Rich Families Are Legally Separating from Their Kids to Pay Less for College | Hacker News Reader

Rich Families Are Legally Separating from Their Kids to Pay Less for College

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144 pointsHillaryBriss241 comments

In general a problem is that wealthier people have the time, energy, and expertise to manipulate the system better than poorer people. Another place we see it is in the usage of IEPs and other accommodations for learning disabilities by wealthy families, in some areas more than 10% of students have accommodations like this. See this article for more: https://www.nytimes.com/2019/07/30/us/extra-time-504-sat-act...

Such is the nature of people. My father worked in property tax assessing, so I've known about the specific rules in Michigan and how to minimize my personal tax bill for my entire life. If you build a system with a bunch of complex rules, someone will adjust to optimize their outcomes under those rules. Just look at building permits in any heavily populated location, from both the perspective of the person applying and the neighbors.

"someone will adjust to optimize their outcomes under those rules."

It isn't even clear how to make them stop that, per se, because in general that's a desirable characteristic of the system. You can't use the tax system to nudge people or do anything progressive beyond the most basic and clumsy income-bucket based categorization if you can't set up incentives and expect people to "optimize" to them.

Sadly, unless you think about those nudges like a pen-tester, you're going to create unintended consequences with your adjustments and new rules and new exceptions every single time. I just listened to a podcast that posited that much of the CEO pay problem was due to changes in the corporate tax ability to write of CEO salary in the early 90's which led, through other tax provisions and investor desires, to paying with stock options. That happened right at the beginning of the dotcom boom and caused every person with a stock heavy position to massively increase in wealth, far faster than any salary would have. Had that been left alone, they would all be paid millions, but not hundreds of millions. The position posited in the podcast was that it should be stock with long term holding requirements and awarded based on relative performance vs. the market to prevent everyone getting the maximum stock bonus based on the market going up and nothing the managers and executives did.

Podcast sounds interesting. What's it called?

The devil is in the details. People are clever and find out how obscure rules can work for them. However, if the system is stupidly simple, it would be much harder to game. Throw out the rulebook.

Say you make 15k a year, your tax rate is zero, 16k, it's perhaps 1%, etc. etc. until you get to the big dogs who net millions a year, far more than they could reasonably spend on their own living expenses and well being, then you tax them 90%.

Or maybe you can add tax on every purchase if you have a certain level of wealth. Someone who is broke might reserve a $2 coke for a special treat if they only made $50 that day, but if you made 50k that day it's still a $2 coke and not a $2000 coke. Replace coke with house, car, tuition, medical bills, anything you want.

In the current system you can hide your income in a company and pay yourself remarkably little on paper, so I say tax those companies heavily as well. If money is fungible, taxes should be too and it shouldn't matter if the company makes 1m and you make 100k or if you make 1m and the company makes 100k, the tax burden should be exactly the same as it represents the same movement of 1.1m. The fact that the tax burden isn't the same currently is corrupt and serves the few at the cost of the many.

> I've known about the specific rules in Michigan and how to minimize my personal tax bill

Any tips? :)

File the permanent residence exception, learn the Mathieu Gast rules for normal maintenance and repairs, and always fight the tax assessor on the first year you own a property, up through Board of Review and Tax Tribunal if you have to.

Here's a tip from Illinois: https://www.npr.org/2018/10/03/654201077/illinois-gov-candid...

Please hold off until after flint has clean water.

Property taxes pay for local government, state income tax and sales tax pay for state government. If you live in the city of Flint (why would you if you don't have to at this point?) then it's maybe unethical to minimize your tax burden. On the other hand if you live in the city of Flint, your property value is so low that you're basically not paying taxes anyway... That's a whole different problem that what's being discussed here.

> Another place we see it is in the usage of IEPs and other accommodations for learning disabilities by wealthy families

As the father of a child with a learning disability, I was shocked to learn that the process of getting public funding to help him (which in MA at least, is a legal right spelled out in state law) is entirely centered around the local school district attempting to drag everything out as long as possible and make it as hard as possible so that you have to spend quite a bit of money in advocates, experts, medical professionals, lawyers, etc. Their entire game is to wait you out until your bank account runs dry.

I'm fortunate in that I'm wealthy enough to be able to front the money to drag the school district to court and force them to pay (though I'm only a bit more than a year into what is likely a 2-3 year process). But it became immediately obvious that anybody less fortunate is just simply screwed. Poor families with children that have moderate disabilities will never, ever get the funding.

>In general a problem is that wealthier people have the time, energy, and expertise to manipulate the system better than poorer people.

Notwithstanding its own merits, this argument is a non sequitur. This is not a case of rich people affording a maneuver that poor people can't. Poor people won't ever be in the situation where they have to separate from their kid in order to qualify for financial aid. In that sense, poor people have an advantage.

I think the point is that you have poorer people who qualify, and rich people who can organize and pay to manipulate the situation. Then there are people in between, people who don't qualify, but also who don't have the ability to manipulate the system.

Furthermore, that rich people are taking advantage of programs meant for poorer people is ultimately an unethical thing to do.

There are many levels of poverty and wealth.

You're right, very poor families making $20k per year will qualify for need-based financial aid.

However, "middle class" families making $50k may not. They're sharing expenses and the kids are working just to stay in a house and have a car to split among the family members, and it feels like there's not enough to go around for day-to-day, but hypothetically enough to send one kid to college. Maybe they have two kids and the younger is a high school junior, FAFSA will assume that all the available money is available to send the first to their freshman year and not plan for next year.

But if they're making $150k/year, they can have a lawyer and accountant help them structure their funds so that the kids do get financial aid.

Yeah the people in the middle that have any form of income get screwed with FAFSA. I was > 24 years old already so financial aid only considered my income.

One year I made $11k and it dramatically reduced my grants. I imagine a dependent student with both parents working and making $60k+ get essentially nothing in grants.

Hearing that 'rich kids' are essentially hiding their parents income/contribution to get max financial aid is a cruel joke. The parents and student should go to jail for fraud.

It's not a non sequitur. In the case of tax loopholes, sure. Poor people don't pay a lot of taxes. But in the case of spending real money paying for tutoring to raise SAT scores: yes. SAT scores, in some sense, are a transactional measure of the free resources one has available to obtain a good score: A quiet place to study, tutoring, etc. Money helps provide these things.

There are a lot of people in the middle though that aren’t poor but can’t play the shenanigans the rich get away with.

That doesn't quite apply here, because it seems pretty obvious the intent of these laws was to help out those less advantaged. Now those that have means have figured out a way to take away something from those less advantaged in order to enrich themselves even more. Financial aid is limited - every time a rich person gets aid a poor person doesn't.

And even worse, this isn't even just trying to get admitted in the first place. If that were the situation, then it would be much more understandable as rich and poor alike both want the best education for their children. But now the rich don't have to pay full price for the education and take advantage of a program designed for those with less money? I get what they're doing is (almost certainly) legal and everybody wants to minimize their bill, but they are directly harming the people who actually need it in this case.

The argument "poor people have an advantage" in receiving benefits designed solely for poor people is absurd - there shouldn't be competition between rich and poor here at all.

A more basic root cause is that college has become so expensive that there's incredibly strong economic motivation to cheat. Lack of morals is perhaps an equal contributor. The gaming described in the article was nauseating.

This is not cheating. What they are doing is legal. It may not be moral. But, hey, who am I to judge others.

If you are a member of a free and open society; It is your job to curtail behavior, yours and others, that is detrimental to that society.

but what if the society is not quite free or open, and tries to push you in directions that are not good for you.

"A FIRM Union will be of the utmost moment to the peace and liberty of the States, as a barrier against domestic faction and insurrection. It is impossible to read the history of the petty republics of Greece and Italy without feeling sensations of horror and disgust at the distractions with which they were continually agitated, and at the rapid succession of revolutions by which they were kept in a state of perpetual vibration between the extremes of tyranny and anarchy. If they exhibit occasional calms, these only serve as short-lived contrast to the furious storms that are to succeed. If now and then intervals of felicity open to view, we behold them with a mixture of regret, arising from the reflection that the pleasing scenes before us are soon to be overwhelmed by the tempestuous waves of sedition and party rage. If momentary rays of glory break forth from the gloom, while they dazzle us with a transient and fleeting brilliancy, they at the same time admonish us to lament that the vices of government should pervert the direction and tarnish the lustre of those bright talents and exalted endowments for which the favored soils that produced them have been so justly celebrated."

