How would one repossess an education? Isn't that the reason student loans are not dischargeable?
Just because it's unsecured doesn't mean we shouldn't be able to discharge it with bankruptcy.
Get the government out of the loan business and the market will correct itself. You won't be able to get a loan for a useless degree and if you end up being unable to pay off your loan you can go through normal bankruptcy proceedings and their consequences.
Then again, if less ppl could afford a degree in Queer Musicology (does exist - https://www.musicology.ucla.edu/mission-and-history-1) or let's say Environmental Studies etc maybe the supply and demand would even out so that'll be a good thing.
Given that federal loans have always had rates set by government policy (not market rates) and the fact that private participation in the program was ended in favor of exclusively direct loans in 2010, I'm not sure what the concern for "market rates" is -- there is no market involved.
If you got rid of the insanity that is federal loans it would just increase demand for state schools and community college.
God forbid.
Absent a government, lending is a lose-lose situation. The lender has little recourse to compel the lendee to pay, and the lendee has no protection from the lender.
http://www.economist.com/node/21559618 quoting a research paper:
"With all factors present, net tuition increases from $6,100 to $12,559. As column 4 demonstrates, the demand shocks — which consist mostly of changes in financial aid — account for the lion’s share of the higher tuition."
And then:
"so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay."
If existing lenders aren't willing to loan to minorities, then there would be a fantastic opening to make a profit in loaning money to poor minorities with high test scores to study STEM.
The US is very deeply invested in the idea that the way to overcome the disadvantages faced by members of certain minorities is education. But those same disadvantages make those students worse credit risks. A credit-based system looking to optimize return wouldn't give these students access to the same educational opportunities.
If the problem is that minority students have difficulty achieving at the level of white students, let's focus on that. I don't think it's very helpful that we saddle these students up with loans but then they don't even end up graduating. Instead of forcing lenders to lend to bad credit risks, let's come up with ways to support minority students so they aren't credit risks. I personally would be happy to invest in minority students studying CS, for example.
And yes, it will be somewhat painful in the short term. We'll have to confront the reality that lending to students with low SAT scores to study esoteric subjects is maybe not a good idea. Perhaps it would even encourage such students to not waste their time and money on bad degrees.
You can't.
> Isn't that the reason student loans are not dischargeable?
No.
First, student loans are, in fact, dischargeable, though there is a higher bar to discharging them. So expalanations of why they are not dischargeable are unnecessary (and necessarily incorrect.)
But, more to the point, unsecured loans in general are dischargeable without the heightened requirements that apply to student loans; not having something to repossess isn't a difference between student loans and other unsecured loans, so cannot explain the difference in treatment.
>You can't.
Yet. ;)
[1] <https://studentaid.ed.gov/sa/about/announcements/itt/faq>
Explanations of why they are more difficult to discharge is certainly necessary, though.
I'm also curious how student loans can be discharged except via death of the lendee. It probably happens, but I don't personally know anyone who has discharged subsidized student loans in bankruptcy. (I do know people who have discharged unsubsidized private student loans in bankruptcy.)
(Also, "borrower" is the more usual term, rather than "lendee".)
(Also, agree on "borrower". It's late and I'm exhausted and all I could come up with was "lendee".)
I work in the industry, some of the ways you can have your student loans discharged are:
False Certification (Ability to Benefit): For forgiving a borrower's loan based upon a false certification of the borrower's ability to receive benefits to attend college because he/she doesn't have a GED or high school diploma.
False Certification (Disqualifying Status): For forgiving a borrower's loan based on the borrower's disqualifying condition(s) for the degree.
False Certification (Unauthorized Signature/Unauthorized Payment): For forgiving a borrower's loan based upon endorsement or certification of the promissory note, disbursement, or application by an unauthorized person.
School Closure: For forgiving a borrower's loan based upon a school closure that prevents the borrower from completing his/her degree or program.
Unpaid Refund: For forgiving the borrower's loan because the borrower's school did not provide the correct refund to the borrower's lender.
Teacher Loan Forgiveness Forbearance: For borrowers who are eligible for the Teacher Loan Forgiveness program and whose entire outstanding balance will be forgiven at the end of their fifth year of teaching in a qualifying school.
Total and Permanent Disability: For borrowers who are unable to repay their Federal Family Loan Program student loans due to total and permanent disability (as defined by the U.S. Department of Education).