The bank doesn't want the bet because "bankruptcy" means very different things to the bank and to the student. To the bank it means they lose all their money. For a just-graduated person with minimal assets it's not that bad -- sure you can't get a mortgage to buy a house for a while, but you probably couldn't have afforded that anyway with student loans. You still have the degree, they can't take that (well, https://www.jefftk.com/p/repossessing-degrees).

I would not underestimate the impact bankruptcy plays in someone's life. You would be getting a bankruptcy on your record in the prime of your life (mid-twenties), making it very very difficult to borrow for the next 10 years. You end up starting building credit in your mid to late thirties, and maybe you are able to participate in the modern economy in your forties. It sucks. I lived it.

However, in a world in which it is common for college students to declare bankruptcy immediately after graduating, financial institutions might take advantage of that information and realize that their creditworthiness is much higher than the bankruptcy would predict. Kind of like how the stock price many companies go up after they cut retirement benefits.

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

How high is the creditworthyness of someone who is on a repayment plan to service another debt? It is practically zero. Declaring bankruptcy just limits the duration of the mortgage to 7 years. You still have to pay as much back as you can unless you are literally an unemployed hobo on the street for 7 years.

I'm talking about declaring bankruptcy immediately on graduating, at age 21 (not mid-twenties), and it's off your record seven (not ten) years later, at 28.

> For a just-graduated person with minimal assets it's not that bad

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.

Having a bankruptcy on your record may make it difficult to get that high-paying job, as employers may not look favorably upon it.

> Having a bankruptcy on your record may make it difficult to get that high-paying job, as employers may not look favorably upon it.

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

Making a deal and then breaking it can dissuade employers from putting a person in a high trust position. Most business operates on trust, handshakes, and one's word. Contracts are a backup.

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

Do Americans really check prospective employees' credit scores? Wow.

Yes. It's the first thing HR runs on every new applicant. Bad credit == danger of mismanaging company money.

It still doesn’t follow that the bet is bad for the student if it is bad for the bank. As the student you have some degree of control over the result. If you have reason to think you can make it work it might be a good bet. The bank OTOH only sees that X percent of students fail to pay back.

But the young adult has agency over outcome while the bank doesn’t. Normally the bank would take collateral to align interests.