Federalist #9

My advice. Stay calm, stay true, speak truth to power, protect the disadvantaged

My spouse is a special ed teacher so this is based on my experience only... but I think it is more a factor of the school having more time and resources available. The school district my spouse worked at sadly has many more children from single parent and poor households and this essentially raises the bar on who they can qualify. My own city's school district does not have as many students like this, so milder cases still tend to qualify.

There are certainly standards in place which should standardize this across school district lines, but balancing the maximum student slots available with the budget is more of a challenge for poor school districts.

In Ohio at least I have a feeling some wealthier school districts are using IEPs to artificially raise school wide student test scores as well, since these students don't always count towards the scores and rankings (I am not sure exactly how it works as it depends on the grade level and other specifics).

It is easy to see these families as manipulating the system, but then so are colleges that charge $300,000 for 4-year college. College costs are rising much faster than the rate of inflation. In many cases these colleges are raising tuition for the same reason pharmaceutical companies are raising prices to insane levels -- because they can. It doesn't surprise me one bit that smart families are coming up with ways to beat this system. If colleges aren't playing fair why should they?

Because society, which had decided poorer families should be able to access college, doesn't have to stand for abuse. This kind of "what about"-ism requires admission of unethical behavior. How can anyone try to justify it after saying they're just as bad as the other guy?

And these people aren't "smart" for discovering they can deceive the government for gain.

I doubt they have more time and energy, but they do have more resources to engage advisors and experts to act on their behalf.

Wealthy people don't need to work a side gig. They get paid vacation. They can afford homes with shorter commutes. They can pay for services like cleaning to free up time for other stuff. They probably have parents with more free time (due to wealth) to take care of their kids. They can afford preschool.

All that means more time.

When bus rides take 1 hour each way, you can be sure wealthier people have more time and energy

> I doubt they have more time and energy

You'd be wrong. The poor are working two jobs. The poor are begging their boss for a couple hours off to go stand in line to get their kids on medicaid. The poor are walking to the bus stop. The poor are rushing to the apartment manager to give them partial rent so they still have a roof over their head.

Time is something the poor have very little of.

Edit: I see some of you drive by disagree with me. I see this all the time as foster parents. The poor are much more likely to be in a situation where their children are removed and so talking with the bio parents, I hear their struggles. But keep drive by disagreeing with me if that makes you feel better.

Those people don't need to engage in legal shenanigans to qualify for student aid.

Also, you can do medicaid over the internet/phone/mail these days. Unless you have a problem with the workflow that prevents you from using these systems you should never have to speak to anyone in person. Or at least that's how it is in my state.

Edit: Since I'm apparently so wrong does anyone want to tell me what kind of legal shenanigans people who are poor enough to qualify for financial aid need to go through other than filling out the forms truthfully?

Hired help is huge. We made friends with some parents in the same family situation as us (baby twins + 3 year old). But they're really well off, and we're California "middle class". Our daily chores between the wife and I take a total of about 2 hours. And getting the kids ready to go anywhere can take 30-60 minutes of prep. If you have a maid that comes daily and a nanny for each kid, you're saving around 3 hours per day.

Back in the day, you could work your way through college, not having money, by being a nanny.

Kobe bryant literally flew helicopters to the staples center while everyone else in that arena without helicopter money might have waited an hour+ in traffic and rescheduled their life around that to get to the same game. Time is money and money buys you time.

same thing, the point is that money buys time and energy.

I don't doubt that they have more time and energy.

There may be some kids from well-off families getting bullshit diagnoses to justify IEPs that include accommodations like extra time on exams. There are definitely kids from not well-off families who have legitimate needs that are not met because they can't afford to pay for the medical evaluations to justify the accommodations.

American colleges and universities have already been trending away from emphasizing high-stakes standardized tests in their admissions decisions. The tests themselves should be changed to make speed of answering not such a critical part of test-taking strategy. There would still be students with serious disabilities who would need additional time and other accommodations but there would be no need for extra time for kids with ADD, ADHD, etc., real or imagined.

That's kind of how we built our system that we operate. It's a "smart persons' benefit" type of system. We could have a flat percentage based system. However, we/Americans, hate the idea of non-fairness. (it's built in our dna) So we end up taking a simple system and keep making exceptions to it. It's great, but it's gotten really complex.

For example:

If you put a simple tax system in (everyone pays 7%) the claim is that "Poorer people are negatively affected". (Their value of the money is higher than a much richer person) However, when you have a progressive tax system, you have people concerned about being in higher tax brackets. (Really isn't that big of a concern in a progressive system, but it's harder to do the math).

Power. It is called power. They have power. They use power to consolidate and bequest power.

The issue here is that perfect price discrimination doesn't actually seem fair to the vast majority of "normal" people. I was the youngest child of old parents, so we looked fabulously wealthy to the FAFSA. In reality, my parents were only mildly better prepared for retirement, which they were entering, than the average local government employee (both of their careers). This meant that my family paid full cost for flagship state university, despite much much wealthier people paying less. Similarly, my out-of-state friends were given "scholarships" that put them down to in-state tuition rates, but no lower. People do not generally pay the "full" price of these things[0].

[0] https://www.cnbc.com/2019/03/18/private-colleges-costs-35830...

FAFSA is a terrible price discriminator, and unsurprisingly primarily screws the middle class and kids with special circumstances. You have:

1. Kids with legit wealthy parents from whom they are estranged and get no support.

2. Kids with moderately high income parents but also a lot of mandatory expenses like medical bills, other kids to support, etc.

3. Kids with middle class parents who are too poor to pay for College, but too rich for financial aid [1] [2].

These are the people who either end up not going to college or graduating with crippling debt. The poor who qualify for sufficient student aid end up fine, and the rich, well, always end up fine.

1: https://www.forbes.com/sites/robertfarrington/2014/06/17/too...

2: https://money.cnn.com/2016/04/28/pf/college/college-financia...

My personal hatred is that if the parents divorce and both are extremely poor, the kid can get financial aid, but then if one parent remarries someone with money, all that aid can get pulled from future years.

The income of a step parent (who has never had a legal obligation to ever provide support) should not be considered by FAFSA, at least not for the first X years of marriage.

I didn't go to school after HS, however at the time of my graduation, my parents had a large amount of dependants, was suffering the wrath or two mortgage payments and another monthly rent payment.

Flash forward a few years later, he no longer has the mortgages, many of those dependants are now adults out on there own and he makes pretty good money. I wish I would have gone before, because from the calculations I've done, being under 24, I won't get hardly any aid, and school is now a financially impossibility (or financial suicide).

School isn't financial suicide if you to an affordable state school and take out public loans unless you plan on getting a degree that will add no earning power.

And even then, if you don't make much, you will qualify for income based repayment, which means you will never have to pay back more than 10% of your disposable income (any income over 1.5x the federal poverty limit).

If you want to go even cheaper, try community college for the firs 2 years.

But if I'm only receiving a couple thousand in aid, that's still a lot of money that has to resort to loans (from what I understand public loans are limited in the amount you can take no?)

Community college would be much cheaper yes, but if you're a working adult,you'll likely only have a handful of times you can take classes, dragging it out more than 2 years.

For a dependent student it's $5,500 for the first year, which is more than enough to pay for community college. And it goes up significantly each year and way up once you are considered independent it goes up even more (lifetime max of $57k which is more than enough to pay for tuition and fees at most state schools). Also the dependent student caps don't count if your parents can't qualify for a PLUS loan.

>Community college would be much cheaper yes, but if you're a working adult,you'll likely only have a handful of times you can take classes, dragging it out more than 2 years.

As another poster pointed out community colleges tend to have plenty of classes available. And during the first few years when you take intro classes you'll likely have no problem finding classes at any time, and most states have online classes available for intro subjects.

Additional if you go for something like and engineering or CS degree you can do coops and internships where you'd earn a good bit more than most people can make working in their early 20s (while getting course credit and relevant experience).

Community colleges tend to make classes more available after normal work hours specifically because their customers have lives.

The sad thing is that kids who actually are cut off or estranged from their rich parents don't have lawyers and consultants helping them to legally sever ties, and they end up having to drop out of school because they can't get the forms needed to file the FAFSA or their parents make too much and won't help them.

They don't even have to be cut off or estranged.

