com/sites/zackfriedman/2017/10/06/student...

> It's already a house of cards and we should just deal with it instead of tying large portions of the population to these bad deals

I guess the taxpayer is kind of screwed when it comes to Federal loans. I still think it is a bad idea to retroactively change laws even if the idea seems popular. As far as I understand, an individual's loan obligations don't automatically transfer to their surviving family members so if you have a massive student loan it will die with you.

If the loans were predatory, lets ban them going forward. If we find illegal activity and predatory behavior I am all for prosecuting bankers and throwing people in prison. In fact, I will go further and say we should rid of all the silliness of deductions and credits in income tax toward education loans as well.

New York made a good first step with its excelsior program. While I don't like the income ceiling for the program, I think overall this is the way forward. I think we should expand the program to allow people to go to school part time for free. Private schools can either compete with free public education or shut down.

> I'd say that a politician who stares at a problem head on and refuses to deal with it, because we didn't deal with it in the past, is the insane one.

I am all for dealing with the problem but I still firmly and politely OPPOSE any effort to make it easier to discharge existing loans with taxpayer money. I am not an expert on this matter though so I don't know much about it. All I know is we cannot give a handout to people who went to college by signing a loan letter and pay for it with resources that could have gone to people who didn't go to college.

I think the first good step is to make private education loans go away the same way as any other private loan going forward. I don't know how we can apply this to direct federal loans.

https://www.nolo.com/legal-encyclopedia/what-is-federally-gu... According to this web page:

> As of June 30, 2010, Congress stopped the guaranteed student loan program for newly issued loans.

> If a borrower defaults on a guaranteed loan, the federal government pays the bank and takes over the loan. The federal government pays approximately 97% of the principal balance to the lender. At that point the federal government owns the loan and the right to collect payments on the loan.

Yeah, no. If you have a guaranteed loan (which apparently you can't get anymore), I say you are on the hook for it for life especially if you start making money later.

Ah I thought you were treating private and federal loans as the same. I'm with you on private loans being treated as regular loans, let them go away in bankruptcy.

For federal loans, the position the US is in with them needs to be unwound. It's not even a choice at this point, it's worse than how inflated the housing crisis happened and if we don't deal with it on our own, it's going to just show up as a surprise.

That's not to say we need to wipe the slate clean at once. We could just do a 10% or 5% haircut on all loans every year and treat it the same way as an entitlement. We will need to fund it of course, and it will not be painless, but that's the position the countries gotten itself into.

Not doing something to cut down the massive amount of debt that is already dealing with large amounts of defaults is just be willfully ignorant of the risks.

>Yeah, no. If you have a guaranteed loan (which apparently you can't get anymore), I say you are on the hook for it for life especially if you start making money later.

The only things we saddle people with life for are prison sentences for murder and rape. Student loan debt shouldn't be at that level of seriousness. Think about it. If you had a debt from the government that followed you _forever_, why even be part of the system anymore? You are incentivized to either not work, or work and hide every bit of income. If you don't give people a path out of an issue, they aren't going to play by the rules anymore

> The only things we saddle people with life for are prison sentences for murder and rape.

I said that because I assumed the government can afford to suspend payments if your income goes below a certain level. I doubt an ordinary person has the ability to work and hide every bit of income. The good people at IRS work hard and those (bastards over at) state departments of revenue work even harder.

In practice, you're right. The taxpayer has to eat the cost. And I am sure how things will eventually happen when things eventually need to happen. Politicians hate saying no to their voters. The Republican nominee for POTUS in 2012 was at a debate or a town hall before the election and I remember him going on a rant about simplifying the tax code to a round of applause. One woman got up and asked what about credits and deductions with contributions toward their child's college fund and the nominee didn't have the strength to say he wants them to go away. Guess what if we want to simplify the tax code, we have to get rid of credits and deductions. If you can't say that to people who just applauded to you saying simplify the tax code, it will never happen. No politician wants to do that because that will destroy their career.

This is just what I think. I have no realistic way of influencing public policy. (:

Wait, you are suggesting that medicaid, food stamps and low-income housing assistance should be offered to everybody? I don't think I have heard this suggested before. I'll have to ponder this.

> Wait, you are suggesting that medicaid, food stamps and low-income housing assistance should be offered to everybody?

Yes. None of these programs should exist if we can't offer them to 100% of the population. Both Democrats and Republicans use these programs as a vote bank and it polarizes our public discourse.

Means testing is basically a compromise between the two extremes that you offer: fund them completely (by raising taxes) or drop them completely (because they're too expensive). That's the best you're going to get in a system where lots of people with vastly differing views have to agree on a single conclusion: a compromise that makes everyone a little bit unhappy.