Student loans are not so easily discharged. Yes, in theory they can be written off in cases of "undue hardship." But in practice, good luck finding an attorney willing to take your case.

Federal Plus loans were 8.5% until that program was shut down in 2010. [0][1]

Graduate Direct Subsidized and Subsidized Federal loan rates were 7.9% from 2006-2013 and have not dropped below 6.3% since. [1]

[0] https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_... [1] https://www.finder.com/federal-student-loan-interest-rates-b...

Federal PLUS loans were never shut down, are still available [0]; what was shut down was non-Direct federal loans, including the non-Direct PLUS loans, which had a higher interest rate than Direct PLUS loans. [1]

[0] https://studentaid.gov/understand-aid/types/loans/plus

[1] scroll down to “Interest Rates on Federal PLUS loans” which shows historical direct and non-Direct (FFEL) rates: https://www.savingforcollege.com/article/historical-federal-...

In the Netherlands, students loans are guven by the state. The interest rate is legally set to a mix of government bond interest (10 and 5 years). They included a clause that the interest never goes negative.

Any evidence to support that?

The only thing that thwarts this is sky high inflation, which is not foreseeable… this is because they have the biggest inflation enhancement on full bore (these literal monthly rent payments or better in student loan deference) and it’s only caused 7% cpi or whatever… that’s anemic

They had gone to a UK debt management company that seeks to compound your debt by asking your creditors to accept an Individual Voluntary Agreement where you agree to pay back a certain amount per month for a fixed period and then get it written off. In practice it affects your credit rating like bankruptcy. They were advised by that company to do exactly what the person above said, max their credit cards first. Cash advance if possible.

Not the first time I have heard this

Chapter 13 bankruptcy is deleted from your credit report seven years from the filing date.

Chapter 7 bankruptcy is deleted 10 years from the filing date.

This means no one can even tell you were bankrupt after 7-10 years, which is pretty incredible feature for borrowers.

Chapter 13 bankruptcy is deleted from your credit report seven years from the discharge date, which comes 3 to 5 years after you file (because there's a 3 to 5 year payment plan). So if you measure from the filing date, Chapter 13 takes 7 + 3-to-5 years to come off your credit report, which is 10 to 12 years from the filing date.

Similarly, Chapter 7 bankruptcy is deleted 10 years from the discharge date. In a typical Chapter 7 bankruptcy, the debtor receives a discharge 4 months after filing. So your statement is actually quite close, but to be pedantic, it's 10.33 years from the filing date.

In my experience, most Chapter 7 filers can fully recover after about 2 years, provided they are able to make their payments on-time after the bankruptcy.

Bankruptcy stays with you forever.

I mean, I don't know that it is perfect, but I think the bankruptcy laws in the US are pretty decent at least.

More and more you can't even opt out of consumer credit. I have attempted to opt out of it by not holding any credit, except I apparently need good credit to live somewhere, or a credit card to rent a car or do some kinds of money transfers.

Telling people they can file bankruptcy, "reset to 0", and have another chance to redeem themselves is bullshit. The only place it disappears from is your credit report, and implying that covers it is a brazen lie. It really doesn't. Fuck credit scores. What about the ability to get a job, or not live on the street? Having a bankruptcy from 30 years ago can negatively impact your ability to do either of those things.

The credit industry is so deluded that they think your credit report is all that matters, and that's how they want you to think. In reality, it's all that matters to them and they can't wait to get you back in the game.

Their goal is to make money.

If you go them and say "I want to make a very unfavorable to myself deal, that will make you lots of money" then they'll say "Yes."

Caveat emptor by default, with specific exclusions for some worse cases, generally governs financial contracts in the US.

In other words, you have the right to agree to whatever you want to agree to. If you choose to use that power to blow your foot off... well, that can happen.

Really it is about whether the government's job is to forcibly not govern, or to get involved.

Because "very worst" (or even just "bad") deals is a loaded term. Why? For whom? When?

As discussed in this topic, a high-interest rate loan is a bad deal, unless it's the best option you have. Would no loan be better than that loan? Maybe. Should we take away someone's ability to make that decision? I'm not convinced.

At some point, the cost of freedom is freedom to fail. So it's always a balancing act between not making that failure hurt too much or too easy to inadvertently stumble into... and giving people autonomy.

