Powerful interests have corrupted the legal mechanisms that make markets work efficiently. Here it is bankruptcy. In other markets it is forced arbitration and preventing groups of people from joining together to share legal expenses. Leaving all accountability mechanisms to the government is bad for free markets.

Ideally, if you truly want to help low income people get an education through loans, it should be structured more like SBA loans. The lenders should take on a big enough % of the risk that they want to avoid defaults but not so little that they act recklessly and fund loans or schools that are unlikely to perform. I'm sure that if SBA loans were non-dischargeable, there would be an explosion in bad SBA loans that drag on the economy.

If that was allowed, then the interest rates would have to float according to the likelihood that the loan was repaid. Good for CS and econ and engineering, not so good for lierature and gender studies.

> most of the problem would be solved by allowing student debt to be erased by declaring bankruptcy

Going forward. It's tough to stomach retroactively applying this to existing loans.

The prohibition was retroactively applied to private loans already existing.

My wife and I chose private loans specifically to retain bankruptcy protection in case of serious life issues. A couple years after we took them, the law changed and we were stuck with the higher interest rates of the private loans without those protections.

For a time, we considered a Constiitutional challenge to that, as we believed it to be an ex post facto law. We didn’t want to incur the negatives of a bankrupty to gain standing, though, and couldn’t afford the astronomical legal fees that would certainly accompany that sort of case. As far as I know, no one has pursued it.

What's absurd about that? The bank has no salvageable assets to claim. They can't claim 4 years of European Literature from your mind.

What's absurd is they don't have to take into account the ability of the student to pay back the loan, instead taking on an indentured servant for life. This distorts the market leading to higher tuition for everyone.

You can wipe out medical loans, which also have no assets to claim, with bankruptcy. Or do you think we need to make Repo Men a reality?

They can't claim assets for credit card debt either, and yet you can discharge those in bankruptcy.

Fortunately most of the debt is held by the US department of Education, and could easily be written off. (Minor inflationary effects asside).

So, your solution is to stick the taxpayers with the debt?

The actual costs of student loan forgiveness is fairly marginal compared to the economic benefits [1]. Further the federal government can write off debt without anyone ever having to pay for it. Student loans are created by the Treasury for the Department of Ed, repayment just gets dumped onto a balance sheet in the treasury that has no relationship to reality.

[1] http://www.levyinstitute.org/publications/the-macroeconomic-...

I feel like that's a small step towards rectifying the destruction of a generation. This country has too much inequality as it is.

It gives the lender little to no incentive to evaluate the marketability of the degree.

Same thing happens w8tg a bankrupt business...