I've known people who had rich 300k+ parents that were the "pull yourself up by your bootstraps" kind of people who were able to pay for private college with a high school job back in the day. They feel that they were teaching their kid a valuable lesson.

They didn't get any help for college and were disqualified from all financial aid.

I was in this situation. This post plus the grandparent post above it really strike a chord. On one hand, creating a sink or swim environment means I am probably a more resilient person having gone through college with limited family support compared to my peers. On the flip side, I am sure I'd be even more "successful" had I been able to focus more on improving my own skills or grades or academic research than working multiple jobs just to raise cash to pay bills.

The above may sound a little like venting, but it's more to stress the point that financially stringent or irresponsible parents, or parents who just don't believe in investing in kids, is a negative drag on the economy and we are under-utilizing young people's intellectual potential by stressing them out over money.

Related to the top-level post, I'd be angrier at rich families gaming the system except this is absolutely a whole system that needs re-worked from near-scratch.

I grew up in a lower-middle-class family, and my parents were only able to support me during college with a monthly $100 check. Not wanting to go into debt, I went to a Cal State school, lived and commuted with roommates, and worked 2 days/week to pay for rent. I paid tuition bills by working full-time during quarter breaks. I also volunteered significantly at church.

All to say, my grades and ability to engage fully at school were strongly impacted by my financial situation. I wouldn’t wish my college situation on others. But I have no regrets. For me, it was character-shaping. That’s more important than economic opportunity and success.

Similar story here. I received no financial aid. Worked full 40 hours including weekends and it really impacted my ability to learn and explore new ideas with peers. Still graduated with about 15K student loans too.

The people really getting the short stick are middle class kids who don't qualify for aid and cannot afford it out of pocket.

My parents essentially did this to me, but I don't really blame them and will probably do the same for my kids.

Not everyone should go to college, and if you do go it really better be worth the investment. I chose to go to community college and transfer, and I ended up finishing college with no student loan at all because I worked through my two years in community college.

This was largely because they taught me to value the ROI on any investment. I not only don't think they did anything wrong, but I think those lessons are much more valuable, because the stress of college payments was on my shoulders, and thus I had more personal investment in succeeding.

What year did you graduate college, if you don't mind sharing?

2015

Wait, I just read in this thread that not having financial aid when going to college was financial suicide

If you go the conventional route and only take loans. Community college + working through that means you can get potentially better college options when you transfer AND you can save significantly for those first years of your undergrad.

By the time I transferred I had saved enough to cover the full tuition + living costs for my last two years of college, coming out debt-free.

The big acknowledgment I'll make is that rent where I'm from was really cheap and I'm generally on the frugal side, so I was able to save up most of my income those first few years of college. I recognize not everyone is in that kind of position, but if people are they really should take advantage of this system if they really want to go to college.

This was my situation. Not only did I have to work during school, but I couldn't attend any of the Ivy League or private schools that accepted me due to not being able to get enough loans on my own (blessing in disguise in retrospect).

For people with that experience it makes sense to just separate the student from the parents but I'm not sure how to fairly account for people with rich parents who contribute. Just make college affordable for everyone!

> disqualified from all financial aid.

What does this mean? The government wouldn't issue them a loan at all? Or that they wouldn't subsidize the interest?

Loans =/= financial aid, at least in the US.

IDK the specifics that OP was talking about, but my assumption is that instead of being able to get need based assistance (due to being unable to demonstrate "need" since their parents were so wealthy) these people would have been forced to take out loans.

Depending on specific circumstances, this can mean anything from having to go to a different school, to being strapped with tens of thousands of dollars of additional debt, to being entirely unable to pay for school at all.

I guess I didn't qualify for financial aid then. I had a small scholarship, but I otherwise worked hard and lived frugally and earned my first degree with only $7K in debt. My peers came out with $40-90K in debt, but they often didn't work or only worked 8 hours/week (compared with my 20 hours/week) and they would spend money lavishly (partying, luxury clothes, daily starbucks lattes, 2-4 years in dorms, etc). I'm not sure if my experience was typical, but making one's children pay for their own education is hardly a cruelty (mind you, education in the US is still far too expensive).

>>but making one's children pay for their own education is hardly a cruelty (mind you, education in the US is still far too expensive)

Just to unpack a few things here (baring in mind I'm a true "eat the rich, tear them from their ivory towers" type socialist).

1- College is WAY too damn expensive, and that's the majority of the conversation. We do a terrible job teaching finance to children and then we expect them to graduate high school and understand what they're undertaking when they sign on for student loans.

2- "Cruelty" is about intent. Rich people can be cruel to other rich people by inflicting financial difficulties on them. They can also be entirely reasonable and attempting to teach them a lesson about hard work and "earning your keep" and what not. It's entirely situational and too difficult to throw a broad statement that covers every situation. This is more about philosophy than anything objective.

Fully agree on 1. 2 is a semantic debate; this thread already assumes the rich parents had good intent.

I believe "financial aid" here means from the college, either directly in the form of lower prices, or indirectly in the form of loans subsidised by them.

This is the strongest argument that can be made for universal programs when it comes to designing progressive public policy. Rich people have the time and resources to aggresively take advantage of any system that tries to implement means testing or scaled benefits. The winning play is to design programs where benefits are given completely independently of time, money, access or power, even if it means some people who do not need it will get some assistance.

The winning play is to design programs where benefits are given completely independently of time, money, access or power, even if it means some people who do not need it will get some assistance.

But then doesn't it come down to grades, test scores, and extracurriculars etc? Rich parents are already paying for huge amounts of tutoring, coaching, and test prep, along with personally chauffeuring their kids all over the place in order to rack up the extracurricular and volunteering hours.

Sure, you can mandate an "equity score" for admissions but at some point are you going to be admitting students who can't handle the coursework? Grades are more than just an arbitrary barrier.

My comment, and the article posted here, are about financial assistance to pay for college, not the admissions process.

I agree admissions processes have problems, but I don't see how your comment relates to the issue at hand.

As long as the system has rules, those rules can be optimized for.

As long as conditions exist, someone can study or hire expertise in helping to meet those conditions.

The point of universal programs is that the "condition" for eligibility is existence [1] and thus there is nothing to optimize for, by definition.

[1] This is obviously a simplification because of in reality the condition is citizenship/residency, but that's a whole other issue.

We can start by making these rules simple enough where you don't need a j.d. or accounting degree to parse them.

To some extent, Universities are inviting this kind of gaming.

Stanford 2019-20 undergraduate tuition

Pay in full: "The total charges for full-tuition-paying families will be $69,962, which includes $16,433 for room and board and $672 for a mandatory health fee."

Four years is just under $280K.

Free: "Under Stanford’s program, parents with annual incomes below $125,000 and assets typical of that income level pay no tuition. Parents with an income at or less than $65,000 and typical assets pay no tuition or room and board."

https://news.stanford.edu/2018/12/04/stanford-expands-financ...

The cutoff of those types of programs never made sense to me. There is really no financial difference between a family making $124,000 and a family making $126,000, but suddenly that extra $2000/year means they can afford to pay the $50,000/year for tuition? If I was the sole earner for the household making $150,000/year, it actually makes more financial sense for me to go ask my boss for a $25,000 pay-cut?

The University of Wisconsin, my alma mater, recently introduced a similar program called "Bucky's Promise" (https://financialaid.wisc.edu/types-of-aid/tuition-promise/) to give 4 years of free tuition to any household with an AGI of less than $58,000/year. But if you make a penny more than that, you don't get any of the benefit? It just doesn't make sense to me.

These universities are incentivizing people to game the system.

From what I've heard, California does well with schooling, especially for lower income families. An internet acquaintance of mine mentioned something about paying $46 a credit hour at a community college near him. Conversely, the per credit hour cost of a community college near me is over 5x that!

Several years ago, before it became unaffordable, California residents were entitled to education at any state school, including UC Berkeley, for free. Community colleges were very definitely part of that. The better question is what is the out of state or out of district cost of your friend's CC?

In California, there is no out of district penalty for community college. Out of state tuition is expensive, but I think on par with out of state tuition for other states' community colleges.

History of UC tuition.

https://www.dailycal.org/2014/12/22/history-uc-tuition-since...

Hes actually a foreigner living in CA on a visa I believe, so I'm not sure.

California before Prop 13 was much better. As in zero fees, zero tuition. You paid for books and room and board whether it was community college or UC. But hey, at least the owners of commercial properties don't have to pay much property tax now.

