It was a mistake, IMO.
Landlords aren't in the business of providing housing for free, and seek restitution for damages and unpaid rent through the courts. A low credit score or bankruptcy shows that a potential tenant could incur significant damages and unpaid rent, and leave the landlord high-and-dry when the bill comes due.
In today's owner's market, there are plenty of other potential tenants without a poor credit history or bankruptcies.
Aka. bankruptcy vs bad credit, not compared to a good credit score.
Many landlords are loath to rent to recent graduates, those with poor credit and a history of bankruptcy. It's an owner's market, and someone who checks all three risky boxes will be skipped over for another tenant who comes with less risk.
...why wouldn't I just borrow every cent I can without even intending to pay it back?
(or this judge's decision won't become universally applicable, or the law will be changed to circumvent it)
It might be possible to declare bankruptcy a year or two before graduating still. Not sure what employers would make of it. Maybe they'd like the mercenary attitude.
This is basically the entire point.
What do you think at the moment stops graduates taking out a credit card, blowing 100k on it on holidays and then declaring bankruptcy? The same fraud laws as would stop you from clearly never intending to pay off your student debts.
Credit card issuers actually target recent bk's since they have no debt. :)
They're also ignoring medical debt, since otherwise a large percent of their applicants would be rejected.
Of course the other two issues are that such a "retributive" system of treating debtors with a scarlet letter isn't productive even if it appeals to a sense of "fairness" to those who pay. Second, the reason banks don't care about old bankruptcies isn't anything high minded but because they like money and can make it if they don't pass them up.
The bargain probably should have been "Cannot be discharged in bankruptcy, until 15 years have passed after loan origination."
Like Prop 13, the overall effects of undischargeable loans have been overwhelmingly negative -- decoupling college tuition inflation from income growth / general inflation, via government underwriting of loans, while removing market influence on guiding students to choose majors with a return on investment.
That wouldn't make much sense, many students aren't accepted into a major until a year or two into their education.
"Intended major" would also be a poor choice, as I think we all know many people who intended to go into one field and ended up in a completely different one.
Someone else is lending you the money, they can add any strings they want.
Banks deny mortgages for problems with homes all the time. You aren’t able to swap in a different house after the bank approves it.
I'm not sure what this has to do with anything I said.
If you're referring to my second statement, I met many people in school who intended to go into engineering or computer science or medicine and had to change their career path once it was clear they weren't going to make it through the first year of introductory classes. I doubt I was alone in seeing that happen.
Not sure how that ended for him, but hopefully poorly?
(The program was originated as that state didn't have a NucE program, so found it cheaper to pay them to go somewhere else than run its own)
I've got no sympathy for someone who deliberately makes unethical choices.
I'm not one to toot on the SJW train, but it's likely inefficient (and certainly unjust) if we encode existing economic biases into our primary method of access to educational capital.
I'm really sad that in this view, access to credit is equated to access to education. Sure, in a first degree thinking the goal is achieved, but at the end of the day education is a means to an end rather than an end in itself. Lending people money to attend unaffordable institutions can't be the best way to fix the problem.
Not if loan terms aren't designed to court default, which they often seem to be. Doesn't it seem backwards to require that the people least likely to be able to pay, pay higher interest rates?
I mean, yes. But on the other hand if the ability to payback the loan (risk of default) isn't taken into account these loans might not exist at all (not necessarily a bad thing). Eventually the risk-adjusted rate hits usury limits and loans start disappearing.
(Of course we still get things like payday loans, credit cards, student loans, etc., but these are legal loopholes that should be closed.)
Went in state,
lived at home (commuted 2-2.5~ hours twice a day)
lived cheap (no real spending outside of school bills)
Had scholarships which knocked off 50% of the sticker price.
After all that, and the high interest rates at the time on my initial loans it was north of 200k.
My parents helped with food and rent (living at home) but everything else I took a loan off.
I considered my loans heavily predatory and wish I could have done things differently.
Comparing that to my alma mater (Johns Hopkins), a private university, your loans work out to more than my total cost for tuition for four years (2004-2008). Even looking up their current rates, the average four year tuition after student aid is ~130k. Without any student aid, it hits ~$200k.