You'd think engineers would understand that you can't optimize for everything at once.

This is absolutely not true. The record of your bankruptcy lives in the public records of the bankruptcy court forever.

For loans over a certain size (definitely anything mortgage size) there is no limit on the length of the credit report given to them. They may not care when it's been so long, but they can see it all.

Go here: https://www.law.cornell.edu/uscode/text/15/1681c

Search on that page for "Exempted Cases"

All of the language about how long negative information can be shown on a credit report is exempted when the loan principle is $150K or greater.

Except the banks who loaned you money! There aren't that many banks, and credit reports aren't their only source of intelligence.

I'm always amazed at the number of people who recommend bankruptcy as, like, an investment or risk management tactic. It's a huge mess, and seven years is a long time.

I don't think they have that info. It's not like you go take a walk down to your local bank and talk to a loan officer that grew up with you. It's a faceless nameless corporation that does very standard checks. They often don't even hold the debt. Trust me, they want to give you a loan and don't have their shit together enough to get unofficial credit history that they're not legally allowed to use.

I can confirm this.

I'm 30+ years out from getting a couple thousand written off by Amex and 20+ years out from bankruptcy (a single "debtor" who was the plaintiff in a lawsuit against me, and during which no loans or credit cards were defaulted on) and American Express still won't do business with me, even after being their employee (and having to pay back every penny that was written off before they'd issue me a corporate card) for several years.

I'd also note that American Express does not report payment histories on their charge products to the credit bureaus. But they do have a very long memory.

Edit: I'd note that I still had a 700+ credit score within the 10 year window after bankruptcy, and my score is in the mid 800s.

Being bankrupt is great if you are poor.

To continue with the dinosaur park analogy, you could then look at a country like Canada as an alternative zoological park, where you must sacrifice a bit of freedom by staying within designated lanes, but in return you don't run into situations where medical debt beasts can bite your head off in the first place.

You can get thrown in jail for: holding the wrong kind of plant; associating/trading with/helping a persona-non-grata or a person from the “wrong” country; speaking up about military misconduct; sharing a copy of music you bought with friends...

And that’s just what’s imposed by by federal law. “The land of the free” is a mirage and hasn’t been reality for decades, maybe centuries.

Besides, the point wasn't about platonic freedom, but instead about a specific flavor of "freedom" that exists in US culture. In the dinosaur park analogy, the electric fences can be likened to government safety net programs. As you may be familiar with, there is a political faction in the US that dislikes the idea of being "forced" to pay taxes to fund programs to help the less fortunate, and a lot of the issues related to various forms of crushing debt stem from that ideology that a rich person should be "free" to be selfish.

With the same kind reasoning you could argue that the DPRK is the freeest country in the world, for "their flavor of freedom".

Let's avoid the faux intellectualism of "if [cherrypicked example], is the whole invalid?" Freedom isn't a black-or-white matter, you can simultaneously be prohibited from killing and free to speak your mind while jaywalking on a quiet street. But IMHO, one ought to consider topics like maslow's hierarchy of needs and human rights conventions before bringing things like music piracy into the topic of freedom.

The US' top federal marginal rate of 37% is pretty low.

In countries with more expansivo safety nets, it looks like it's up around 50%.

For example, it might mean someone has to work a year longer before accumulating wealth and retiring. The benefit far outweighs the cost, but the cost is still there.

Taxes are inherently a restriction on what one can do with their money. That said, without them we wouldn’t have roads, police, healthcare, social security, etc…which does add freedom to many peoples lives. I think another comment said it best, laws can increase overall freedom in a society, but they do still restrict individuals.

But that doesn't change the fact that we're talking about the government taking an asset (the 13%) from an individual.

It's hard to bill that as a zero-impact action with regards to freedom.

One might say "I think net freedom is increased by redistributing money from the extraordinarily wealthy to the broader population." But it seems illogical to say "We can create more freedom by taxing the wealthy, because that creates more freedom for everyone not wealthy, and has no impact on the wealthy."

I'm hard pressed to come up with a justified "No" to answer that question.

Let's hear some specifics. Name one specific thing someone at this level of income might do that extra income that meaningfully impacts their life. Your inability or refusal to do so so far seems to support my point here.

