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Comment by krisroadruck | Hacker News Reader

I'm curious why we treat student loan debt as being special. We don't make a huge deal out of people taking on other debt and then being unable to pay for it. I think probably if anything, what we should have are better controls for what types of degrees you are allowed to take a loan out for. If your degree of choice is unlikely to yield the kind of return that will pay for it, then you should be required to save up for it, rather than getting a loan, just like there are qualifications for other loans, like auto or mortgages which look at both the value of the asset vs its sale price, and your ability to pay. If some kid takes out $100K in debt to pay for a degree in finger painting how is that anyone but the borrowers (and possibly the bank who approved it) fault?

TL;DR - When handing out student loans, we should consider aptitude (how likely is the person to graduate) & the career potential of the degree as qualifiers.

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> I'm curious why we treat student loan debt as being special.

Because you can no longer declare bankruptcy to erase student debt.

> If your degree of choice is unlikely to yield the kind of return that will pay for it, then you should be required to save up for it, rather than getting a loan, just like there are qualifications for other loans, like auto or mortgages which look at both the value of the asset vs its sale price, and your ability to pay.

Now only the rich can send their kids to art school.

> TL;DR - When handing out student loans, we should consider aptitude (how likely is the person to graduate) & the career potential of the degree as qualifiers.

So people like my wife who didn't do that great in high school because of poor family environment would never be able to prove their true abilities in college. She was the valedictorian of her masters program. Without student loans, she'd be making 1/5th of her salary but you couldn't tell that a decade ago.

It's true only the rich could send their kids to art school, but there are lots of things only the rich can do. What makes you define art school in particular as something we should pay for everyone to do, rather than a luxury?

Keep in mind that resources are limited -- for a given level of taxation, everything the State spends money on means either cutting something else or increasing the debt (thereby making debt service less likely to be sustainable long-term)

> What makes you define art school in particular as something we should pay for everyone to do, rather than a luxury?

We're not outright paying for it. We're taking a risk on it. If we create a society that supports art and culture, then these degrees will result in good paying careers. If we create a society where 9/10 art students end up as baristas, then we're losing a slice of humanity in addition to the unpayable student debt.

We can get into a debate of whether one needs art school to have a career in art but that's not the point I was trying to make. If a university teaches 100 subjects, do we want to be a society that says only kids whose parents make over $250k can afford to be in these 10 specific majors?

If 9 of the 10 art students end up as baristas, it might be because we're not creating a society that supports art and culture. But it might also be because colleges are accepting people who weren't paying attention to exponential functions in math class and can't make basic decisions like the true cost of a loan vs. risk, and then obviously struggle to thrive financially enough to pay it off. We're all worried about the art students, ignoring the fact that they clearly didn't take advantage of lower levels of education that were completely free.

It's better for society if the few university spots in art school are allocated based on aptitude rather than wealth of one's parent.

Anglo societies value art much more than they're willing to fork over cash for. Remove all art and tools, and life would be bleak (no movies, no music, etc), but we're sort of blind to that fact.

Then demand for art would increase and art would be profitable again!

Seriously, you guys make way too much art right now. Supply is much greater then demand.

We want to subsidize poor people for art because often the best artists are poor. Hell, it's literally a cliche.

But the reason poor people make great art is that they are not part of the elitist orthodoxy. If they go to an expensive art school they would lose that advantage.

the elite buy art so art caters to the orthodoxy

Poor artists with no debt can choose to be starving artists if they want, but poor artists who go to college must sell to the elites because they have college debt to pay.

prices would lower so it's not only the the rich.

Right now it benefits the rich a great deal since they can afford unpaid internships or low paying entry jobs

I'm curious why we treat student loan debt as being special.

Because it is. If student loan debt was treated exactly the same way as every other form of debt, 95% of rational students would declare bankruptcy as soon as they graduated, since their financial wealth at that point would be negative and their intangible wealth -- primarily the education they've received -- can't be repossessed and sold off. Obviously no lender would want to issue loans under such conditions; so treating student loan debt the same way as other debt would simply result in student loans not existing.

But as a society we're better off if students can borrow money to get training which significantly increases their future earnings[1], so the government steps in with regulations to prevent strategic defaults on student loans. Unfortunately, it's very hard to distinguish between strategic and non-strategic defaults... and so we get the current situation, where some people have large amounts of "zombie" student loan debt.