Go to public schools, live at home, get out with little debt. It's really not a difficult choice, and it gets even easier if you know about the existence of community colleges.
Stop anchoring impressionable kids to ridiculous tuition numbers.
Edit: the highest average in-state tuition is Vermont with just over $17k. If you're willing to go to a state school, you can do it for under $80k for 4 years.
https://research.collegeboard.org/trends/college-pricing/fig...
Granted I should have went to a community college to get my basic classes sorted out.
But being a first generation immigrant and the first to go to college I had little guidance and a high pressure to appease my parents.
At the same time they could not make any payments on my behalf but also did not allow me to go to community college either.
Some would say I should have been smarter, but my parents were sold the "American Dream",
I was forced to foot the bill :)
Really this would have been great to know from my high school advisor to be able to convince my parents to let me consider other types of universities.
In Canada, the vast majority of student loans are taken out directly from the government. You can't declare bankruptcy on a government-issued student loan until seven years after the last day you were a full-time student. After the seven year timer runs out, it's treated the same as any other unsecured debt and you can include it in a bankruptcy (equivalent to a Chapter 7 in the US) or a consumer proposal (equivalent to a Chapter 13 in the US).
Private student loans also exist, but unlike government loans they have no special protection - you can go bankrupt on them just like any other type of unsecured debt at any time. For this reason, private lenders almost always require a cosigner for these types of loans.
Since we only have selfish humans, they'll always work for their own good - whether it's profit motive in an open market, or political power and attached financial benefits.
Jeez, imagine how easy society would be if we could actually create government programs 'purely for the public good'. I'd love to live in a world where everything didn't become as corrupt as it structurally can.
It's ironic that in much of the world this is the case. Specifically, in this thread the Canadian system was mentioned and the Australian system is similar.
... federal student loans, which are the largest single source of college debt, representing more than 92 percent of outstanding student loan balances.
https://www.americanprogress.org/issues/education-postsecond...
The way federal student loans work right now (auto-approved at high interest rates with no cap or restrictions on degree program) basically ensured a generation of Americans were bound to wage-slavery.
https://www.pbs.org/wnet/need-to-know/opinion/wells-fargo-se...
That was the instance they were caught for mortgages, but it's happened infamously and recently in auto loans, farm loans, and business loans also. It's unlikely that covert discrimination wouldn't then extend to student loans.
While that likely phenomenon is hidden, what does happen out in the open is that interest rates are higher for people who live in majority-black neighborhoods, which also correlates to a higher default rate. That means one of two things. The intent could be to discriminate against black people by suffusing the loan terms with America's general distrust of black people (and considering the history of racism in lending across all loan types, I don't doubt that this is the case). Alternatively, non-black people in majority-black neighborhoods might be subject to the same high rates; in that case, direct discrimination isn't taking place, but it shows that the banks are setting rates knowing that they'll result in higher interest payments and defaults.
Unfortunately, there's no way to know because the banks refuse to reveal their formulas or allow matched pair testing.
That's also why Obamacare had to be this rube goldberg public/private complication.
In theory, non-dischargeability should be _increasing_ pressure on students to choose majors that are worth the monetary investment, no? I guess perhaps your point is that successful insurance companies would be better positioned to make this assessment, but I'm not sure that's true: a student and his advisors/parents have a lot more relevant information about which major they in particular would be most productive in, along with access to the prior for how productive a given major is on average.
Eg, my parents REALLY wanted me to be a doctor, but I knew I'd find medical education intensely boring and unchallenging. Ostensibly, going into medicine may have been more conducive to loan repayment than getting a math degree (and CS, added later), but I had the inside information to know that, if anything, I'd have a tiny (but nonzero) chances of failing to finish a medical education for sheer lack of work ethic. That's the kind of case-by-case information that's not available to insurance companies. If my parents had an incomplete picture of how degree choice played into my loan repayment, an insurance company would be way worse off as compared to our collective decision.
> specifically because 18 year old don’t make good decisions.
I'm sympathetic to this argument because there are _some_ 18 year olds making these huge decisions without any reasonable guidance, but for a big chunk of the population, we're talking about 18 y/os + their parents + their college counselors.