Here's my concrete example: if we added +13% to Jeff Bezos's accounts, do you really think that would change his life even a tiny bit? Would it change meaningfully even if we subtracted 13%? I'm just gonna say that's a no either way.

Which one can feel on way or the other about, but it's disingenuous to claim that's nothing. It's not nothing.

So make the full claim you want ("I support laws that tax the rich and decrease their freedom, so that poorer people can have a stronger social safety net and more freedom."), being honest about all sides, instead of the edited version ("I support laws that increase freedom for everyone {because money doesn't have value to rich people}.").

And recognize that if it's moral umbrage you're taking, the same reasoning extends down the income scale. (Making the assumption that you're not making minimum wage, and I'm not) Presumably someone who is making minimum wage would believe many of the things we do with our additional income, but would not do without it, are "not meaningful."

So the park's elements are here by design.

2. Your interpretation of its meaning is, frankly, bizarre

[1] https://www.monticello.org/site/research-and-collections/ete...

However the idea that they are one of the kinds of threat that a democracy needs to be vigilant against doesn’t seem bizarre in the least.

Not for student loans.

https://bostonstudentloanlawyer.com/the-death-and-bankruptcy...

    Like federal student loans, private student loans typically cannot be discharged in bankruptcy (although it is not impossible).
    ...
    Many (although not all) private student loans have this tiny little clause, often hidden away in the obscure depths of the promissory note (the loan contract that you signed, but probably didn’t read, when you first got the loan). The clause basically says the following (and I’m paraphrasing here): If the co-signer or the borrower dies or declares bankruptcy, the entire balance of the loan will be come due immediately.

This is a common misconception. Student loans are commonly discharged in bankruptcy. Enough people believe this that they don’t even try. The only additional rule for student loans is “undue hardship” which is not difficult to prove or argue for in bankruptcy.

https://www.npr.org/2020/01/22/797330613/myth-busted-turns-o...

That's why student loans shouldn't exist; if the federal government is going to subsidize higher education, it should be by grants, student out-of-pocket cost limits tied to accepting federal research and other funding, and other non-loan mechanisms, not forcing students into debt.

(Private student loans, OTOH, should be dischargeable the same as other unsecured debt, and if lenders don't like it they don't have to issue loans.)

[1] https://thehill.com/blogs/congress-blog/economy-budget/28362...

Same reason they can collect the debt using wage garnishments and property liens, methods that aren't available to most creditors.

This is only explained to some students (it was to me). But no one plans on not having money in the far future, regardless of what warnings they receive

No, it's not; it predates direct loans existing, much less being the only form of federal student loan, and applies to private, non-government-guaranteed student loans, as well.

> Same reason they can collect the debt using wage garnishments and property liens, methods that aren't available to most creditors.

Property liens and garnishment are available to most creditors after securing a judgement against a debtor.

> This is only explained to some students (it was to me).

It’s good that only some students are subject to that complete fabrication, though it would be better if none were.

The government does not need a court judgement against a debtor before garnishing wages, withholding returns, etc. This is why the majority of these actions are for child support and student debt, not for consumer debt.

The rules for student debt repayment started with the premise that a different process was in use for money owed to (or backed by) the federal government

For reference, visit any nation with these rights. You will find more small businesses, fewer franchised chains, and happier people.

Sure, the student loan can only go to a school but neither has any collateral which makes them the most similar loan products. So go get any 18 year old to try to get a $20,000 personal loan without any credit and see what the rates are and if lenders would even give it to them.

There was an immediate patch to this, and then longer term solutions as well. The basic, Econ101 level thought behind this is that if you go into debt to buy a car or a house or anything tangible and the debt proves too much the bank can take those assets back if you declare bankruptcy.[1] But how does that work for a degree or the knowledge in your head? What can they take from that?

Another issue is fairness. If student loans paid attention to how likely they were to be paid back then, as a first approximation, they would only be offered to people with above average income attending elite schools and poor people would be cut out of college more completely than they currently are- and they would pay much more attention to your degree, school etc. Everyone who goes to a Ivy would get loans, many people who go to regional schools wouldn't, because they aren't good bets to pay off the loans (people who graduate, as a first approximation, pay off loans; people who drop out don't, and community colleges and regional schools which focus on non-traditional students who have real lives already have much higher drop-out rates than Harvard- this is different in practice because of Pell Grants but that's a different issue). The reason that they are offered student loans is because the government guarantees them, so they have lower interest rates (yes its higher than a mortgage, but its much lower than a credit card or payday loan, which are the other unsecured loans the average person has access to), ignore your school, major, etc. and are available to every US citizen.

