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Comment by cbr | Hacker News Reader

The standard argument for why student loan debt survives bankruptcy is that otherwise students would declare bankruptcy on graduation. At least with our current system, where bankruptcy is wiped from your record after 7 (or 10) years this would be a good move for most students.

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Canada solved this in the most obvious way possible:

> If you file bankruptcy in Canada a federally guaranteed student loan is only automatically discharged if the date of your bankruptcy is more than seven years from when you ceased to be a student. This rule was created to prevent student from incurring huge student loans, and then graduating and immediately going bankruptcy.

[1] https://bankruptcy-canada.com/bankruptcy-blog/bankruptcy-can...

Or just look at how other countries do it - in UK your payments for the student loan are taken automatically from your salary each month(10% of anything above 20k/year - so if you make less than 20k/year you don't pay anything), but if there is any outstanding balance after 20 years it's automatically forgiven. No need to declare bankrupcy since if you can't pay it back there is simply nothing to pay. If you have a job it's paid back automatically without the employee having to do anything. If it's paid off in 20 years = great. If not = no big deal, you just get a letter saying that your outstanding balance is now zero.

I guess that system is possible because all loans are provided by the Student Loans Company which is ran by the government - and tuition is capped at 10k/year, so it doesn't matter what or where you study - the cost is exactly the same.

We have a system like this in the US.

>The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.

[1] https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...

Just note that very few jobs qualify you for PSLF. Also, I believe if you ever opted for another type of repayment plan (IBR) you wont qualify.

This is only available to public service workers.

Small correction: current loans are written off after 30 years, not 20.

Also worth noting that loans can still be sold off by the SLC (though remain managed by the SLC, so probably makes little if any difference to the individual), and government ownership hasn't completely stopped the use of questionable tactics (e.g. debt collection letters purporting to be from "Smith Lawson & Company").

There are better ways to counteract that. Off the top of my head - if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. Additionally you take a 5% tax increase for the duration of that window.

Not allowing people to put money in retirement accounts just means the govt has to support those people that much more when they get to old age, instead of them supporting themselves and getting tax revenue from the withdrawal.

And a %5 tax increase sounds like a pretty good deal. For most people it's going to be $25-$50k total, and you have no bill due when your unemployed.

I don't know if it wouldn't work out better for everyone but the lender. People paying student onerous student loans, like myself, already aren't putting money into retirement accounts because the banks are taking it all.

If I could just cut out student loan payments the money would go towards paying down any outstanding debt or towards buying a house/condo which would help me not need support in retirement. The tax advantaged retirement funds are nice but many people with student loan debt it's like telling them they have won't have to pay taxes on any yachts they buy. Technically nice, but practically useless

Being on the government dole in the US is not an outcome anyone would plan for. You're lucky if you can heat your apartment (if you even have your own) and eat processed cheese on what you'd be getting.

Also, many (most?) student debts are less than $25k, and unpayable huge debts should never have been approved in the first place. The latter clause is the whole point of this anyway.

> if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window.

That's something that a large percentage of people do anyway. What a strange and poorly-thought-out suggestion.

It's also a sure fire way for the public to have to spend even MORE on social programs since you'll be even more likely to reach retirement with zero money.

What good could possibly come from intentionally banning someone from saving for retirement?

This is somewhat the case in a chapter 13 bankruptcy. You generally can’t contribute to a retirement savings during the 5 years of the bankruptcy

>Off the top of my head - if you declare bankruptcy to evict student loans, you are ineligible for retirement account contributions like IRA and 401ks for the 7-10 year window. Additionally you take a 5% tax increase for the duration of that window.

Why don't we just do that for everyone, and make higher education free. This works for the absolute majority of students. Provide an opt-out for the few that can pony up the cash up front.

You could probably turn education free by reducing the defence budget by a few percentage points.

One of the reasons I'm happy to be European. Education is free in most countries. It makes no sense to burden young people with a load of debt when starting out.

> You could probably turn education free by reducing the defence budget by a few percentage points.

According to https://nces.ed.gov/fastfacts/display.asp?id=75, in the 2014–2015 school year U.S. colleges & universities spent $536 billion; the 2014 defense budget was $526.6 billion[0]. We could spend our entire defense budget and still not cover our higher education bill.

[0] http://comptroller.defense.gov/Portals/45/Documents/defbudge...

>U.S. colleges & universities spent $536 billion

I'm not sure this is the best number to use. This is what is currently spent, it is not how much we would need to provide a free higher level education option. The entire department of education budget is 70 billion [0]. Using Pennsylvania as a baseline, they have approximately 185 million planned for public education[1]. Let's round that to 200mil and multiply it by 50. This gives us a ballpark spending of 100 billion at the state level. So let's approximate 170 billion spent on K-12 and higher education last year.

We were able to fund our entire K-12 system and give money to public universities for under half that 536 billion figure. So yes, we may not be able to cover our current higher education bill with the defense budget. However, what we are currently doing is not the best or cheapest system. Someone could definitely come up with a free higher education proposal for half of that 536 billion figure. The system needs reformed badly. Everyone knows the costs of higher education are out of control. Using it as the baseline isn't fair IMO.

[0] https://www2.ed.gov/about/overview/budget/index.html [1] https://www.governor.pa.gov/governor-wolf-reaffirm-commitmen...

It's a double whammy as they say in US because, students that can't find a job are both liable for student debt and also have to pay for health insurance.

That's easy to do, when the US pays for your defense.

Your ideas are intriguing and I wish to subscribe to your newsletter.

In countries where higher education is free, it’s either much cheaper per student, or a way lower fraction of the population goes, or both.

Europe can afford free education because it isn’t American-style education.

My sentiment was that most students will probably gladly take this very stringent option over what we have now. I surely would have.

I would too! I just think it’s important to understand that “free college” is only half the story and to recognize maturely that you’re making tradeoffs.

Right. That would have the correct feedback to properly represent what a poor investment investing in students actually is (not a good investment). This would cause interest rates for student loans to be much higher and there would be more rigor in who is allowed a loan.

Arguably, students are a great investment, just not for money.

Then have a probation period like 5 years before it can be discharged through personal bankruptcy. Infinity is not the right number.

You say that like declaring bankruptcy is painless. That was not the case before George Bush's reforms. It certainly would not become the case again -- lenders' job is to predict this behavior.

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