It is remarkable that you cannot declare bankruptcy from student debt. We have essentially decoupled the price of college from the expected return.
Yeah, but that's exactly why no one would ever lend that amount in the first place. That, I believe, was the OP's point. College should not cost what it does. And part of that reason is federal guarantees upon the debt. So colleges can raise the price and since the debt is guaranteed creditors are happy to lend. Essentially, there is no check and balance on the price of education that exists for pretty much everything else that might be financed (i.e. a car).
"IMO the only way to solve it is to put the school on the hook for part of the $$ if the default rate exceeds X%."
Totally disagree. That seems to violate every notion of contract law that exists. The colleges are not taking part in the loan process. They are not agreeing to take any monetary risk on the individual. They are simply offering a service at a (bloated) price. The debtor agrees to take on debt to pay for the service and the creditor agrees to take the risk. The college should not be brought into that totally separate contractual agreement. That's like holding an employer responsible for debts that an employee defaults upon because the employer had cutbacks and laid off the employee.
The education system used to work fairly well in this country several decades ago. You used to be able to go to college and pay for it in a very reasonable amount of time even through minimum wage jobs. Loans weren't even necessary. And when the end user pays the bills, the connection to cost is there so people pay attention to what it really costs because they bare the brunt of it right away and it's not hidden (so to speak) from them through loans that are paid off over 10-20 years.
It was only when the government decided that something was "wrong" and needed to be improved that the system started going to shit and getting ever more expensive and the product (education) getting worse and worse - the quality of the education people are paying for nowadays is abysmal half the time.
I discussed this recently in another thread with some specific numbers attached to my explanation: https://news.ycombinator.com/item?id=15647956
That is...a pretty remarkable claim. I think there are a fair number of people - lots of women, lots of people who grew up smart and poor, lots of non-white folks - who would contest that pretty stridently.
I'm referring purely to the quality of higher education for the price that was paid. Accounting for inflation, in real terms the price that was paid for college was a small fraction of what is being paid today. And anyone (who was not subject to artificial limitations on access) could pay for it in a very reasonable amount of time and not go into debt by working, as I showed in that link, ~250 hours a year at minimum wage to pay tuition - tuition assumed to be for one semester, not two - so double that to ~500 hours a year at minimum wage to pay for the whole cost of that year's tuition. That's extremely affordable and no one had to go into debt to do it. In fact my father did exactly this in the early 80's. He worked part time and went to school and had no debt upon graduating.
And that could be a decent second life for abandoned retail shopping malls, too.
It might also be nice for such an institution to adopt a libre-license or gratis-license policy for all course materials, such that textbooks and lecture notes are essentially sold for the printing and distribution costs, and electronic versions downloadable at no additional charge.
And since some of those new colleges will fail, establish a succession plan to begin with, so that the student records can be easily maintained and transferred.
Even if you cut established university costs to the bone, you still eventually run up against the problem that there isn't enough undergraduate instruction capacity in them to serve the growing demand for bachelor's degrees. You're going to need to build out anyway, and private universities aren't necessarily going to do enough of that if it drops the market price for tuition.
(I don't mean the above to really try to address whether it is feasible, just to point out that the situation has changed)
If you were to eliminate student loans, costs would drop like a rock. You wouldn’t have universities hiring endless Vice Provosts of Some Bullshit Initiative or spending 10s of millions building “Student Life Centers” or luxury-level athletic facilities for sports that aren’t revenue self-sustaining. Universities are like the military — they pay the privates (adjunct professors) almost nothing while spending huge money on things like the Crusader Artilley System (insert random boondoggle university initiative here.)
Considering university tuition at a private university for a single student per year is literally more expensive than the salary of a single low level professor, it’s clear universities are running quite a racket. And we haven’t even touched on the insanity that is textbook pricing.
Woah. Maybe a few freshmen should band together and hire some PhDs to assemble a fire-and-forget university. If you can pay for one professor per student, a class of 20 students who want to major in the same thing could easily fund 4-6 classes/year and have a factor of five left over to rent a nice room in the community center. Obviously this isn't about education anymore.
Just like any area of lending, it's on the bank to assess the risk of lending.
(And as an aside and I say down below: This is why I feel banks shouldn't be in this position.)
The Dep't of Education also gives out direct federal loans and grants, and sometimes those private banks service those loans, but federal financing is now not quite enough to pay for a whole degree, so private loans are filling the gap, at greater expense to the students.
But is it really worse than the current situation - where people borrow to study something enlightening but economically questionable, and then struggle for decades as they can't pay the debts nor declare bankruptcy?
I agree that studying arts is worthwhile, both for the individual and society as a whole. But there has to be someone to tell the 18-year-olds that they can't borrow $100k for it, or they are making things worse for themselves.
Perhaps if banks adjusted loan amounts to potential future income, then arts faculties will be forced to lower tuition fees. And some students will correctly see that they just can't afford it - better to discover that before starting instead of after graduation.
The hypothesis is that if students can't get the loans then the schools can't charge as much and have to become leaner. Combine this with a social change in perception of "you need to go to college to be successful" and I think the idea has merits. Simplified and not the full answer, but it definitely has merits.
