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Comment by qubex | Hacker News Reader

I don’t mean to be contentious here, but the reason for which student debt cannot be discharged by bankruptcy is pretty sound: it’s because education (theoretically) adds warning power to an individual and cannot be liquidated.

(I’m not a lawyer and am not an American either.)

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more to the point: it's an unsecured (ie, there's no collateral to take in the event of default) loan with a very low interest rate issued to a group of people who have little to no credit history.

The debt I've seen my peers saddled with has typically been 6-10%, issued mostly in the recession/post-recession years of low interest rates. It seems like exceedingly high interest to me when mortgages and car loans are half as much.

mortgages and auto loans are secured with assets. the lender can take back the car or house if you default, greatly limiting the risk of lending.

a better comparison for an unsecured loan would be a credit card. please let me know if you find a credit card with anything near a 10% interest rate. afaik, the best rates are around 14% and only go to people with very good credit.

I think student debt is the safest of all. It can't be discharged in bankruptcy anymore. Further, it's typically guaranteed by the government on top of that. Credit cards are a poor comparison I think.

it's important not to conflate federal loans with private loans. neither can be discharged during bankruptcy, but only federal loans are guaranteed by the government. also, the government sets the interest rates on federal loans.

a private student loan is not a particularly safe debt to issue. even though the loan cannot be discharged, there is still a substantial risk that the borrower will never be able to pay it back. credit cards and personal loans are a pretty good comparison IMO, as the main difference is the fact that student loans cannot be discharged. this is in fact priced in already; even private student loans have much lower interest rates than any other kind of unsecured loan.

Yes, and if college loans were dischargeable upon bankruptcy, the interest would be even higher (to account for the greater risk).

The majority of my loans (about 70k of 80k total) had interest rates above 6%, some were over 8%, and my wife's are about 13%. Considering how low the risk to the lender (in that they can't be discharged in bankruptcy) I would say the interest rates are borderline exorbitant.

the fact that you can't discharge these loans is certainly beneficial to the lender, but it doesn't solve the "blood from a stone" issue.

if you can't make your mortgage payments, eventually the bank sells your house and gets most of the principal back. the interest only has to cover the administrative cost of selling a few houses (possibly at a loss) and then it's all profit.

a certain fraction of people taking on student loans today will never make enough money to pay them off. now the interest has to be enough to actually cover the risk of the lender losing all that money.

even 13% is pretty good for an unsecured loan. according to nerdwallet's loan calculator, this is basically as good as it gets for unsecured personal loans in general. [0]

[0] https://www.nerdwallet.com/blog/loans/personal-loan-calculat...

I wonder why the degree itself is not used as collateral. Certainly institutions are permitted to vacate them under all sorts of circumstances.

Of course, some people take on student loans and fail to graduate.

On the other hand, you can discharge medical debt, and not dying adds earning power to an individual and cannot be liquidated.

IIRC this was a policy decision change only 20 odd years ago. (also, not a lawyer or USAan)

You're correct, the George W. Bush administration banned student loans from bankruptcy in 2005:

https://bostonstudentloanlawyer.com/discharging-student-loan...

But you'll notice that it wasn't really talked about at the time in mainstream news (however, I knew about it as a progressive):

https://www.google.com/search?q=george+w+bush+student+loan+b...

For example, "student" is not mentioned on this page:

http://www.nbcnews.com/id/7575010/ns/business-personal_finan...

So many young people today think that this is how it always was, and don't realize that it's nonsense. Originally meant to decrease the deficit or whatnot, but having the opposite effect of raising the deficit as the US has become more uneducated and susceptible to ignorance.

Unfortunately a lot of other draconian legislation was passed at that time - see the DMCA, etc. Now that the truth is coming out though, there's hope that some of this can get reversed after 2020 if enough people learn about the true history of controversial issues like these.

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