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.
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.
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.
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.
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.
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!!!
That's not the case with college loans.
Which is why 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.
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.
"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.
Why would the state not use the power of the state to make sure you pay back money it lent you?
The mafias of old are nothing in size when compared to the student loan industry.
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.
> 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.
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.
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.
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
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.
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.
I still think simplicity is the thing to fight for. Corruption hides in complexity.
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.
There are severe consequences to filing for bankruptcy. That is on your record for 7 years, minimum.
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.
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.
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...
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.
Also: super graceful response in a touchy thread! Cheers!
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.
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.
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).
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.
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.
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".
The vast majority of student loans are not made by banks, so I'm not sure what they have to do with this.
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_...
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.
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.
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 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...
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.
If you can recover then you have gained nothing from the bankruptcy but you have lost from the inflation of your debt.
college shouldn't cost a hundred grand a year in the first place ...
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.
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?
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.
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.
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,
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.
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.
This is also provably incorrect. There are plenty of statistics about where the peak earnings years are for most Americans.
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.
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.
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.