Ultimately what is needed is a system which doesn't allow for strategic defaults but simultaneously avoids having punitive repayments; many countries around the world are moving to income-based repayments for this reason -- that is, you can't get rid of your student debt by declaring bankruptcy, but your minimum payments won't exceed a formula based on your income (e.g., $5 out of every $100 you earn past $15k/year).

[1] Not all degrees do increase students' future earnings, but academic institutions are very good at misleading students about this. We need stronger regulations here, and not just for the benefit of students taking loans; I think the best approach would be to add questions to the Census about the specific academic qualifications individuals have and then report -- and require institutions to republish -- the average incomes of graduates of particular programs. This would not be perfect, since students entering higher education are biased towards higher incomes whether they get that higher education or not; but it would be better than the present complete lack of information.

until a few decades ago, you could declare bankruptcy on student loans. 95% did not declare bankruptcy....in fact the rate was tiny.

> Why we treat student loan debt debt as being different

Where is the collateral? You buy a house, don't pay... you lose the house.

You buy an education, don't pay... you... lose the education?

No bank is going to give money for degrees without a realistic change of getting paid back. They have no fear of getting paid back because you CANT remove the debt via bankruptcy.

I think there needs to be a different approach because it IS different... but the "you can never remove this debt" is too much.

My personal opinion:

Give some sort of limit - 10/20/30 years? - and some sort of max% of income - 10%?. If the loan isn't paid off by the end of the limit at a max % of income, then the loan can then be discharged by bankruptcy.

That would remove loans for "crap" courses (finger painting) except for those that pay for it out of pocket. Banks would still give loans for courses that lead to real jobs. Kids could still take shit degrees if they can pay for them (although, those would dry up).

This already exists in the USA. It's called Income Based Repayment and the outstanding balance of loans and interest is forgiven after 30 years of making payments capped to a certain percentage of income. There is a tax penalty that may or may not still exist in 30 years.

Under the new plan (retroactively available to old borrowers), it's only 20 years not 30.

And Even if they don't fix the tax penalty, there's an insolvency exception. You're only taxed on the amount forgiven above insolvency.

If you manage to go 20 years without paying it's likely you have far more liabilities than assets so you probably won't pay any tax penalty.

>No bank is going to give money for degrees without a realistic change of getting paid back.

Then they shouldn't. A big part of the problem is that the negative externalities of loans are all but eliminated from the issuer and completely placed on the borrower, only that these borrowers almost always unaware or don't fully appreciate the risk. If we allowed student loans to be shed through bankruptcy then companies would stop giving out $100k loans for art degrees and history degrees. This is the sort of risk/reward calculation that most incoming students aren't equipped to make, but actuaries are great at. Why don't we let them?

> If we allowed student loans to be shed through bankruptcy then companies would stop giving out $100k loans for art degrees and history degrees.

> Why don't we let them?

You've answered your own question, no ? Or at least pointed out one big center of opposition. Additionally, universities themselves will vehemently oppose this of course.

> Where is the collateral? You buy a house, don't pay... you lose the house.

And what happens when the bubble bursts and the house is now worth 200k less than what it was originally purchased for? The bank writes it off.

So I propose we give everyone a paperclip with their degree and then if they file for bankruptcy they can give the paperclip, which depreciated 50-100k, back to the bank. It works for boomers so I think it'll work for millennials.

...I'm only half kidding with this comment.

How about giving back the diploma itself?

Nobody actually cares about the piece of paper.

If you are an employer are you going to call up to university just to make sure that the student has paid their students loans?

No, whether or not they've paid their loans has zero to do with their qualifications, or your reasons for hiring you.

>Give some sort of limit - 10/20/30 years? - and some sort of max% of income - 10%?. If the loan isn't paid off by the end of the limit at a max % of income, then the loan can then be discharged by bankruptcy.

This is how it's more or less handled in Canada. You're able to discharge your student loans through bankruptcy 7 years after you graduated. It prevents abuse, while offering some respite to those who fall into deep financial problems. Seems fair to me.

Because it cannot be discharged in bankruptcy. So there is no incentive for the lender to make sure your degree will earn you enough money to pay it back.

The problem here is that because student loans are so protected this means they don't have to ask what degree the loan is for. To the banks there is little risk here. This is one of the many factors going into it, but that's why banks will hand out so much money and for whatever degree a young person that definitely knows what they want to do and has their whole future planned out.

No risk to lenders.

The vast majority of student loans around 90% IIRC are directly from the federal government, not banks.

We treat it as special because it's not a tangible asset.

If you run into extreme hardship, I can't repossess and sell your 4 years of education/partying for a market rate of its value.

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