And I'm also not claiming it's black-and-white: people (even adults) do very stupid things all the time, so it may be rational to have insurance cos bear part of the responsibility for measuring risk of a given student trying for a given degree. But
1) Given the extremely asymmetric information, this is an extremely blunt instrument, which will lead to countless hot takes about seemingly-ludicrous-but-inevitable false positives and negatives where a student is charged an absurd rate for something that makes sense in his case
2) It's simply not accurate to claim, as GP comment did, that the market influence is being removed: it's just being shifted from insurance co to student+advisors (who again, is much more equipped from an informational perspective to make this call)
I think that's correct, however meanwhile the system dramatically changed and now the vast majority of student loans are made by the government without any underwriting.
The largest private sector role is poaching the best risks to refinance. Allowing these refinanced loans to continue to be non-discharable has the net effect of enabling the private sector to more effectively engage in adverse selection against the government-as-lender! It's hard to imagine anyone would actually sit down and design this policy set.
I wonder if this is just a very American thing because the loans are so ridiculously big? In NZ student loans can be forgiven through bankruptcy. See http://www.studentloan.org.nz/options.html
But the loan is only around like $30k anyway and I basically never hear of anyone purposely declaring bankruptcy to get out of it. The whole thing is pretty much a non-issue. People take them out, people pay them back. Some people used to go overseas in order to avoid paying it back but they changed the law, so that you can't do that anymore.
A Bachelor of Science might cost $20,000 NZD ($13,000 USD), extra fees are pretty low, textbooks are not cheap but professors usually try to avoid you having to buy them. In your first year you might get away without having to buy a textbook (in the maths departments at least). A Bachelor of Arts would could a few thousand less.
Fully catered accommodation is expensive. Higher end would be $14,000 NZD ($9,200) for a year. Not many students continue in halls of residence past the first year. Staying in a shared flat would cost a LOT less.
A lot of students also live with parents and commute.
The Student Loan is interest free and covers course costs as well as a portion of living costs. Domestic students also can get a Student Allowance of about $220 NZD/week (or more depending on circumstances). The allowance is welfare, not a loan.
Walking away with a degree and $30,000 - $40,000 NZD ($20,000 USD - $26,000 USD) interest free debt is reasonable. Some people will be more, others will be less because they worked part time while studying.
Repayments are taken out of your paycheck (12% of income over $19,670 NZD, so probably 8-11% of total grad compensation per year). There is no incentive to repay it faster due to the lack of interest. Most students I think would have it paid back in 11 years or less. If you learn less than $19,670, you don't have to make any payments.
The catch is you pay 4% interest if you go work overseas. Salaries are higher overseas so you will still win.
There is little to no incentive to declare bankruptcy. I have never even heard of it discussed.
* https://www.experian.com/blogs/ask-experian/state-of-student...
In NZ the median student debt at end of study is just $17,000 NZD but that includes people dropping out after one year, non-university diploma courses and students whose parents paid for most of it or students who worked while studying and paid as they went.
https://www.beehive.govt.nz/release/impact-student-loan-debt
https://ticas.org/wp-content/uploads/2019/09/classof2018.pdf
I always have a hard time understanding these stories of American kids racking up 100s of thousands in debts. Just doesn't seem like a workable system.
Interesting to learn that the average is far lower than the sensationalism makes it out to be.
Ending up with $100k+ loans is more common when people go onto professional schools (masters, law, medicine, etc), fields that should have higher earning power. Not everyone finishes, and for law not everyone that finishes gets a high paying job.
Over half of all student loan debt is held by those with advanced degrees (https://wcer.wisc.edu/docs/working-papers/Working_Paper_No_2...). Add in that only 13% of Americans 25+ have advanced degrees, compared to 35% with at least bachelors degrees.
Student loan debt is disproportionally a problem with advanced degrees, but it all gets lumped together when we talk about student loans.
The range is quite wide though. Someone attending a state university or community college with grants and/or scholarships might have zero debt, and someone attending a private school through post-grad with no financial aid might incur $250,000 in debt.
If so, that is a classic intellectual mistake that comes from not understanding any Economics.
If you increase demand by pumping out extra education dollars to students, and the supply doesn't increase accordingly, all you've done is raise prices and give the suppliers a huge windfall profit.