But if the government guarantees the loan, then isn't someone who defaults on this unsecured debt ripping off the American taxpayer? Easy to see how this can be gamed and the student portrayed as the bad guy, because of how the system works. Even those doctors at the beginning deserve a better system, but Americans first instinct wasn't 'let's fix this so that the doctors don't go into such debt' it was "lets make sure those cheaters don't profit off of ripping off the taxpayer." And that instinct is how we ended up here.

[1]: Obviously if you buy a new car the debt will be greater than the value of the car (because the car loses so much value when you drive it off the lot) but they have fancy economic models to account for that, and the house has an appraisal to prove that it can be sold for more than they are loaning out.

Private lenders do try and cherry-pick the very best borrowers out of the federal system; my wife graduated 5 years ago with a doctorate in Pharmacy and >100,000 in debt, and she got many advertisements to refinance her education loans because she was a pharmacist who was paying enough to finish off her loans in 5 years- she was a great bet to pay off her loans in total, so SoFi, Navient and a whole bunch of their competitors wanted her to refinance through them, but only the DoE was interested in paying for her at the beginning of grad school.

That's the whole thesis behind making the loans in the first place.

But also, the ambitious and valuable people are the ones who can pay back their loans.

[1] https://upsolve.org/learn/how-often-can-you-file-bankruptcy/ (Control-F “Time Limits”)

It’s like saying that you don’t need seatbelts in the car, because you have good medical insurance.

USA obsession with credit is the root cause of the issue, and relatively generous bankruptcy laws are a smoke gun to keep the show going and make people comfortable with a system rigged against them.

Credit makes a lot of money for a lot of companies, and risk of customers bankruptcy is just a cost of business for them, designed carefully to ensure they still end up making money.

Private student loans currently can be as high as 12.99% fixed: https://www.bankrate.com/loans/student-loans/current-interes...

The estimated 2021 cost of attendance at the public school i graduated from are low enough that you should still be able to graduate with less then "6 figures debt" scenario that's tossed around, especially if you're working a part-time job throughout your education. If in-state schools are too expensive for federal govt to fund, then that's the state's problem to solve since that seems like a broken public college system.

Kids should have a right to education, but if someone doesn't have the money or is getting a degree without prospect of sustainable financial return then they should be prevented from making the bad decision of going to a more expensive private university.

I was making about $35K per year but was careful to have excellent credit. It can be done.

Renegotiating isn't the same as refinancing. You can see the refinance rates lower down on the page you linked above. The rates are significantly lower.

Refinancing student loan debt is an extremely common scenario. It's not an impossible edge case. It would be difficult to do if the person had worked themselves into a situation where they have unreasonably high debt burdens (e.g. $200K+) but no career to speak of, so it's not a magic bullet.

There is a way: income-driven repayment plans. There are several flavors, but you pay ~10% of (your_income - 1.5 x federal_poverty_wage). The poverty guideline depends on household size (info here: https://aspe.hhs.gov/topics/poverty-economic-mobility/povert...). Most loans are eligible.

Any balance that is left after 20 years is forgiven. It’s a lot harder to default on these loans, and it’s the best way out for people with an insurmountable amount of debt. Actually, it’s probably the best repayment plan for most people, and there has been talk about making them the default plan.

However, you may have to pay taxes in the forgiven amount. There are some edge cases where you could pay more over the life of the loan if your income increases dramatically, but it’s unlikely.

More info: https://studentaid.gov/manage-loans/repayment/plans/income-d...

Are you happy to say this with a straight face?

Honestly, what would you prefer? That people are forced to repay loans they can't afford? Or that nobody is allowed to take out a loan unless they have enough capital in the bank to repay the loan anyway (e.g. loans are only for rich people)?

Does it though? I thought the same thing until I started paying tuition for my kids private elementary schools. It’s almost as much as college and no loans around to distort prices.

