They can, it just has a higher bar of unaffordability before it can be discharged even in bankruptcy. OTOH, the higher the ratio of student loan debt to income becomes for typical borrowers, the more likely it is that there would be a wave of discharges.
Even without discharges, though, you can have an escalating problem of loans becoming worthless to those with the right to collect them; that the loan isn't legally discharged doesn't mean that the borrower isn't practically judgement-proof.
> The whole notion of bursting is people collectively realizing their folly and everyone scrambling as quickly as possible to make out with whatever they've got left - like a run on a bank.
No, not like a run on a bank, more like a panic sale of a marketable asset class, in this case student loan assets (or student loan asset backed securities, just like the mortgage-backed securities that went through the same thing around 2008.)
OTOH, this is really only likely to be a big issue with private, non-government-backed student loans, which exist and have high per-borrower balances, but are a minority of student loan debt.
On the federal side, increasing defaults mostly reduce the difference between loans and grants and probably push public policy away from generally-offered loans to more targeted (by some mix of need, individual merit, and social desirability of course of study) grants. (These also are marketed and privately collectable after the government originates them, but the government guarantee limits the risk of value crash.)
Interesting tidbit here is that half (yes, half) of the US government's financial assets are student loans.
It was discussed here previously -- https://news.ycombinator.com/item?id=16136330.
Something I find very hard to comprehend, tbh.
Fannie Mae is a publicly-traded, privately-owned corporation, despite being federally chartered for a public mission.
So, yes, their holdings are not counted in government holdings, because they aren't the government.
Which is why, their stock is worth a lot less than even their own book value.
My (possibly inaccurate) summary is that they can be discharged if it would be impossible to live with a minimal standard of living while still paying off the loan.
More realistically you're going to get one of the other two options.
> Your loan may be partially discharged, and you will still be required to repay some portion of your loan.
> You may be required to repay your loan, but with different terms, such as a lower interest rate.
The bar is higher, but not impossibly high.
But I don't think most people who are struggling to repay their student loan are in their 70s so there is no risk of elderly people dying all at once and leaving the government stranded with the huge debt.
All debt won't happen, because it will destroy a lot of assets - like pension funds.
But student debt... that could happen if it became clear that much of it was uncollectable because the kids didn't have the money, and weren't ever going to have the money. We're not there, yet, but we do seem to be heading that way.
Alternatively, student debt could be discharged through political means if the general public became galvanized into seeing student debt as a huge problem that is destroying many lives. Statistics won't produce that... but a very well-done movie might.
Student debt, pardon me. Allowing for limited discharge in special circumstances or general discharge in broader circumstances. The first could happen through the courts. The latter probably needs legislation.
In this case there is no bank to run on - people will just continue to have their wages/benefits garnished to continue to repay these loans that they are forever tied to. I feel like there's not really a "burst" that can happen - just that hopefully there can be some sort of debt forgiveness program or something that will alleviate the burden of the debts.