Why the supply of college spots doesn't respond to a demand increase, like most goods and services do, is an interesting question!
Bankruptcy protection is a general mechanism for helping people move past debt. (The theory is that it’s better to pay claims for pennies on the dollar and resolve everything at once than to have debt hanging over the person indefinitely.) But student loans are different enough that it’s entirely reasonable for the government to decide a different regime should apply to student loans.
Your third point seems to suggest you may not be fully aware of the parameters of income based repayment and its many gotchas. People who rely on it, through no fault of their own, regularly find themselves paying 10x their monthly payment through paperwork malfunctions. Additionally many of the benefits of taking jobs that qualify for perks, like loan forgiveness, under income based repayment systems are out the window under the DeVos regime.
Based on this, I really don't see how your conclusions follow from your premises. If anything, your argument works against you. People who are allowed to take out hundreds of thousands of no collateral loans at ages like 18 should be able to move past them through bankruptcy. It's downright predatory.
The reason is so that these loans are low risk (no risk?) to those providing the loans. This was done in an effort to provide everyone that wanted an education but couldn't afford it could get a loan. Obviously the mechanism used to reach the goal here backfired and people have just doubled down on the bad decision.
They aren't, particularly; they are low risk to those buying the loans, not to the issuer (even with the difficulty on discharging them) who is, after all, the guarantor.
Well, except in the sense that the issuer can literally just fiat dollars into existence whenever it chooses, so essentially all dollar- denominated debt is zero-risk.
Hypothetically, there's no reason the US government couldn't structure its loan program thusly:
(A) Originate loans for existing fiscal year, (B) bundle multiple loans together / blind desired loan details (e.g. lendee race, etc), (C) auction off loans on the open market, (D) require budgeting for next fiscal year loan program on the basis of previous year's auction.
You'd get the benefit of price / cost discovery while controlling for unfairness as desired?
There'd need to be some legal papering to deal with the outcome lag, but it seems more responsive than the tossing money down a well we do now.
Firstly, leverage. A lack of rules and enforcement allowed unreasonable amounts of capital to amass around mortgage bets. Without the crazy leverage via derivatives, the mortgage crisis would have been "A lot of loans go bad and some people get fired." Limit via regulation.
Secondly, capital requirements. My understanding is that mortgage-backed securities are treated preferentially in terms of where a bank legally can allocate capital. Consequently, as they had to find returns somewhere, they constantly needed to plow huge amounts of money into the market. Inflows of money >> smart money meant that price discovery broke down: those who cared were drowned out. You'd need to avoid structuring taxes, etc to artificially force capital into this scheme.
If the American government is going to print money so people can go to college, why not print money for everything? The idea is much worse than an income tax because with money printing nobody knows who is losing out. We know by raw balance equations that someone who would have gotten something real now isn't but there is no way to identify who or what.
That level of confusion can't possibly be a good idea. "Just print money and solve the problem" is a dangerous approach and really better dropped from the conversation. Playing word & number games to pretend something real didn't happen is a bad direction to take politics.
n.b. I'm not suggesting this is a GOOD system, just explaining the reasoning behind it.
I mean, they kinda do; Student loans are unlike most other loans in that there's no collateral. Mortgages have houses, USDA loans have farms, etc. They could theoretically "repo" your diploma, but that would be a token gesture and wouldn't really make much sense anyway.
In most other contexts to offset this you'd just get charged an exorbitant interest rate (which indeed does happen for many private student loans) or go through a rigorous qualification process, but the government offers low-interest loans and in return says those debts aren't dischargeable (thus removing the 'risk' of default).
The government typically doesn't make those other kinds of loans with no credit check or analysis of how the loan proceeds will be used. The point is that federal student loans are a regime apart from other kinds of loans, which justifies having a separate regime for handling people who cannot pay their loans. (Income-based repayment, rather than bankruptcy.)
> Though I don't know the percentage of gov:private student loans offhand.
As of December 2018, 92% of student loan debt is owed to the federal government.
> Your third point seems to suggest you may not be fully aware of the parameters of income based repayment and its many gotchas. People who rely on it, through no fault of their own, regularly find themselves paying 10x their monthly payment through paperwork malfunctions.