CC's are free in California. (I think it only applying to full time students however.)

It’s easy to be enraged by reports like this, but I just see it as proof that the system is too damned expensive. There’s opportunity cost here, along with actual cost, and risk, and even then the savings is justifiable.

Stanford has an endowment of $26.46 billion. Even with just a fraction of the interest from that fund, universities like Stanford can easily pay everyone's tuition. Instead, they'd rather hoard money, hire unnecessary admins, and build new buildings with another billionaire's name on it.

It’s not that the “system is too damn expensive”, they think they need to go to a prestigious more expensive school whether or not the ROI on going to a less expensive school is worth it.

On top of that, while middle class families see college more of a way to help getting a better job, wealthier families actually believe their kids are going to college to be “better citizens of the world” and to “gain new experiences”.

I don’t see anything wrong with this. Colleges are priced for maximum wealth extraction by charging people as much as they can possibly pay so smart families are working the system to outplay them at their own game. This is exactly the same as the medical system where prices are set based on ability to pay and not service provided.

Wow lol. Some people will use every trick in the book. FAFSA must be seeing a lot of "orphans" with famous last names out there.

The issue is that the system tries to force people to pay proportionally to their assets/income. Pricing in this way is messy. What is worse is that college already is inefficient at creating good employees-- rich people are going through private channels to get their kids in good jobs these days anyway.

It’s insane that college finance has anything to do with parents. Probably a mistake to even have expensive colleges, unless you’re deliberately trying to reproduce inequality.

Because you're an adult legally. Well except when it comes to paying for college. Then you're a child dependent on your parents.

You are a child dependent on your parents until you are 25 and have to pay for your own health insurance.

'Rich' is a relative term.

> living in a $1.2 million home and earning more than $250,000 a year.

In other words, you make enough to not qualify for any aid, bit not enough to have $60k/yr disposable income. I see where the parents are coming from.

1.2m home and $250k/yr is not enough to have $60k disposable in places where everything runs on monopoly bucks (SF, NYC, etc). Travel 4hr in any direction from those kind of places and you easily have $60k of disposable income.

Travel 4 hours in any direction from SF and you’re either working remotely, running a business, or not making $250k/year. Remote work and entrepreneurship are not options for everyone.

Fine then. Make it 1hr on the east coast and 2hr on the west coast. If you don't mind living in a city/town that makes your upper middle class coworkers cringe you can still find places with a reasonable cost of living. They won't have the greatest schools but living somewhere for the "good schools" is overrated (that's outside the scope of this comment).

> bit not enough to have $60k/yr disposable income.

It's not like college is an unforeseeable expense. On $250k per year you should be comfortably able to plan for putting a couple of kids through college. Same holds true for most people on track for $250k/yr when their kids are in college. You may have to forgo a new Mercedes, but that's fine.

Maybe they bought the house yesterday, adopted 17-year-old septuplets, and were heavily long MySpace, Enron, and Borders.

Sure, but that's not the way the smart money would bet.

It might make sense to adjust how the wealth test is applied (I don't know how it works), but it's just silly to suggest that the average family with a $250k/yr income can't afford to send a kid or two to college.

My response was tongue-in-cheek. :)

Eh, if I made 250k/yr I bet I could make it work, especially considering it's only a 4 year obligation.

You have a lot of options at that income level; even if I couldn't come up with 60k/yr straight cash, I could finance part of it over a decade or so any hardly feel it. Also, my kid can take on 20k or so their damn self so they have some skin in the game. 20k is nothing.

It's pretty hard to sympathize tbh, when I've had to work with waaaaay tighter budgets than that for extended periods.

> I could finance part of it over a decade

Your present situation is not a guarantee of future income levels.

They could have not bought a 1.2M home...

That's not an option for people who live in parts of California, New York, Seattle etc where median home prices are over 1M USD.

Surely you don't want to penalize those people who arr grossing a lot but netting very little.

In some parts of the country where you could earning 250,000+, the crappiest homes start at 800k.

If that home is in somewhere like SF, Los Angeles, or NY it could be a pretty small home.

My house is a 3 bedroom, 1500sq/ft, not super fancy.... and is $1,000,000

many folks bought a $250k home that's now valued at 1.2 mil. They couldn't afford the home they live in how if they were buying.

Even assuming they still owe the full 250k, that's almost a million dollars in equity. They could easily afford another 1.2MM home if they sell.

That's certainly not true.

For those of you downvoting me, my parents home is currently valued at 1.134m and at the time of purchasing my Dad made less than 250k a year. It absolutely is possible to purchase a house worth 1.2m making 250k a year. Maybe not a great financial decision, but certainly possible.

It's pretty incredible that a statement such as "They could have not bought a 1.2M home..." is upvoted, despite being obviously false as there absolutely are people that make 250kish and purchase homes worth over a million (such as my parents) but I get downvoted for stating that that statement was false, even though it is accurate. The upvotes/downvotes on this site are just as toxic as reddit; people use them as an agree/disagree button regardless of factuality or relevancy, and don't even comment to provide a counter point

> despite being obviously false as there absolutely are people that make 250kish and purchase homes worth over a million

Yes, but my point is not whether they can but whether they should.

My mistake, I read "they could not have" rather than "they could have not"

Well, they had the choice of not buying a home that was four to five times the median while having a household income that was also four times the median.

Median household income in SF is around $96k/year. Median SF home price is $1.7M. Notice how the median home is 17x median income? Other Bay Area locations work out in a similar way. Neither $250k household income nor a $1.7M home are signs of actual wealth in the Bay Area.

They also had a choice of not living in an expensive city in the Bay Area where they couldn’t balance their financial goals - like most of the rest of the country....

For instance, right here in Atlanta, someone can buy a decent size home with an income of $70K. Your average journeyman CRUD SASS developer with 3-5 years of experience can make $120K. More than enough to buy house, support a family, save for college, etc.

Maybe, but there are other considerations in play, making it not a simple trade off.

There are “other considerations” in place for everyone. We all have to make choices that balance our needs and desires.

Most of the rest of the country has decided not to live in the Bay Area....

>>Neither $250k household income nor a $1.7M home are signs of actual wealth in the Bay Area.

They are though. They're not signs of relative wealth.

How do you figure? You can’t eat home equity, and someone with a $250k salary paying off a $1.5M mortgage is probably struggling. (Whether that’s a stupid thing to be doing or not isn’t relevant to the example.)

Let's hit the ol dictionary

https://www.merriam-webster.com/dictionary/wealth

Also, What? Why is that person "struggling"? That's 50K annually in principle and an extra 2500 in interest (at 5%) assuming you had a 0% down payment. Assuming you're paying half your income to taxes, you still have 72,500 left annually after making those home payments for whatever else you need to live off of. I get that this is fast and dirty back of a napkin math, but when you're mortgage is only 6X your annual income, you're probably doing fine. If you're struggling to exist with 72,500, we have very different definitions of "struggling".

My original point is this: "Wealth" is generally relative, and I accept that, but I can't believe that the holdings and wages are so out of proportion with the rest of the country that someone can attempt to make the claim that pulling in a quarter of a million dollars annually and living in a 1.5 million dollar home doesn't make you wealthy.

Signed: someone from the NYC tri-state where we have had "old money" families forever but still know what rich people look like.

(Final point: yes, you can eat home equity because you can convert it into liquidity most of the time.)

1.5 million over 30 years means $4166 per month (ignoring interest because it's untaxed and almost 0%). When you look at the median 1BR price in San Francisco that mortgage is absolutely nothing in comparison.

Did they? They could have bought it 30 years ago when it was $200,000.

In that case they have a paid off home with 1.2MM in equity. They can definitely afford college.

Yeah, but if they sell the house and want to live in the same area, they are going to have to spend just as much on a new place.

Life is all about choices. They can choose not to live in the same area, to downsize, not to send their kids to an expensive college, let their kids pay for college through loans, they can take out loans, etc.

Why should I subsidize their choice when I chose to live in an area where the cost of living vs salary is much more amenable to my choices and financial goals for me and my family?

Yes, this means they have saved 1 million dollars vs buying the house today which would cost them the full amount.

...which they'll be able to afford, since they sold their house for 1.2MM.

Except they have to pay taxes on the new amount, if they only have the income to support a $200,000 house, that tax bill will be pretty brutal.