As a result, private school remains kind of a luxury product for people who don't like the free public offering and can afford to pay to send their kids somewhere else.

I can only imagine that if we extended some version of our school loan program to primary/secondary education we would have a lot of highly indebted parents or, god forbid, children, and an explosion of private schools.

Ultimately, it would also drive prices up. The high end would need to be more exclusive (expensive) and everyone else would compete on perceived quality more than price.

Moreover, the owner of the school drives a Toyota. I think my point is that the cost of providing an education is greater than many people think. It's not like colleges are turning a profit off of tuition.

Just pay off the money and then you're out, right?

We absolutely need to destigmatize bankruptcy, too. And also do things like make medical and student debt dischargeable. Debt is and always should be a risk -- for the lender, who is literally getting free money out of the contract.

I am in the UK

This astounded me. Bankruptcy in the UK would wipe out student loans. However it is fair to say that bankruptcy also carries a stigma in the UK. It also restricts you from certain professions

In my personal opinion a free financial course should be required before you first get your SSN and then no higher than a $500 credit limit for 6 months after.

People declaring bankruptcy aren't in a position to have good credit scores or acquire more assets anyway. If you can't service your debts, you're not going to be securing more loans and buying more assets.

Bankruptcy is a chance to reset the debt to $0 and start over. The bankruptcy even drops off your credit score entirely after several years, making it a complete reset.

Bankruptcy is better in every way than forcing people to service those debts forever.

Student loan debt should be able to be discharged in bankruptcy. If an institution gives someone a $200k education and that person can’t pay the debt back with their career, it was overpriced and should have never been give a loan.

I’ve seen people flee the country and live in Australia or Germany so as just to escape their student loans. Bad on them for making the poor financial choice but good for them sticking it to the industry that gives out these loans.

For example, how do you prevent people from finishing college, immediately declaring bankruptcy, and then getting a high-paying job with their degree? Unlike a house or car, the education can't be repossessed so the holder retains all of the upside.

It would be the ultimate financial hack to get a medical degree, declare bankruptcy, and then immediately start practicing once the bankruptcy went through.

So obviously there would need to be a lot of protections against abuse. Perhaps a provision that the student loan could only be discharged after a protracted period (many years) of too-low income.

Ironically, there's a huge resistance to this idea from within humanities departments. They fear (rightly so) that such provisions would make it harder to get loans for humanities degrees because they pay significantly less. I don't think that's really a bad thing, but you'll find some outspoken arguments against this from people in the academic world.

If you're suggesting that some things are only possible to fund through slavery, may I humbly submit that slavery is still wrong, and things which cannot be funded except through slavery have no right to existence?

It is entirely possible to have fair deals where you get an education in exchange for X percent of the income you have over Y minimum, for Z years.

Specifically, you're selling future labor in exchange for an asset that you can't immediately liquidate to pay off the debt. This is not acceptable, if the counterparty makes a profit from it. (If you could immediately liquidate it, at that point there would be no need to make recourse to your earning power)

And I personally wouldn't call a 10 year 0-10% cut of income "indentured servitude" so that's not a very useful way to figure things out.

> Specifically, you're selling future labor in exchange for an asset that you can't immediately liquidate to pay off the debt. This is not acceptable, if the counterparty makes a profit from it. (If you could immediately liquidate it, at that point there would be no need to make recourse to your earning power)

Doesn't the same thing happen if I use a loan to buy almost any product? As soon as it becomes mine, it becomes used, and liquidating it wouldn't be enough to pay off the loan. I don't think all those loans are immoral.

Is there a difference? Or do you think both are unacceptable?

And look, I'm fine with saying you could discharge this college revenue-repayment loan in bankruptcy if you were actually in need of doing so, but I'm trying to describe the kind of repayment terms where that would basically never be needed. If your income isn't above the threshold then you owe $0 and the loan goes away by itself after a few years.

Loans by themselves are acceptable; loans with interest are not, because you're making a profit from what could potentially be slavery.

A licit way to do it would be to have a purchase-repurchase agreement. I pay $5000 to "buy" a car, and I'm guaranteed to be able to sell it back for let's say $4000 a week later. That way, if I default on it, I can never end up in debt.

