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Comment by dev_dull | Hacker News Reader

There really needs to be some “free market” ideology injected into the way loans are dispersed. First of all students need a way to declare bankruptcy. Second, we must take into consideration future earnings potential when deciding how much and at what rate.

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> First of all students need a way to declare bankruptcy.

While I'm not for or against such a policy, I find it intriguing you think bankruptcy is free market ideology adjacent.

That's basic economics of lending. If X% of people default then you have to increase interest rates to cover the people that default. The increased interest rate will dissuade students from taking on degrees with lesser economic prospects.

It's like adding back pressure or load shedding to a distributed system. It is better to drop or delay requests than let the entire system collapse under it's own weight.

Higher tuition (skyrocketing tuition, actually) should have already done that

Naw, you just get a bigger loan :)

> If X% of people default then you have to increase interest rates to cover the people that default.

Your borrowers can always default, even without bankruptcy protections. It's a good policy, I assume, but I'm not sure it's strictly speaking, part of the free market dogma.

They can't default because of government interference. I don't think anyone was talking about protections.

It's the opposite. If people can default, then the bank has to avoid defaulters, staying away from financing expensive studies in dead end careers.

Otherwise the bank needs to get more defaulter, because they are more profitable than people who pay back.

Imagine a student having to provide grades and a course plan to their bank, and a loan officer has to sign off on this. Not unlike buying a house.

I can't imagine a student not having to provide his university name and major. Lend 20k per year to study the history of arts, what could go wrong?

On The Importance Of Efficient Bankruptcy To A Free Market Economy: https://outline.com/8stGYk (from Forbes no less!)

From someone who blogs on Forbes' platform, you mean.

Free doesn't mean devoid of law.

The law can chain you up, or the East India Company can chain you up, and it doesn't make much of a difference.

Free markets are kept free by intelligent and benevolent legal force.

What if we just like... paid for school with taxes like literally every other country? (Trust me, it shouldn’t cost as much as it does to get a degree. I promise it can be and, in fact, used to be affordable.)

In many ways taxes do pay for it. For example around 50% of state school tuition is paid for by taxes. Yet sky-high, emphatically unpayable debt persists and is getting worse.

That's because if you can pay more, colleges charge more.

We need a mechanism to control costs. The loans are just one side of the story. The majority of public universities are rapidly increasing their cost structures.

That doesn't work longterm.

Permitting bankruptcy would instantly add more risk to the lender and thus instantly boost the interest rate on the loan, potentially pricing it out of the range of the student.

And permiting indenture is better? College is a signalling racket status good. Cut the loans and watch as tuition magically decreases to maintain equilibrium.

I actually fully agree. I wasn't arguing my personal point, just stating a fact

If we accept that the risk of student loan is covered by the state in any rate and not by the bank then we can just cut out the middle man and have the state give out the loan in the first place under what ever condition that satisfy the public who is paying for it.

Sweden has that system. Can't say it is that terrible.

Sounds good!

Precisely. Then we'd get true price discovery.

If any given thing is "too expensive", then an important fact is being conveyed: that thing takes too many resources to produce, relative to the value it is providing.

Trying to hide or subsidize the price only prevents people from acting on that fact. (and thereby acquiring that value in a more efficient manner, etc.)

Well, I mean... you just described Economics 101 basically.

Yes, I did restate a particular subset of Economics 101 which your comment seemed to have left out-of-sight and out-of-mind.

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