In other news ... instead charging a transparent and fair price for a service, private colleges and government conspire to attain perfect price discrimination against their education consumers based on itemization of their income/property.

As long as their former kids pay taxes on any resources given to them from their now non-relatives, and their parents don't claim their non-children as dependents, and they get taxed on any inheritance from non-relatives.

Yes is does seem silly to save a few thousands now when your going to get stung for a lot more when your parents die.

Maybe some very good (but shady) lawyers are enrolling the parents in dodgy schemes. A bit like how some "self employed" people in the UK got suckered into tax avoidance schemes and are now facing tax bills of 500k plus

I think it’s worth pointing out that universities only care so much as it’s a PR matter and preserving the view of “fairness”. They don’t care in the sense they are getting paid.

Overall, the increase in government funding and the effective use of university as the expected next level of education, along with the very mixed financial incentives schools have are the primary causes of the ballooning of cost of education. Wouldn’t this just play more into this problem?

I’m in favor of more professional schooling, trade schools and apprenticeships. There are very few reasons why everyone needs full liberal arts degree—especially at the quality it is now.

Oddly, I think Europe is more effective in some regards. I don’t agree with free educations—psychologically I think it devalues education. But there is a lot more emphasis on trades, professional and other sorts of schooling, overall a lot more variety in tracks of education. And while I don’t agree with free education, I think the education system is much more aligned with the public benefit.

>I don’t agree with free educations—psychologically I think it devalues education.

There are good reasons to be against free college, but this is not one of them.

Meanwhile, poorer unfortunate kids whose parents kick them out get caught in the gap where their parents won't pay for college, but the college considers them dependents and won't give them financial aid.

Source: Was one such kid. Took 2 years of paperwork and phone calls before I qualify for aid based on my own finances.

Not surprising when education is so ridiculously expensive, next only to healthcare. Who wouldn't evade prices so high when possible? I'm amazed about how the US insist on regulating everything and fail to leverage free market in these areas letting fair competition to drive the prices down.

It’s almost like this problem should be handled via progressive income/wealth taxation that makes tuition free/affordable to everyone. That way, the rich still pay more, just not in direct tuition.

Now that they know this may happen, what's to stop every university closing the loophole?

Since they appear to be free to do whatever they please, they can simply ask for a list of anyone who was ever your parent, and a letter explaining any omissions (like you were adopted age 1). They needn't even write the rules for acceptance of excuses in advance, and can decide what to do about edge cases (like someone adopted by his less-wealthy uncle at age 15...) when one applies. Is there any reason they don't yet do this?

How do you know that closes the loophole? How can you prove someone is saying they're estranged and not actually estranged? Sad fact is a wide net for social programs are typically better, even if it allows scammers to skim off the system.

Which feels like the greater social loss to you, closing the loop hole and finding that you're now harming people who need assistance or keeping it open and allowing some people to benefit unfairly from the system?

It would close this particular loophole, by treating legally disowned and merely estranged identically.

I'm not saying they would accept letters stating that you are estranged (which they certainly don't do now). I'm saying they could refuse to believe recent legal changes to parenthood, and just demand the whole list since birth. Just as lots of documents need every name you've ever had, not just your current legal name.

(Whether the actually estranged should be treated differently is another question. Judging by how they've run the system so far, the colleges don't seem inclined to do so. I don't mean to defend their behavior, only to ask what moves they may make.)

I always genuinely wonder where does the high cost of college tuition come from? Ok, if you doing some highly technical major (medicine or technology) which involves you working with cutting edge equipment with maintenance cost but does it really have to be that much? (~$50k pa). Doesn't scale up reduce cost? Also, what about majors like liberal arts? What are the students paying for?

The only other thing that comes to mind is faculty cost but are teachers that highly paid to warrant such high tuition?

The cost comes from running the facilities, paying the likely bloated administration, and expanding campus programs and offerings to attract smarter/wealthier student tuition dollars. All of this is perpetuated by the endless mountain of cash that are Federally-backed, impossible-to-bankrupt student loans.

Here's a nice breakdown from 2014.

http://radioopensource.org/college-budgets/

Never look to the back-end costs to explain the price of anything. The price is always set to what the market can barely tolerate. This is capitalism.

If you think that margins are too high, then this could indicate a lack of competition. That’s what you should look to for a possible explanation. Why is there apparently a lack of competition between colleges?

Margins being high isn't just caused lack of competition, it can also be caused by unwarranted prestige e.g. De Beers diamonds. You could go to an affordable community college with professors who attend because they enjoy teaching, but then you wouldn't have a sexy expensive degree from MIT/Berkely/Stanford college where the world's most esteemed professors send their TA's to teach you so they can focus on more cutting-edge research.

I don't understand your implication that people choose between two year and four year schools. Wouldn't people going to a two year school either be looking for an associate's degree or to transfer to a four year school?

In a true free for all anti competitive system like college and medicine the list price is some extreme number that is discounted based on each individual ability to pay. In both cases individual discounts should not be allowed because otherwise prices cannot be competitive

My parents made me pay for school, but because they're still my parents I have the 'bad' (high percentage) student loans, and of course paid full tuition.

I think this is just a symptom of a broken system. And it's not only rich families that do this, unless we consider all middle class couples rich now. I personally know of a family where one of the spouses' suggested it, though the other ended up being so offended it eventually lead to a real divorce.

>The Wall Street Journal was able to reach two parents who were coached by Destination College into transferring guardianship of their kids before they applied for financial aid.

TWO. TWO. Even if we extrapolate that two out beyond our wildest dreams, it's still not symbolic of a pattern. Yes, this is a loophole and yes it should be closed but there does not appear to be any evidence that is being being abused widespread at the current time.

This isn't exactly rocket science ... my daughter just started college, and as a tech industry employee let me tell you, she got no financial aid (some other academic things aside).

When we started filling out the student loan paperwork, I had literally this idea (the whole legal separation thing) as a passing thought. Of course, because I'm not a monster, I laughed it off and kept on filling out the paperwork ... but one doesn't have to be a great student out of Wharton to figure out a scam like this, and you can bet your arse more people have actually pulled the trigger on it.

When I was 18 I asked my parents to look into doing that. They laughed it off but like you said it’s a pretty obvious loophole but you have plan ahead a bit to utilize it

What exactly would that look like? The article talks about guardianship, but with 18 they aren't your guardian anymore either way (at least in most states). Or is it about not listing you as a dependent? Doesn't that have negative tax implications for the parents?

I don’t think there are many deductions for kids that no longer need child care, maybe 2k. But the biggest expense is medical insurance, that will eat a lot of the savings

minimal ... it's a few thousand dollars, and after a certain point in income, that deduction goes away entirely no matter how many children you have.

What are the downsides of this:

Mandate that all (accredited, therefore regulated) schools charge a percentage of future earnings, rather than tuition. The market between employers and colleges will sort itself out. Every prospective student would know ahead of time what percentage of future earnings (up to some cap) they'd be giving up, per school, and would weigh the perceived value of the schools against the percentages they take.

There is some talk about something like this, and I believe Purdue was trying it out already

I believe the Australian & UK systems work a bit like this, too. Perhaps it's nominally a loan, but collected like income tax, with a threshold on how much you must earn to pay at all.

However I don't think either is very flexible about different places charging very different fees, or different implied interest rates.

What if a kid is actually disowned by their rich parents, and isn't getting anything from them? No aid for you?

Assuming they're not legally separated and the kid is under 24, yes. Happens a lot actually.

Source should be changed to https://propublica.org/article/university-of-illinois-financ...

This makes no sense to me. You have $250k/year income and you go to the trouble and risk possible unintended consequences of emancipating your child to save $20k/year for 4 years? Totally bizarre.

Same issue as wealthy elderly gifting all their assets to their kids ("pre-inheritance") so they can get on Medicaid to pay for their nursing home care.

The solution is simple: make student loans dischargeable in bankruptcy, just like every other kind of loan.

Otherwise there is no incentive for banks and colleges to not charge infinity for college.

The current system is like a legal modern form of slavery or mafioso.

It's mind boggling how people don't see this simple explanation.

>The solution is simple: make student loans dischargeable in bankruptcy, just like every other kind of loan.

I agree the incentives don't align well right now, but am curious about what corresponding policies you would implement.

Right now we have policies supporting the idea of "you can start from nothing and graduate from any college with any degree". That notion is tough to maintain with a simple switch of policy.