Loans backed by people's ability to earn income are a form of slavery, and earning interest off this is not licit.

If you want it to be easy to get the loan payments reduced or even cancelled when you're having money problems, then you need to make a profit off the people that do have plenty of money. And isn't that even better than returning what you got?

> Loans backed by people's ability to earn income are a form of slavery, and earning interest off this is not licit.

To my mind, the whole point of the minimum threshold for the type of loan I'm describing is so it can't be slavery. If you don't have lots of money, the debt just disappears. If you're wealthy... then you're wealthy, not a debt slave.

Teenagers applying for college usually don't have personal credit histories to be evaluated. Either we give out lots of student loans, or we don't.

State schools and schools with high admission percentages might get cheaper in tuition, but it’s still going to be expensive to live and eat for 4 years with no income coming in for most of the year.

1 in 20 applicants is only the top 5%. Being in the top 5% income earners in the country is not a high enough bar to shell out $50k a year extra post tax to pay a child’s tuition.

Harvard draws from all over the world and many US upper-middle class parents/grandparents are willing to save for 20 years or use HELOCs; they don’t have to pay out of current income. Upper class can just pay for it (there are well over 1M households in the US alone with a net worth over $10M; those people would barely notice putting little Chris through Harvard).

If student loans were entirely outlawed, Harvard wouldn’t need to lower its prices; it would just end up not having poor people attending.

Why would a student not want to work part time to have a little income? I found it beneficial.

That's... kinda ridiculous. My twitter feed[1] is absolutely filled with flush 20-somethings who clearly aren't seven years into their careers showing off their NFTs and cars and condos and whatnot.

People right out of college with zero assets are getting loans. People right out of bankruptcy can't. So it's not the same.

[1] Seeded, it seems, from my following of a few Tesla-related accounts. There's... a somewhat distressing level of overlap.

And when you have a lawsuit filed against you in a comparative negligence[0] jurisdiction, even if you have no debt at all, bankruptcy may be your only choice -- when the lawyer's fees will bankrupt you even if you win the lawsuit (let alone having to pay even a small percentage of a seven or eight-figure judgement).

What financial advice (free or otherwise) can you give to someone in that situation? I was in that situation and faced either bankruptcy after trial (even if I won) or bankruptcy before trial and still lose access to favorable credit terms.

Bankruptcy guaranteed. With no bad financial decisions or lack of financial education needed.

If your scenario (ignorant people making bad financial decision) were the only issue, I might agree with you. But there are a whole bunch of other scenarios that don't include bad decisions.

All you need is someone to sue you for some large amount of money (even if there's no merit to the suit, the lawyer's fees for going to trial will do the job) or incur large medical bills for injuries/illnesses that have nothing to do with poor choices.

[0] https://www.law.cornell.edu/wex/comparative_negligence

Edit: Added the missing link.

While I appreciate the sentiment, SSN is required for anyone to be claimed as a dependent. My Children had theirs issued shortly after birth. I rather see something alonog a required class before you can open your first credit card. I got mine in college and had a $25k credit limit by the time I graduated. It was very easy for classmates of mine to get into serious debt.

Because I've always thought that was a very generous law indeed.

Yo, student loan rates are like 7%. It's not a payday loan, but it is still essentially unfinanceable.

Source: https://www.bankrate.com/loans/student-loans/current-interes...

Of course it's always possible to go find higher rates depending on the situation, but the averages are closer to 3-4% than 7%.

Yo, only parent and graduate loans are close to that, of federal loans (private loans are another issue, and also probably involve an unaccredited institution that doesn't qualify for federal loans):

https://studentaid.gov/understand-aid/types/loans/interest-r...

And since raising rates is the way they're going to stop inflation, like it or not, that 4% is going to end real soon and kids will be back to 5-7% in the next few years.

Subsidized loans were at 6.80% for the first two years they used fixed interest (the academic years 2006-2007 and 2007-2008); this is the highest they have ever been under the fixed interest regime; there are three additional years they were at 5% or higher.

Under the variable interest regime before that, they spent some time at 7% or above in the 1990s, but those would have fallen with general interest rates.

Or we could just fix the system so that people don't need to use bankruptcy in the first place.

The only people who benefit from the "there's always bankruptcy" attitude is lawyers.