Also, technically, student loans are dischargeable in bankruptcy, it's just much harder than other debt[1] nearly impossibly so, but, perhaps it should be. I think the alternative is that the issuance of student loan debt becomes so risky that you enter a feedback cycle of increased interest rates leading to increased bankruptcies leading to more risk leading to increased rates leading to increased bankruptcies etc.... where there only exit point is that nobody can take loans for college.
I also think there are much more elegant solutions to the problem.
1> https://studentloanhero.com/featured/student-loan-bankruptcy...
How is this different from any other kind of debt a 22 year old might have?
The answer is, it's not - banks simply wouldn't loan outrageous sums of money to 18 year olds. If 18 year olds couldn't get 200k loans from banks, colleges wouldn't charge 50k/semester (unless you think colleges would simply close up shop if they can't charge 50k/year).
Unbankruptable loans + incredibly high demand today means that colleges can simply charge whatever they want.
This is exactly right.
I was going to say you are wrong, but you're not. These loans should absolutely be forgivable in bankruptcy, so people stop making them so lightly.
We have to cut off the supply of easy money to students if we are ever going to deal with the absolutely insane tuition prices at schools.
Unsecured loans aren't new.
Maybe asked differently: how much of your personal retirement money would you lend to such an 18 year old for the prospects of a 7% or so yield?
My point is that you won't find credit card companies willing to loan those same people $50,000 and they shouldn't. The ability for young adults to easily strap on large amount of debt has inflated the price of college. Banks only do it because they are guaranteed to be paid back. If banks were more strict with their loan requirements, they wouldn't give so much money away and, in turn, there would be fewer students out capable of paying high tuition.
Colleges would be forced to lower costs, ideally to the days where you could afford to pay tuition by working part time.
For me, it would virtually ensure my kids would have their pick of several top or top-middle private colleges paid from 529 accounts and by co-signing or remortgaging our house; nevertheless, I’m still adamantly opposed.
I’m not convinced you can live for four years on part-time work alone, let alone buy tuition, lab fees, and books on top of just your housing, food, utilities, and minimal entertainment in many college towns.
The top and even top middle school (probably every school outside HYPS) would either lower in cost or dramatically cut class sizes. There is a small number of students who’s parents can actually afford the 50k sticker price - either prices drop or these colleges end their undergrad programs. These institutions will not cost 50k/semester.
There is essentially no risk for these loans because they are backstopped by taxpayers.
These loan sizes increase, the cost of tuitions increase.
Everything else that is open market loans, have no such growth pattern.
I fail to see the benefit of all this spend when the consequence is a bunch of PHDs ... working as teachers at profit AND nonprofit Universities, to produce more diplomas en masse so we have more university-degree retail associates and social media managers (if not unemployed 23yr olds).
You have to question why is it that no one would pay 25K in tuition if you had no ability to get loanable funds. Hint: there's no real market for it.
One, banks would be unwilling to lend vast sums of money for education, and universities would have to cut back and offer education at a more reasonable price.
Two, income sharing agreements would become commonplace for economically productive degrees.
Three, pursuing economically useless degrees would go back to being the preserve of those of independent means.
Four, fewer high school graduates would go to college, and a lot of marginal colleges would close.
All of these are good things.
College tuition just needs to be paid for by the state without the lending facilities, IMO. As evidenced here the state just gets left with the bag anyways.
the same things as any other debt that is dischargeable?
On the other hand most other lending is collateralized, or even where not collateralized, the lender has a reasonable expectation of repayment or positive net worth.
Maybe the answer is you can't discharge it through bankruptcy for a certain number of years (e.g. 10?). But also, it shouldn't be 6 figures.
Certainly removing this protection would likely reduce the number and/or size of loans that are approved, and other risk reduction methods applied.
As it is , tuitions are being driven more by ability to pay than by costs, and ability to pay is being driven by this loan status. The system has terrible incentives for lenders and institutions.
If someone has a job they have no need to do so. If someone doesn't, then assuming that person went to school with the intention of getting a job afterwards, then it seems the school failed (either in educating the student or choosing to accept a student who is unlikely to accept a job).
It seems utterly bizarre to me anyone besides the university should be on the hook for this. If they're accepting the money, they should also be accepting the risk. It feels like nobody is willing to be held accountable for anything anymore and push the risk off onto those who are most vulnerable. This is a cancer in modern capitalism.
Employers don't care that your "has_degree" field is set to true in the college's database. They care that you demonstrated a sufficient level of IQ+conscientiousness by showing up and passing tests for several years, and in some cases they may care that you acquired relevant knowledge. Universities can't revoke either of those things because they're historical facts.
But a lot of degrees aren't like that, and a lot of places don't care which degree you have once you've had a similar job. Why would all employers buy into this? They can get someone with equivalent knowledge a little cheaper. It's a pain, but the graduate can certainly still launder their lack of degree into a job (or even just lie about it! people do that all the time, and are only sometimes caught).
The idea you're suggesting sounds something like an ISA: no cost upfront, X% of your income when you get the job. Those have other problems: universities will be incentivized to get the most employable students. They're also more expensive (since the downside risk is all on the university).
No, other unsecured loans that are neither federally-backed nor endowed with harsher bankruptcy discharge terms exist.
No way. That just means the taxpayer gets defrauded rather than the student, and the "school" still gets their money. It encourages the further growth of fraud.
The government should not guarantee loans for universities and programs of study that do not have a track record of financial benefit for the students.
The collective of taxpayers has a far larger collection of sticks than individual students.
That's literally what just happened now. The department of education is eating the loans. I may have misunderstood but is that not what the article is about?
Then lenders have an incentive to stop supporting useless $150k degrees, and borrowers can't declare bankruptcy immediately after graduation as an intentional tactic to dodge the debt.
Seems to address all major problems.
That means that by 30 you'd be free and clear. Most people don't need much credit before then anyway: the median age of first time homebuyers is 33. You'd pay a lot more for a car loan or a credit card, but you don't really need either of those things either.
Ok, but not masters degree right? Were the last 2 years of high school actually useful to you? Free college will just make it defacto required and waste people's time.
This would likely perpetuate/increase generational wealth inequality rather than reduce it.
The federal government should provide need-based grants (possibly with total-program-cost and course of study controls, but that’s another issue) and not loans or loan-guarantees in the first place.
And lender should share some responsibility for bad loans, too.
If death is the limit, then is disability too? Curious what you think.