Education loans have no collateral. Even if college was only 10k/year, filing for bankruptcy right after graduation would be a rational choice for many people. If loans were dischargeable, would you include provisions such that "expected costs" must always be available as loans (similar to what we have now)? How would you ensure "adequate" access for people to receive an education and climb to the next socioeconomic level?

I could see far fewer people going to college right after high school, struggling to save money in relatively low paying jobs since the modest loans they want aren't readily available.

> filing for bankruptcy right after graduation would be a rational choice for many people.

It would mean 7 years of no credit, harder to get jobs, legal costs and time spent, etc., so there would be strong incentives not to.

> I could see far fewer people going to college right after high school, struggling to save money in relatively low paying jobs since the modest loans they want aren't readily available.

Or suddenly lots of new educational institutions would spring up, competing on price, since they wouldn't have the government enforcing their loan shark business anymore.

Sure it's a mark against you, but for many people in lower earning career paths, erasing 1-2x gross salary after attending a modestly priced college is well worth it. E.g. A journalism student who earns 40k and had 40k of debt would need to pay $5,700/year, before interest, to have the loans paid off in 7 years. At 5% interest, $6,800/year.

I think it'd be great to have institutions competing on price and taking steps to knock down the costs of attendance. There are also ideas around for people to pay a percentage of their earnings post-graduation, though the cynic in me says those will become just as predatory as the current lending structure.

My university has built 3 dorms in the last 30 years, and all are suite style and ridiculously expensive. Despite earning little money, middle class college students want to maintain the same standard of living they grew up throughout college and first jobs. Yet another of the many challenges in the space.

This is a possible solution, but it's not simple.

If you do this, the current system of student loans we have will collapse completely. Now, maybe that would be good...but it's not simple.

It is simple.

Not easy, but simple.

This is the solution. It works for all other industries. If I loan you money to buy a house or buy a car, without doing due diligence to that loan, the courts tell me "tough luck" if you file for bankruptcy. But if I lend you $250,000 for an arts degree, the power of the state will force you to pay me.

That's insane!!!

Yes, and home and car loans still exist because if people don't pay it back there is an asset to repossess.

That's not the case with college loans.

Which is why they are fundamentally different.

> they are fundamentally different.

Perhaps it's good there are some things that are different. Some things are property. Some are not.

In history there always seems to be a trend for those in power to try and enslave those not in power, by putting property laws on people.

This student loan bankruptcy exception is one example. Intellectual slavery laws like copyright and patents are another.

This is a non-sequitur response to the point 'harryh made. Regardless of the underlying moral dimension of college financing, you can't rationally extend dischargeable loans to students, because they can default and discharge the loan with minimal impact on their life. If dischargeability became the norm, most students would simply not be able to obtain loans at all.

That may be a good thing, as 'harryh said. But that's not the point: the point is, at the point where you make student loans dischargeable, you might as well just concede that you're eliminating them altogether.

In reply to tptacek:

"at the point where you make student loans dischargeable, you might as well just concede that you're eliminating them altogether."

Have you ever gone through bankruptcy? Luckily I have not, but from what I've read it's a horrible thing to go through with serious consequences to your finances that takes a minimum of 7 years to overcome.

I think the cost of college would drop 10x. I went to Duke, and the gardens and pools were lovely, really, but perhaps some tables and books would have been the more appropriate use of my tuition money.

I do agree the IS bit was somehwhat a non sequitor, but there is a common thread here I think when people try to put property and ownership rights on things that nature doesn't make that easy.

I have administered and underwritten bankruptcies for others and feel like I have some direct personal experience with the process. I do not feel like the consequences of bankruptcy are sufficient to make it irrational to discharge 6 figures of college debt through the process.

I would have declared bankruptcy in a heartbeat for my wife’s loans & it would have been rational. I a) make good money b) have good credit and c) don’t have financial hardships.

The asset is a person who will have to undergo a repayment plan for 7 years.

> But if I lend you $250,000 for an arts degree, the power of the state will force you to pay me.

Why would the state not use the power of the state to make sure you pay back money it lent you?

Because it's a dumb predatory loan that should never have been made in the first place. There is a type of business for making dumb loans and using force to ensure they are paid back: the mafia.

The mafias of old are nothing in size when compared to the student loan industry.

Discharging loans and the predatory nature of them are two different arguments.

If they loans are predatory, make the loans harder to qualify for. It won't fix the predatory nature if they are easy to get rid of; if anything it will make them more predatory by likely increasing the interest rate to compensate for the increased risk to the lender.

This is completely wrong. The answer is simplicity, not more complexity that would come from "make the loans harder to qualify for".

> It won't fix the predatory nature if they are easy to get rid of

Yes, it will. People will stop hunting for more students to go to their schools with expensive landscaping if there were no government guarantees to ensure they get paid.

This is a very simple issue. Any attempts to complexify the issue I suspect are merely attempts to divert attention from the question of human rights and equality. I paid all my student loans and personally have only to lose if they change the laws, but it's the right thing to do.

> You undermine your own point with your assertion that that government guarantees are the issue, not the inability to discharge debt that provide the abundance of students.

I'm failing to see the difference. The government should not guarantee the debt and people should be allowed to discharge the debt in bankruptcy. The responsibility should shift to the lenders, not the government. The price of colleges should tumble. Some should have to close their doors. There should be a great reshuffling in the education space.

> "For every complex problem, there is an answer that is clear, simple, and wrong."

This is a great quote, thanks for sharing. I would say a more accurate quote would be: For every complex problem, there are infinite answers that are clear, simple, and wrong, but also a few that are right.

The difference is that one presupposes the other. In other words, there fact that the government started guaranteeing and subsidizing loans created conditions that led to excess debt, which set the table for a need to remove the ability to discharge that debt in order to make the risk of lending acceptable. I believe much of this can be traced back to The Great Society program.

I don't think you're wrong, I think you're just focusing on the wrong aspect. Its the supply of easily incurred debt that is incentivizing high tuition. The laws regarding discharging of that debt are predictable blowback.

It sounds like what you're advocating is a return to the way higher education was treated prior to the 1980s, a time when many less people had degrees. The problem is that return is no longer a simple solution, especially when we live in a society that now requires 4 year and even graduate degrees to be competitive, regardless of whether the position necessitates it

I'd point you to this paper pasted above: "https://repository.law.umich.edu/cgi/viewcontent.cgi?article....

It's an unjust law enacted in the 1970's at the behest of dishonest people. It needs to be fixed. Pretending it's a more complicated issue is just a tactic to delay doing the right thing.

Unfortunately the link is throwing an error me. If it's related to the bankruptcy law, I'm not advocating that it is moral. I'm saying it's part of a complex system that a simple repeal may have unintended consequences.

From my experience in an organization specially tasked to help redesign problem processes, I can only say that every single time someone thought a simple solution would cure a complex issue, they were wrong. I'm sure there's an occasional case that could be the exception to prove the rule, but it became such an inside joke that my boss had a desk placard that read (tongue-in-cheek), "All you've got to do..."

Unfortunately, for those adamant about their idealized simple fix, they could only be convinced by seeing it fail.

Oh, I imagine there would be a number of 2nd order effects. Another commenter mentioned that we might then see bankruptcy records preserved for 20 years, not 7. You are right about that for sure. It's like a big refactor. Often hugely worth it in the end, but lots of problems crop up along the journey.

I still think simplicity is the thing to fight for. Corruption hides in complexity.

HL Mencken has a famous quote: "For every complex problem, there is an answer that is clear, simple, and wrong."

You undermine your own point with your assertion that that government guarantees are the issue, not the inability to discharge debt that provide the abundance of students.

Allowing the discharge of debt will not impact schools if the government still guarantees loans. If anything, it will exacerbate the problem by incentivizing more debt by reducing the risk to the borrower. It seems like you are conflating multiple issues in a complex problem in an effort to provide a simple solution.

Generally higher interest rates result in smaller loans because people can only afford a fixed monthly payment. A smaller loan generally outweighs the downsides of higher interest rates compared to a huge loan with almost zero interest because that huge loan will be used to bid up prices higher and higher far beyond the original value of whatever you are buying.

So you are calling the Department of Education a mafia? The Department of Education is the "student loan industry".

I think mafia is a poor word choice. At least the mafioso didn't pretend to be saints.

Collapse? Change maybe. It means underwriters will want proof of performance, High school GPA, SAT's, and intended college major.

