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Comment by mrpopo | Hacker News Reader

Why should a bad options investment be better protected than studying?

Because you need to qualify for margin and the person who lent you the money agreed to lend it to you knowing that you could BK it. With student loans, the student usually doesn't have an income or assets so there needs to be more incentives to convince lenders to lend money.

I don't see how that reasoning applies to one, but not the other circumstance.

The answer is right there. Bankruptcy is legally a recourse of the credit extended by Robinhood, and it is legally not one of student loans. That may or may not be morally correct or good policy, but it's certainly the current state of the world.

Please don't drag the rest of the world in it,

this student loan construction is certainly the current state of the USA

The article is about something that happened in the US, so the situation in US law is relevant.

Student loans are cheap and available because they can't be defaulted on. If lenders don't get those guarantees, they won't want to lend at the lower rates or approve people as easily.

The federal government guarantees almost all student loans. This is why they are cheap. Default exists regardless of whether the debt can be easily discharged in bankruptcy.

I agree with you, it's just that the one that I'd question would be the obverse. That is, student loans should either be dischargeable by bankruptcy or just not extended. If a lender can't make money in that asset class, they should fold. If that means it leaves the government the lender of last resort, that's how things should be. If that means the asset class implodes and it can't prop up a mispriced commodity, then so be it.

Ironically, I get the sense that the implosion is probably going to come less from it being a previously bloated, overpriced commodity than for now being a perceivably fraudulent one -- IE, students are (justifiably) heated about having to pay the equivalent price of a home to take a glorified webinar from "Zoom University" -- and who can blame them, really?

Now, back on topic -- what happened here was tragic. At some point, Robinhood is going to get actually sued by someone who expects peer level performance (IE TD/tastyworks/etc). It'll be interesting to see what happens there. And, it'll be interesting to see if they are sued (successfully) here. But, nothing is going to bring this young person's life back. How utterly harrowing. We hear so often about deaths of despair as a coded reference to opiate deaths. I know that suicide is a really major risk for startup founders when things go sideways (as well as gamblers), so seeing a new version of that makes me (despite the desensitization of the present moment) experience a new, unique kind of sadness. I hope this poor young man's soul rests in peace.

For the record, I don't agree with the status quo. I think student loans should be dischargeable in bankruptcy. Other replies have brought many good points. I have one more to add:

There is one important difference between student loan and other loans. If your mortgage gets foreclosed, you lose your house. Your car loan, you lose the vehicle. Margin, you lose your stocks and investments and the collateral. In all these cases, when you cannot pay back the loan, the lender takes away your right to continue enjoying any benefits from the loan. You cannot not repay your mortgage but keep the house free and clear. Thus there is a strong incentive not to default on these loans.

This is fundamentally different from student loans. If you do not repay your student loans, the bank cannot wipe the knowledge you gained from your brain and sever the contacts you made in university. You will continue enjoying all the benefits of the education. Thus there would be a strong incentive to declare bankruptcy as soon as you graduate (because you have little to no assets to lose) if this were an option.

Since student loans come right at the start of everyone's adult life, it would be very common to strategically declare bankruptcy upon graduation, writing off good credit in your mid 20s in exchange for free education.

That's my understanding of why student loans have to stick with you.

Because otherwise nobody would offer student loans.

They would certainly be a lot more careful in who they lend to. Which would go back to divisions between college-worthy and not that many people don't like.

I think I’m going to call my congresspeople with the same question.

Because lobbying!

https://www.google.com/amp/s/www.politico.com/amp/story/2019...

Thanks for posting that.

The idea that DeVos, whose family owns a school lending company, is in the administration is not just a conflict of interest, but an indictment of our entire political system.

The backing ethical stance is that EVERYONE should be protected, from everything.

But there's a practical problem applying this to student loans -- nobody who needs student loans will come out of college with meaningful assets. No house, maybe no car, no income. If you could discharge student loans in bankruptcy... there's absolutely no reason to not do it immediately upon graduation. Everyone would do declare BK and clear their debts, for good reason.

So nobody would ever give a student loan. Also for good reason.

So BK doesn't apply to student loans. Obviously there are other fixes here (government paid tuition, income based repayment, online classes, whatever), but the naive fix ("allow students to discharge loans") would not get us to a better-functioning outcome.

(unless your position is that burning the system down is a better outcome than status quo, which is a position, but it's then dishonest to argue that discharging loans is a "quick fix")

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