But I also don't think allowing these loans to be discharged in bankruptcy will solve anything (and will arguably make things worse) without systemic changes in the way college is paid for.

What do you think about Income Share Agreements?

https://www.thesimpledollar.com/loans/student/income-share-a...

Note that "projected lifetime income increase" is generally overestimated. What we do is compare average income of a college graduate with a high school graduate and attribute the difference to college. However people who could get through college likely would have made more than people who couldn't, even if they hadn't gone to college!

At this point the average IQ of a college grad is very close to 100. I guarantee that within the next 30 to 40 years someone will make the shocking discovery that the presence or absence of a degree has no influence on income, success, or happiness.

At that point the ponzi scheme of higher ed can collapse.

There's nothing wrong with designing and implementing an education system for the top 5% of society and the jobs that top 5% will likely have. There is a big problem with a marketing scam along the lines of every American is a temporarily inconvenienced millionaire.

Surely, my favorite waitress at Dennys is making more money as a waitress than she would as a K12 educator, if she could get hired, which she cannot. The degree does not make her a better person nor a better waitress. It does signal that she's in maybe the top 50% of humanity WRT the skills required to get a degree. She's a somewhat better than average person because of who she is, not a meaningless piece of paper for training she will never use. The point of discussing my favorite waitress is we need "something" to signal in the job market who is in the upper half of potential employees, and $100K of debt and four years of labor seem a huge waste on a civilizational level.

[1]https://en.m.wikipedia.org/wiki/The_Case_Against_Education

P.S. Signaling is very profitable for the individual benefitting from the signaling, it just isn't good for society.

I think the (optics) problem is that it's a "more obvious voluntary fractional slavery program". So it's easy to criticize. Of course, because it's a less obvious voluntary fractional slavery program, non-dischargeable loans are simultaneously harder to criticize and harder for people to see the trap they're walking in to.

I wonder how society would react by making student loans forgivable. Would banks stop giving out loans because there is no collateral? Or would they require a cosigner to rope in an adult with collateral to lose? Would schools get cheaper as a result of people not being able to afford the already high tuition, would they become a status symbol for the mid-upper class who can afford it? It is definitely an interesting thought experiment.

Right now, there are students who can come to Perdue who are looking for university as an "investment" in their own future: they want to spend $100k to get more than $100k back over their lifetime. But the fact is, some of those students are studying subjects which will never pay them back for their investment; and others will never make that money back no matter what subjects they study.

So the question is, what incentive does Perdue have with regard to these students, under the "unforgivable student loan" system?

1. From a pure short-term financial perspective, it has an incentive to get as many students in the program as possible.

2. From a reputational point of view, there may be some damage to having lots of students graduate without getting jobs

3. Perdue is made of human beings, many of whom actually have feelings and morals; those people feel much happier when their students' investment pays off, and feel much worse when their students' investments don't pay off.

And the point is, at the moment, for students in the category of people we're talking about, you have #1 fighting #2 and #3. That's always going to be an unstable system where things fluctuate between "terrible" and "not quite so terrible".

Consider the incentives in an ISA system. The incentives are now aligned: Perdue would have a vested interest in the success of their students after graduation: the more money their students make, the higher return they get (up to a point). If a student wants to come in and major in Underwater Basket Weaving, they can say, "Perhaps a degree in in Accounting or Education might be a better choice." And if they do offer Underwater Basket Weaving, they'll be sure to add in classes on the Economics of Underwater Basket Weaving, Advanced Basket Weaving Management, and so on, to make sure that those students are actually prepared to make money after they graduate.

I can‘t resist the feeling this sounds surprisingly related to the concept of free higher education and a higher, progressive income tax, a pretty revolutionary approach we‘ve been doing with limited success over here in Germany.

Then again, that might just be my naïve European perspective on things and since taxes are theft and free education is just for those commies wanting free things, it‘s surely inappropriate for a free country.

What makes you think that "profit motive" or "regulatory capture" will be kinder and more gentle with this approach?

For hundreds and thousands of years Indian farmers had a version of "income sharing". You should research how it went. And please don't respond with "Sure they fucked up but WE will build a better system this time around"

I've read this about socialist countries that have free education. You'll have folks with law degrees driving taxi cabs. It's a waste of resources.

