The problem I have with your argument is that depending on one's viewpoint, this could be a feature and not a bug. Historically, humans have had some conception of reasonable ranges of rates to charge for interest and purchases to underwrite that fall inside the bounds of ethicality, and things outside of that boundary that were deemed unethical and usurious or outright slavery.

Let's take your example of student loans. We can both agree that making student loans dischargeable in bankruptcy and not owed to the government would cause the student loan market to contract. What if you think that this kind of debt, being non-asset backed, is not just unethical but unsustainable inside a functioning free market? What if you think that many institutions have made use of debt inflation to bloat their bureaucracies, facilities and other non-academic investments via a bubble that can and should pop? What if an alternative financial product should exist that forced institutions to put skin in the game towards the permanent economic future of the students that they are ostensibly responsible for and selling a product towards advancing?

I think that we need to remember that debt is primarily a mechanism for moving around value, and that the intrinsic value (liquidity) that it provides is distinctly marginal. We as a society in America should question whether it is a robust long term strategy for the country's economic future to even allow for the option of selling an education with debt-based financing without some kind of a positive outcome guarantee. Otherwise, the incentives are almost guaranteed to result in bad actors exploiting the disenfranchised. Outside of the moral hazard here, the more unavoidable hazard is the market hazard of overleveraging assets whose intrinsic value cannot support the bonds they back, causing an unnecessary macroeconomic financial shock that could be avoided with foresight.

If student loans were suddenly unavailable then universities would have to rein in out of control costs and Maybe get rid of sports and bs admin staff.

The only reason they change that much is due to the ability of loans.

Hypothetically, what would the world look like if we made all debts dischargeable by bankruptcy, and bankrupcy a process so simple you could just text a number and be done in 15 minutes?

A bankruptcy would simply automatically put all your assets up for a same-day auction. Any unlisted items would be auctioned as a lump, for anyone willing to research what you actually owned to play 'Storage Wars' with. Anyone could bid on those assets (including your friends buying your stuff to give back to you). All proceeds of auction would be claimable by anyone you owed a debt to in a fully automated manner.

In such a world, any time you woke up in the morning and decided the auction value of your assets was below your debts, you could text the number, re-buy things you really cared about for probably cents on the dollar (nobody wants your dirty laundry), and carry on your day worry free.

You say all of this as if extending credit to high risk borrowers, who can't financially afford to carry that debt, is a good thing.

The article states that the majority of cases are for amounts less than $5k. We're not talking about student loans or mortgages here. This is the consumer finance industry. Predatory loans, high interest credit cards (but the perks!) and such. The companies behind these products thrive of keeping people in a cycle of debt. They aren't helping anyone and should probably be regulated out of existence.

Rich people have unserviced debt? Wouldn't that make them poor people?

Context: I worked for 16 years for a company that did, among other things, debt collection. It was a small but profitable part of their business. We’re talking relatively low dollar bills - cell phone, cable, power, etc - rather than student loans, medical, or credit card.

There are different levels of debt collection. The first level is generally done by the guarantor. Someone falls behind on a bill, service is shut off, and the company tries to get the consumer to pay the bill. The next level is when a company sends the bill to an outside collection agency to attempt to collect on it. The collection agency will get some commission on that if they manage to collect. The debt is maybe 6-12 months old at this time. If the first agency fails, sometimes it will get sent to a second or third agency to see if they have more luck. At some point in time the company will decide that the debt is unlikely to be collected and they will write it off. It’s at this point that debt may get sold. The debt is likely years old at this point. The company that buys it will buy for pennies on the dollar (it’s like any market, sometimes it’s more, sometimes it’s less). They are then the owner of the debt and any money they collect they get to keep. They’re able to settle for much lower amounts. If you have a $1000 debt that was bought for $50, you can settle for $250 and still make a profit. The consumer is able to clear the debt from their credit report for a fraction of what they owed (though it still shows they paid it to a collection agency and that still hurts their credit, but not as much as an unpaid debt).

Long answer to your question, but yes there can be good money in it, and there is probably an opportunity here to do some good.

https://symend.com/ is doing something similar to this (no connection, but I met the local team a while back). I like the approach of "ethical debt collection from real humans with real backstories". They just raised a good chunk of change as well.

It seems like that strategy is difficult in an efficient market of unethical debt collectors, as intuitively they would be able collect a larger fraction of the debts than the friendly debt collector.