I took out a quarter million in student loans for law school under this precise regime, so I'm well aware of the parameters. It's a perfectly fine system. Everything is on the web, and you can change repayment plans easily through a web interface. The media loves to find a handful of anecdotes of people who screwed up the paperwork, but it is not a difficult thing to deal with for people who are college graduates.
For example, your student loan payment can shoot up if you ignore the emails from your loan servicer and forget to submit your annual income report. But even then, you can fix it in five minutes just by authorizing the loan servicer to pull your's and your spouse's most recent tax filing. It's only marginally harder than paying your utility bill, and much easier than setting up utilities at a new house.
Look. Income based repayment is not some radical concept Donald Trump came up with. Sweden, the U.K., and Australia all have every similar systems for student loans. It requires a bit more paperwork than "free college" but somehow people in those countries manage to do it.
> Additionally many of the benefits of taking jobs that qualify for perks, like loan forgiveness, under income based repayment systems are out the window under the DeVos regime.
Incorrect. If you're talking about the statistics on people having public service loan forgiveness applications being rejected, that's been the subject of some of the most misleading reporting I've ever seen. Almost everyone rejected was rejected on proper grounds. There are a lot of people who have student loans that pre-date Obama's PSLF reform. Tons of those people were filing for forgiveness who simply did not have eligible loans.
I wouldn't exactly call the mortgage lending regime careful, thorough, or prudent.
I always had to go to my finaid department and beg for the gaps to be filled through various grants that were still available.
One year there were no left over grants and I simply had to drop out mid semester, which I still had to pay for.
No bankruptcy rule and many loans would never be made and the ones that would be, would have crazy high interest rates.
> No bankruptcy rule and many loans would never be made and the ones that would be, would have crazy high interest rates.
The government makes almost all of the loans (no other lender can make guaranteed loans any more) and the rates are set by law (and were even when the federal loan programs were open to private lenders); private student loans or have crazy high interest rates and aren't made in large amounts, especially if you exclude first-party loans by shady schools. The rules don't induce third-party lenders to make accessible loans; even when those could participate in the federal loan program it was the federal guarantee, not the borrower being in the hook after bankruptcy, that was intended to induce private lender behavior, and with the federal guarantee.)
If your logic followed, credit card debt would also be impossible to discharge.
The protections for student loans predate the federal government excluding other lenders from federally subsidized loans; they existed when most student loans were from private lenders, both inside and outside the federally-subsidized loan programs.
> Second, the government makes loans almost without assessing creditworthiness.
It basically does so inversely to creditworthiness, since federal loans require applying for general student aid, and need-based aid is given on factors that correlate inversely with creditworthiness.
> Third, the government has an income based repayment system for student loans.
The government's contacted servicer for such loans actively (and even deceptively) steers borrowers away from such plans and into temporary deferments; this was a point being actively pursued prior to an openly borrower-hostile administration taking office.
If students are allowed to declare bankruptcy from student loans than banks can apply a more realistic risk models to such lines of credit. Students will then have to either pay very high rate of interest or will have to go out their way to prove their financial responsibility. Banks will then be able to create sophisticated models to figure out which young people are responsible enough and who are not. This will incentivize responsible behavior from students as well as institutes and not to mention a competition to reduce fees.
Not to mention, this model will also ensure the folks who should not be in college or will not benefit from it will not be able to go to college. I think this is where politicians disagreed and came with the completely wrong policies with perfectly predictable bad outcomes.
Because society decided that people should have a way out of bad financial situation they've gotten into, quite often for reasons beyond their control (e.g. car accident that leaves them unable to work for a long time, and with huge medical bill to pay).
Lol society should have decided to go with out-of-work benefits and free-at-the-point-of-use healthcare instead.
It'd be better for the creditors as well who wouldn't get left hanging!
This is the 2000's housing bubble all over again.
While this is (was?) especially true for student loans, it applies to all loans - their availability increases prices, because there's more cash in the market. Forcing people to take loans, to the benefit of lenders.
A new graduate with a high priced degree is almost certainly better off declaring chapter 7 the day they graduate. If you want student loans to exist that option must be denied.
Obviously they're not interested to get people off the hook.
Plenty of other unsecured debt is dischargeable, like credit cards.