This is really the most important issue. People are spending tons of money on worthless degrees. If they were getting degrees worth something, we wouldn't even be having these discussions.

Many lawyers need to drive taxis to get by. Being a lawyer doesn't mean instant riches unless you land at a high profile firm directly out of school.

Studying law isn't a finite resource either.

The problem with your view is you assume the only way to get educated is via academia. There is a lot of education when you become a mechanic, an electrician, a factory worker, a firefighter, etc. That is not academic. You learn on the job. There are also many certification courses for these fields that run outside of traditional college system.

I believe in free schooling to teach basic, essential skills like reading, computing, math, etc. I'd even argue for a greater emphasis on financial education in K-12. But college is different.

The college system is very expensive, it's heavily subsidized by the state even in the U.S. If it is not teaching people valuable skills that they will be using in their profession, then it is not serving it's purpose. It costs people resources in the form of taxes.

In the meantime, we live in the information age. Teaching people to teach themselves is probably the most valuable skill we can teach.

Education allows one to lead a richer life regardless of ones circumstance. Consider the janitor who took 8 years to get a bachelors degree in classics (after learning English). He admits that now with a degree he’ll probably try to become a janitorial supervisor.

But two things stand out, first there is no shame in a job as a janitor, and second to him the education was an end in itself, not a means to an end.

https://nypost.com/2012/05/13/what-class-columbia-university...

The problem with your view is that it makes the assumption this was, and always has been, the purpose of college. That wasn’t the historical purpose, in particular before the Morrill Act during the Industrial Revolution

This is true for every profession. Is there any job where you pop out of school ready to perform like an expert? Lawyers, doctors, scientists, etc. — all these folks learn to do their jobs on the job, despite their years or decades of training in academia.

> The college system is very expensive, it's heavily subsidized by the state even in the U.S. If it is not teaching people valuable skills that they will be using in their profession, then it is not serving it's purpose.

There is more to life, and to work, than preparing for a profession by learning profession-specific skills.

Wait, what? Since when?

Was once driven by a chap who had a very in depth knowledge of Turkish literature; I spent a good 25min listening to him talk about Orhan Pamuk and Elif Shafak, two writers I had recently read (and liked). Turns out the guy had been a lit professor at tertiary level back in Turkey. And here he was, driving a taxi on a rainy evening in a godforsaken town in the Midlands (UK).

People are incentivized to act one way or the other. Less-wealthy people cannot afford college tuition, and the government cannot mandate that banks give away money to extremely risky but ambitious people.

This same problem exists with extending loans in general to risky, low-income individuals. Yes their rates are insanely high, bordering on predatory, but they also have sky high default rates so the alternative is they simply cannot get a loan at all.

This is essential economics.

https://www.governing.com/gov-data/education-data/state-educ...

That doesn't follow: you could graduate, get your degree, and declare bankruptcy. You're fine, your loan is gone, and the bank regrets their investment.

Since the bank is absolved from making that bet, it is now the young adult making the same bet that no sane bank would take.

A lot of people are now living with having lost that bet.

This of course will be to the spiral and collapse of the college loan system.

It is in fact bad.

You can’t just declare bankruptcy and get a high paying job a year later and have no student debt....

When I looked into personal bankruptcy I was told by my lawyer that it would only make financial sense if there was no way I could pay back the amount owed in the next 7-10 years.

Why? I rather consider this as a sign that the person will be rather loyal as employee because he needs the money ...

Trust is like glass - easy to break, very hard to put back together.

If bankruptcy laws were abusable by students in the present day, EVERYONE would know how to do it

It's a positive feedback loop

In my early days in Motorsports (late HS?) we had a anesthesiologist in our group, he was the wise elder who had accrued enough money and flexibility in his practice to play around with the young punks and 'show us how its done.'

One day after a tech day before a track event we working and wrenching in his garage and someone asked him how he got into the trade; turns out he was drafted in Vietnam and chose a medic role out of professional interest but also to ensure not being sent into the suicidal combat zones and come back home alive.

He said that it was incredibly typical to do what you just said in the 60-80s and declare bankruptcy like that when you got your MD, mind you this is at a time when it cost a fraction of what it costs today.