I stand by my point because banks shouldn't be in this position. People aren't companies and they shouldn't be looked at in terms of returns. I (and this is my completely personal opinion) think either education should be free or only the government should provide education assistance.
The smart person who is born poor or a minority will do just fine as their grades will carry them. Thus a bank should give them a loan - based on their high school report card.
The "stupid" person regardless of background is unlikely to do well and should not get a loan.
Spoken exactly like someone who was not poor and not a minority.
Being poor creates a network effect of issues that can keep VERY smart kids down for a long time. Being poor and having all of your relatives be poor too means you have no mentor network and very few ways out. Being poor with poor parents that are working three jobs just to afford food and shelter or aren’t working because they’ve given up (or were given up on) means that your most direct line of support is pretty much absent and that you are on your own. Very few kids make it out of this situation.
It is a very hard problem to fix.
If you WERE poor and a minority and are saying this, then you should DEFINITELY know that you were an aberration.
Note, this comment applies to the other poster as well.
This seems to be some undying myth that is really effective because it allows individuals to gloss over personal value judgements about individual's educational choices under the guise of economics. It massively oversummarizes college education AND market economics. It is a bad idiom used to undermine any area of thought (e.g., when I heard it applied to mechanical engineering "because mechE's don't code") that it requires more than two neurons to see the value to society from.
The role of education is to provide value to society, not simply provide labor to company's who create one form of value (i.e., capital).
That's why so many people make that point. I totally agree with you, everybody should study what they find interesting and the role of universities should be to provide education rather than vocation.
But if someone knows they are gonna rack up $100k+ in debts, they should seriously weigh their interest in a subject against the expected (monetary) outcome of getting that degree.
"At the end of the day, maybe giving an 18 year old 120k to study underwater basket weaving for 4 years is not the best investment of money?"
I think this burden should be on the lender first then the student. Banks don't just hand out money to an 18 year old for a business venture but they do for school because the government guarantees they can get it back.
Surely it isn't
If no major banks will give student loans, than it will be smaller, low tier loan sharks at higher rates.
As some states in US, and other countries do have some programs where the state is either the guarantor or a partial payer, that will make things worse for the taxpayers.
Invention of student loans has unleashed the genie from the bottle.
No way back, just as it was with state backed mortgages that did just 2 things: made buying houses for cash patently impossible for an average Joe, made an average Joe having to pay for foreclosures and mortgage interest of another average Joe with his tax money.
While I agree with that (a lot), you can repossess a degree. The school can choose to disavow knowledge of a student. Employer tries to verify your degree, nope, don't know you. You cannot repossess an education, but you can repossess a degree. How important that is, I'm not sure. Your other solution (clawing back money from the schools for useless/overpriced degrees) is far more elegant IMO.
"We refuse to confirm or deny"
Or
"We see that person in our records, but, we aren't allowed to disclose if they did/did not complete a degree (and what that degree might be) because their account is blocked."
There are lots of ways that it can be tweaked to be legal. I still think it's not as good of an idea as clawing money back from the schools. They created the mess, they can fix it.
Of course the HR blacklist needs to be protected by HIPPA like laws against misuse. A company should expect to sometimes hire someone and then find out they cannot promote them very far.
Just because you made a mistake 20 years ago doesn't mean you should never be allowed again. We're not talking about murder; and this is directly messing with someone's livelihood.
If you'd be stupid not to do it, how many people have actually done it? If it was actually done at a certain rate, why wasn't that rate priced in?
>IMO the only way to solve it is to put the school on the hook for part of the $$ if the default rate exceeds X%.
This is a pretty good proposal.
Yes, you can, it's just more difficult than other unsecured debt. This is a distressing popular myth which leads people to fail to explore their options.
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...
7 years for chapter 13, 10 years for chapter 7
As to why we require loans to be originated without regard to credit risk: if we took credit risk into account, disadvantaged groups would get student loans at drastically decreased rates. That, in turn, would undermine our bipartisan narrative that the way to overcome all the bad things America did to certain people is not to fix the resulting problems, but for everyone to get a college education.
The basic structure of this argument is really straightforward: if student loans were dischargeable in bankruptcy, it would be irrational for a lot of student borrowers not to go into chapter 7 after school, when their earnings are so low that they qualify and their time horizon for major financial decisions is so far into the future that their current credit rating doesn't matter.
That's not entirely true.
For undergraduate students, no more than $57,500 can be loaned from the government at a fixed 4.45% APR. This is what you're talking about.
If you need more than $57k (which you would even at most state schools) you need to get a private loan. Private loans have variable APR based on your and your cosigners credit history. Sallie Mae offers loans with an APR between 5.74 and 11.85.
Also, not sure about the 4.45%. My federal are more than that.
Those are unlikely to be drastically decreased. What will drastically decrease is the amount of people, of any color, who can afford an art history degree. That is a good thing, especially for those who will be the first in their family who are going to college, and are therefore more likely to be swindled into one of those degrees in the first place.
It's difficult to loan 18-year olds money as they tend to lack income and credit worthiness and it's also unreasonable to expect an 18-year old to really understand the future debt they are setting themselves up for.
This has resulted in costs spiraling out of control, as universities can charge whatever they want with minimal repercussions, and students often end up with the STD known as student loans haunting them for the rest of their lives.
It's better now. Yay!