Good grades and signing up for pre-med? Here's a year of cash, you'll get your next payout if you're on the honor roll next year.

Planning on majoring in Homeopathic Nutrition Science? Denied.

Sounds like it'll make people a lot more focused on ROI and studying and that strikes me as a good thing. If it cuts down on a lot of frivolous choices, it'll also reduce the overall regret from those.

The problem with dischargeable student loans isn't that the students won't profit from them; it's that, having obtained a dischargeable loan whose direct utility ends in their 21st year of life, the rational move for student borrowers would be to ruthlessly default. You can't repossess an education.

There is no rationale to ruthlessly default. It only makes sense if you cannot pay your student loans back, which is the entire purpose of bankruptcy. If the bank lends money to people that can't pay the student loan back then it's the bank's problem.

Bankruptcy isn't a free get out of jail card. You're not going to find many people who study a very expensive degree like medicine only to then work at McDonalds for 7 years so they can avoid paying the full sum back.

That's false. My father and mother took out student loans when they were dischargeable and they paid them off. My dad via working as a taxi driver and bouncer, because there was downward pricing pressure back then.

There are severe consequences to filing for bankruptcy. That is on your record for 7 years, minimum.

This is also a non sequitur response. Doubtless many people would pay back their loans, for personal moral reasons. But a BK on your record from ages 21-28 is not a meaningful practical deterrent for ruthless default, because those are ages when personal credit history is not especially important; the BK would come off your record years before most people take out their first mortgage (the median age of first home purchase is 42, but a mortgage in your early 30s would be easily accomplished after a student loan default).

There are annoying consequences to having a BK on your record --- it would be harder (though not impossible) to get a credit card, and your first couple apartment lessors might want cosigners (though it is extremely possible to get a lease with terrible credit). The problem is that these consequences are far less onerous than shouldering student debt, which takes most people decades to repay.

What's worse is, the incentive would likely be to default as quickly as possible, since that's what starts the recovery countdown. Not defaulting right after graduation would be a significant gamble on your ability to either repay or practically default later in life, when you're more exposed to the credit system.

Obviously, an important part of this analysis is that student loan amounts have gotten significantly larger in the last 2 decades. Another easily-made observation is that student loans stopped being dischargeable because of widespread ruthless default, even with tuition rates less than 1/3rd what they are now.

> an important part of this analysis is that student loan amounts have gotten significantly larger in the last 2 decades. Another easily-made observation is that student loans stopped being dischargeable because of widespread ruthless default, even with tuition rates less than 1/3rd what they are now.

Four decades ago student loans started becoming undischargeable (1) and the price of college has gone up over 6x, and I have never seen evidence that prior to that there was "widespread ruthless default", as you stated. Not to mention, times have changed and with the Internet and it would be much harder today than back then to hide a previous bankruptcy.

1.https://info.legalzoom.com/did-laws-effect-preventing-bankru...

College should cost 10x less, easily. If I graduated with $5K in debt instead of $50K (or to take the national current average of $2,400 instead of $24,000), there would be no need to even consider bankruptcy.

That college should cost less isn't the debate we're having. You're unlikely to find anyone here to disagree with about that. For this thread, college costs what it costs, and it costs enough for a deliberate bankruptcy (the technical term for that, by the way, is "ruthless default") to be a practical option.

We're referring to the same time period, by the way. Have you looked for evidence of defaults in the late 60s and early 70s? Where did you look?

During the housing crisis, a material number of people defaulted ruthlessly on their homes. There was even slang for it --- "jingle mail", for people mailing their keys back to their lenders. That is, defaults were a problem even when lenders actually had a valuable asset to seize.

Later

A more tenable suggestion would be to restore the status quo ante of the 98 Bankruptcy Reform act, making loans dischargeable in bankruptcy after 7 years. It'd be interesting to go look for the rationale for the '98 act's indefinite non-dischargeability provision.

This is an interesting paper, one you'll probably like as it's skeptical of arguments against non-dischargeability, that goes into some detail about what other countries do (they do address what the paper calls "opportunistic" default):

https://repository.law.umich.edu/cgi/viewcontent.cgi?article...

> (the technical term for that, by the way, is "ruthless default")

Thanks! Appreciate the lesson. That's a pretty cool technical term, btw.

> Have you looked for evidence of defaults in the late 60s and early 70s? Where did you look?

Yes. Semantic Scholar. No luck for things in earlier than the 1980's. Have you found anything?

Later, after reading the paper you cited

`the Chairman of the House Subcommittee on Postsecondary Education who oversaw the Education Amendments of 1976 (Rep. James O'Hara) objected to the introduction of a student loan nondischargeability rule. 15 O'Hara protested bitterly that Congress was "fighting a 'scandal' which exists primarily in the imagination" and that the amendment "treats educational loans precisely as the law now treats loans incurred by fraud, felony, and alimony dodging".'"`

...

"The evidence of a lower than 1% discharge rate of federally insured student loans in bankruptcy did not block the nondischargeability provision from entering the Bankruptcy Code - this even so under a comparatively liberal Congress that passed the debtor-friendly 1978 overhaul of the Bankruptcy Code."

So indeed, there was never a real problem, and the law was enacted in the 1970's at the last minute on behalf of frauds and felons.

Thanks very much for the reference. This is an issue I care about deeply (clearly), but my arguments are a bit sloppy.

That being said, it's very much a military tactic being employed by people who want to preserve the status quo to pretend this is a complex issue, when it's really pretty simple.

Sure. And again, there's a middle ground (that 'harryh didn't bring up but I'd be a little surprised if he disagreed about) which would just be to roll back the law to the 1990s, where student debt was dischargeable, but not until your life after school was underway. You'd carry the debt through your 20s, when it probably isn't that big a deal anyways, but if you were buried under it by the time you were 30, you could get out from under it at some cost to your credit.

Also: super graceful response in a touchy thread! Cheers!

Sometimes I regret getting involved in a heated thread, but then a link to a source like the one you provided makes it all worth it, as I come away a little more informed. :)

No, none of that will work. Great students taking majors with high earning potential can still declare bankruptcy the day they graduate and discharge the debt with few consequences.

Have you declared bankruptcy before? I have not, but from what I read there are very severe consequences. (Okay okay, our present president being the exception. But if you are not born rich there are bad consequences)

You'll have trouble getting a home loan for 7 years. And maybe a bit of trouble getting a car loan or a credit card for a while.

But these things aren't a big deal for most 21 year olds. Certainly they are smaller considerations compared to paying back a high 5 or 6 figure debt.

You also probably can't be a director of a private or public company until the bankruptcy is discharged (2 years?).

If student loans became dischargeable through bankruptcy, I imagine that could put pressure on bankruptcy laws in undesirable ways (e.g., the current 7 year period might get extended to 20 years).

I agree that we should make that change, but it's important to note that if that happens, interest rates on new private student loans will jump upward to account for the risk of default. And they may start adjusting interest rates based on what you're studying.

I agree it might be a tough transition. But it's the right thing to do. Let's be that country that does things "not because they are easy, but because they are hard"

More than half of this country wants to have the “easy” entitled way about things

Wow really? Good!!

> Otherwise there is no incentive for banks and colleges to not charge infinity for college.

Almost all student loans are government initiated with (very low) rates set by formulas in law that there are strong political reasons not to make higher, and even when private lenders could participate in the government-guaranteed loan program, the rates were set by the same law.

Market incentives are irrelevant, because rates aren't set in the market, but by fiat.

Your argument might apply to the miniscule private student loan market (which is pretty much entirely for nonaccredited schools that don't qualify for government loan programs), but that's a small part of the student loan universe.

"Charge infinity for college" is the best way I've heard this put. If there is no pressure on a school to control costs then nothing will control costs.

When studies come out that the present value of the lifetime earnings boost from a college degree has dropped below the cost of tuition, the media will run a series of stories, the next year's matriculation rates will collapse, and schools will panic. What happens next, I don't know, but that is certainly one thing that will control costs... eventually.

This is a good point. I graduated college $50K in debt, and was in debt from age 18 - 30, but in the end going to the school I went to was worth it, compared to not going to that.

However, this does not make it just. Education should provide you with a huge economic surplus. That's the natural order of things. It's very unnatural to say "I educated you, and now I hope to collect 99% of your economic bonus, but you will still be 1% better off so it's a good deal for you". That's called slavery.