But you could also have your entire medical career subsidized by the State and expedited if you're sent on tour faster than anything offered in the civilian World and choose whatever medical school because of the GI bill and do your residency anywhere you wanted due to your status as a veteran.

And then stiff the Bank for any loans you may have accrued and it was accepted and common practice and save while your credit score was fixed.

He was one of the few boomers who openly spoke about how his generation wasn't anymore responsible then the 'entitled' millennial trope and tried to lecture us about it as that was becoming wide-spread by that time. He actually gave advice about the optics of this route that were being skewed to the detriment of his Industry and profession.

Now seeing the shortage of medical workers during COVID are being perilous overworked all over the World turns out he was, reluctantly, right.

Additionally, I wouldn't even expect a college bankruptcy to fully preclude getting a home mortgage. With a large down payment the bank isn't actually taking that much risk.

(Except that really I expect that if this law changed loans would require cosigners with good credit)

Contrary to popular perception, there's no robust private investor market for student loans. US Treasury is the predominant buyer.

https://www.advisorperspectives.com/dshort/commentaries/2020...

Unsecured personal loans (that are subject to bankruptcy) are a valid asset class, coveted by LendingClub and some banks, but they require solid credit history and carry a higher interest rate, more aggressive repayment schedule, or both.

That’s not a valid implication at all. 18 year olds change their mind all the time, base decisions on impulsive reasons, etc., that comes with immaturity, lack of experience and indecision.

The loan being a bad risk for the bank is a function of youthful impulsiveness and a person without the means to pay it back yet.

It’s not risky to the bank because college itself is risky or fails to deliver wage opportunities. Not saying college cost-benefit is always favorable, just that your implication is wrong.

The problem with the current system, is we don't force the students to understand the price of the risk. The problem with making them normal loans is that the bank is unable to accurately price the risk. There are middle grounds, but arguments from the extremes seem to carry better.

Maybe... but we could definitely alter the nature of risk involved.

Why not reduce cost of tuition (e.g. <$1K/semester), while raising the bar on academic rigor as a means of controlling demand?

I see a lot of parallels to medicine here. Both are highly regulated and seen as a "right" we ought to fund. Maybe, but until we achieve greater labor leverage (made even harder by professional credentialing in medicine), there just won't be a way to drive costs down much, so we're stuck with what we have.

Part of the problem with universities IMO is the accounting for revenue<->expenses isn't at all straightforward. Athletics generate a ton more money than they cost, most people seem fine with that. Research generates no revenue but costs a ton, for some hard-to-quantify but (hopefully?) real benefit to society at large. Tuition is nominally for teaching, which is a big cost center for a university. And, at least in the US, all the costs are split between the national government, the state government (who has the pleasure of educating people who may not live in that state long-term?) and tuition, and various donors and grants.

A system ripe for disruption, if ever there was one.

But most universities are more about property speculation and bequest farming than they are about education or R&D.

The system is entirely corporatised and often predatory. Professors are only as valuable as the grant income they generate, adjuncts are gig economy labour, students are a barely-tolerated annoyance, and property speculation and "administration" are considered the central mission.

I mean sure we could try to teach kids this stuff, and I certainly aim to tech my kids, but it's not what's been done in the past at secondary school.

Things people need to know to function in our society.

College loans have taken point on this for the aspiring middle classes. In a very literal sense this system is the exact opposite of genuine freedom and opportunity.

Long ago demolished and turned into a Mall during Urban Renewal.

Be careful, this is very dangerous informstion

And it gets worse

You forgot that these loans are subsidized, so when they Go sour (and they will) its the taxpayer holding the bag, not the banks

In other words, its 2008 all over

Not necessarily. Even if it's a good bet for the student, what's to stop them from declaring bankruptcy just after graduation, and before they start their lucrative career? They would then get all the upside, whilst the bank gets zero payments.

And if you have a job with decent money, obviously it wouldn't count as outright fraud at all.

But even that is missing the point. These loans are an economic time bomb. They rely entirely on a functioning economy with adequate middle class job opportunities.

If those disappear - if, for example, an unexpected black swan event happens to leaves a smoking crater where GDP growth used to be - banks lose a giant pile of money anyway.

The debt will be sold at cents to the dollar to collection agencies who will hound the victims, and anyone else who gets in the way by sharing an address, or having any form of financial connection - for the rest of their natural lives.