"It's very unnatural to say "I educated you, and now I hope to collect 99% of your economic bonus, but you will still be 1% better off so it's a good deal for you""

This seems to be a common attitude though, on the scale of one (developed) nation to another (developing) nation. That is, I'm thinking of the anger over "intellectual property theft".

You forgot step 2 where they graciously negotiate it down to everything you're ever going to earn.

> Otherwise there is no incentive for banks ... to not charge infinity for college.

The vast majority of student loans are not made by banks, so I'm not sure what they have to do with this.

A business that loans money to people and charges them interest is a bank.

So the Department of Education is a bank?

> Private companies do not do the lending, the DOE does. Stafford loans, both subsidized and unsubsidized, are issued directly by the DOE to the university. There is no middleman. What private companies are you talking about?

Thanks for the info. I'd have to go back through my old papers and find who I was paying, but IIRC the domains were all ".coms" and not ".edu". Basically what I'm saying is there is a huge private business in servicing these loans, even if it's the U.S. Taxpayer that is on the hook for the principal.

Sallie Mae/Navient is the servicer for the DOE, but they don't issue anything.

See my edit. I think you are drawing on experiences with a system that hasn't existed for nine years, at least as far as newly-issued loans are concerned.

Gotcha, thanks. Yes my experience may be out of date.

I personally never dealt with the DOE, though I dealt with lots of private companies that actually did the lending and managing of the loans, even if the DOE was ultimately behind them.

Private companies do not do the lending, the DOE does. Stafford loans, both subsidized and unsubsidized, are issued directly by the DOE to the university. There is no middleman. What private companies are you talking about?

Edit:

I see what you are talking about. You are referring to loans issued under the discontinued Federal Family Education Loan Program[1]. That program ended in 2010 and, I believe, remaining loans issued under that program represent a relatively small portion of the DOE's $1.4T holding. The vast majority of what the DOE currently holds are loans directly issued by the DOE, and any talk of current education expense inflation cannot be separated from that. There are no banks to blame this on anymore.

[1] https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_...

The Department of Education isn't a business.

Then, again, what do banks have to do with this if a business that loans money is a bank, but the Department of Education is not a business and so not a bank?

I wonder if that's just treating the symptom and not the root problem. I don't pretend to know what the root is, but I could see how being able to discharge loans in bankruptcy could make the system worse.

Students could take out massive debt still backed by the government and declare bankruptcy shortly after graduation. There's still plenty of time to recover from that and still be in your 20s. Meanwhile, the taxpayer just got hosed in the process. That may even mean non-college graduates subsidized a fellow citizens degree with nothing to gain from it. The school still got paid, so I don't see that incentivizing lowing tuition.

I know some people claim the easy access to government backed student loans makes it too easy for college to increase costs by essentially inflating the supply of students. It's a very libertarian argument and the fix is to stop letting the government distort the marketplace for tuition. But something about reducing access to student loans doesn't sit well with me and feels like you'll still shut out large segments of the population.

The bankruptcy exception is the root of the problem.

"the Bankruptcy Reform Act of 1978". https://info.legalzoom.com/did-laws-effect-preventing-bankru....

Price of college since then: http://blog.unibulmerchantservices.com/wp-content/uploads/20...

I don't know if your links support that claim. Or, at least I could use help getting from the bankruptcy law change to a systemic rise in education costs.

It doesn't seem to follow that an inability to discharge debt will lead a college to continually increase tuition costs. By the time the discharging of debt comes into play, the college is mostly out of the picture. Help me understand how that incentivizes a school to increase tuition. If anything, it seems like it would drive the cost down as it increases the risk to the borrower, incentivizing the borrower against taking excessive loans.

It does however seem to make better sense that an over supply of loans will allow colleges to increase tuition.

>There's still plenty of time to recover from that and still be in your 20s.

If you can recover then you have gained nothing from the bankruptcy but you have lost from the inflation of your debt.

yes, that is the real problem,

college shouldn't cost a hundred grand a year in the first place ...

It doesn’t if you choose to go to a cheaper school...

this is like saying: it is even cheaper if you don't go do school at all...

look at the facts:

1. the vast majority of colleges are very expensive, 2. career prospects suffer if you don't attend the "expensive" colleges... 3. finally, most people can't judge the value they get out of college, yet it is all set up in an almost predatory fashion.

1. Is empirically easy to disprove.

2. This is also not true

http://www.businessinsider.com/earnings-10-years-after-atten...

https://www.vox.com/2014/8/5/5968681/expensive-college-worth...

3. The article is about wealthy families cheating. Do you think the average wealthy parents are ignorant?

You arguments are bit like: if you can't afford a car just move to place with good public transportation. Problem solved. Yet in the US that's not possible to do a larger scale. There are just not enough places to accommodate everyone that needs that. Hence you end up with people paying predatory car loans.

I am not questioning that for one particular individual, it is possible to get a good education for far less than the average. Good for them. But that approach neither scales well nor is applicable to population levels, hence people try to game the system to get ahead. This is an example of gaming the system after all, we're looking at what leads here.

As a note to the career prospects, how much you make in 10 years is not such an optimal measure. 10 years is a long time, and you do benefit more early on. The opportunities and overall quality of life is more impacted.

You arguments are bit like: if you can't afford a car just move to place with good public transportation. Problem solved

Guess what? People decide every day that they want or need to live near public transportation because they can’t afford a car. Also, relevant to the conversation, people also decide not to buy a car that cost a lot to purchase and maintain because it’s not in their budget.

There are just not enough places to accommodate everyone that needs that. Hence you end up with people paying predatory car loans.

There are plenty of non elite cheaper colleges in every state.

People choose to live near public transportation and buy cheap cars every day.

Since most college graduates aren’t graduating from “elite colleges” and the sum total of graduates from non elite colleges is much larger, and I posted statistics at the population level, again, it’s easy to show that you don’t need to graduate from an elite college to earn a better than average wage.

This is also provably incorrect. There are plenty of statistics about where the peak earnings years are for most Americans.

https://en.wikipedia.org/wiki/Peak_earning_years

Let me ask this,

is your underlying argument that the $1.5 trillion student debt in the US is merely a result of ill-made choices? All these people chose not to enroll in that super-affordable yet on-par-with-the-best-over-long-term local educational institution, instead, they chose to pay a lot more for marginal benefits at best.

I am saying from a pure ROI standpoint, it is simple to determine whether the cost of the education was worth it. By using a few criteria.

1. On average, was the cost of the education worth the difference between not going to college at all vs going to college.

We know the answer to that question: https://www.ssa.gov/policy/docs/research-summaries/education...

2. Once you determine whether going to college vs not going to college is worth it, is the cost of going to an expensive college versus a cheaper college beneficial based on the difference between the discounted future cash flows of your lifetime earning potential?

You can figure that out on average by looking at the median ten year earnings after graduating from college.

It doesn’t make any sense to spend more than the minimum to get a degree in certain fields - like teachers, social workers, and even pharmacists.

Yes I’m saying that most people don’t choose colleges strictly based on the ROI. I think that is either a mistake or a luxury depending on your viewpoint.

as luck would have it here is plot I saw on reddit

https://www.payscale.com/college-roi

To put things in perspective; The second rate state school I went to was still $40k to get a degree

Georgia Tech- definitely not a second rate school - is $40K for four years for instate residences not including room and board. They also have 2+3 programs where you can go to an even cheaper state school and transfer credits.

Not really relevant overall, but if you meet the requirements to go to GT and you meet the state residency requirement, you probably also meet the requirements for the state funded Hope scholarship that should take care of 80% of the tuition.

This has been going on for a looong time.

This must be today's daily "here's how rich people are ruining X" article that has become so predictably regular on HN.

So this is just typical media hype? Just wanna make sure I understand your pov

I'm supportive of this. Children should not be held accountable for "the sins of their parents". My parents started charging me rent when I was 18 and told me I had to pay for college entirely by myself. I don't see why their income should be held against me.

From reading the article, I think the point is that these kids aren't actually supporting themselves, they're just made to seem that way on paper.

Surely their income from their parents is taxable at normal income tax level then?

Only if they give/receive more than 11.1 million over the course of their lifetime.

And that, only the amount over $30k/yr for a couple gifting their child.

Alas there are some pretty generous tax breaks on gifts.

Yeah, that's not what's happening with the people in this story...

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