I think that's something that many people would agree with, but how do we go forward with making that happen?
Yes, this will mean lenders will be much more reluctant to issue student loans. It will likely prompt lenders to offer loans contingent on certain majors. This is a big, big reason why universities are heavily opposed to student loan reforms. The uncomfortable reality is that many universities are funded through what essentially amounts to predatory loans, and halting the practice will cut into university funding.
Worse, lenders write, and universities accept applications for people they know statistically 99.999% they will not get past the first year.
Universities do this on purpose because between 500 student lectures and on-campus housing requirements undergrad freshmen and sophomores have a massive profit margin per body whereas juniors and seniors are in classes that have much more resources spent per student and often don't live on campus.
Sounds like the subprime mortgage scam by the banks, given that they know the US government is going to subsidize the 'losses' and they will have extracted their profit one way or another. Anyone who thinks Socialism is some de-facto virtuous ideal needs to see that collusion between State and X happens in just about every Industry already for private largess. And often is sanctioned, regulated or at least likely to have light to no punishment if caught: see banking fraud.
I honestly want COVID to make the University model obsolete, it will have been worth it if people see how nebulous and impractical the absurd expenses when in reality you can do 75% of courses online anyway; its entirely a predatory model. This is such a drag on young people's lives to have 50k+ in debt in your 20s and are some how sold the idea that you are 'making it' by working to pay that off just to get some entry level position you could have done with a 1-2 year apprenticeship by the time you were 16 like they do in many Germanic Countries.
It's absurd to think this model can go on, and as you mentioned the pernicious statistic rates they are worse because not only is it short sighted thinking that doesn't add value to Society, it can only extract it from those least likely to afford it.
I got honors and letters of recommendations while I was in my undergrad and the only time I ever too them out were to show employers when I applied/interviewed for jobs, and most didn't care either; otherwise they sat in a desk in an envelope as they're reminders of time poorly spent in something I had no interest in by the time I was a sophomore and would come to hate entirely but couldn't get out of until I was 26 due to the debt.
The other problem is that education can not be retroactively taken from them. But garnished wages can.
If a graduate doesn't have enough assets by 30 to make bankruptcy a bad option, then I think it's fair to tell the lender that they made a bad investment and that the loss is reasonable. If this is how it worked, student loans to good universities would still yield a good return. It'd probably incentivize universities to track students' earnings after graduation, and focus on improving that figure. Lenders would probably stop writing loans to degree mills, or non-rigorous universities that don't substantially improve the employment prospects of students.
It's not feasible to make student loans able to be eliminated via bankruptcy without restriction, since students could just go through bankruptcy right after graduation and plan around being unable to get a mortgage or car loan until they're 30. If you graduated with a degree in CS, and landed a six figure tech job it'd still make sense financially to go through bankruptcy and save potentially hundreds of thousands of dollars in student loans, even though you could easily pay it off over several years. This let's the student exploit the lender.
The status quo of making student loans not cancellable through bankruptcy makes it so that lenders can act in a predatory manner and issue loans to go to ineffective institutions that don't improve earning potential. They know students won't be able to pay for decades, but they don't care because the student is stuck with the debt and has no way of getting rid of it. This lets the lender exploit the student.
Allowing student loans to be resolved through bankruptcy after 10-15 years is enough time so that most graduates have assets, and are probably looking for a mortgage on a home in the near future. Going through bankruptcy at 30 or 35 is a much bigger deal than doing so at 21. In this situation, the student can't easily exploit the lender. But at the same time the lender still has the potential for loss if they try to loan to a student studying basket weaving at a university with a 98% acceptance rate.
The easier it is to eliminate a student loan the easier it is for a student to exploit the lender, and take the loan intending to go through bankruptcy. The harder it is to eliminate a student loan, the easier it is for banks to write loans they know students can't pay off. The optimal spot is somewhere in the middle, where the student has an escape valve - but one that is only feasible to take if you have no significant assets by the time you're 30 or 35. If the lender is worried that a student debtor won't have enough assets by 30-35 to make bankruptcy a bad option, then they will think twice about issuing the loan.
The optimal spot is to not let 18 to 21 year olds borrow six figure sums without understanding the ramifications of it. There is no need for these loans to exist. The cost of higher education is high because the loans exist. The loans exist because exemptions to bankruptcy law were created specifically for those loans.
> Allowing student loans to be resolved through bankruptcy after 10-15 years is enough time so that most graduates have assets, and are probably looking for a mortgage on a home in the near future. Going through bankruptcy at 30 or 35 is a much bigger deal than doing so at 21. In this situation, the student can't easily exploit the lender. But at the same time the lender still has the potential for loss if they try to loan to a student studying basket weaving at a university with a 98% acceptance rate.
So instead of trying to solve the problem of crushing student debt, we let people at 30-35 tank their credit score so they can never buy anything again. So we're doing NOTHING for people 22-30, and we're ruining the 30+ year old's credit so they can't actually buy a house. It doesn't help anyone. That's our point. It does nothing to solve any real problem, it just makes everything worse.
This is precisely why it makes sense to restrict ability to default on student loans for a certain duration. Even if you have six figure salary as a new grad, it'd still make sense to default on your student loans immediately after graduation and plan your life around having a terrible credit score until your 30s. Pay for cars in cash, and don't plan on buying a house until one's 30s. Everyone would do this because it's basically getting money for free. And consequently nobody would issue student loans, even to students going to good schools and studying in demand majors, because students can effectively just walk away from the loans.
Yes, it's not doing anything for people 22-30. This is deliberate. The point is to make sure students who can pay off their loans do pay off their loans. We make recipients of student loans wait until 30-35 to be able to default on loans so that only the ones who are genuinely stuck with loans they can't pay off go through with the default. Yes, their credit score will tank. But that's the consequence of defaulting on a loan. If you could default on a loan without impacting your credit score, you'd be a fool not to default on every loan you have right now - but you wouldn't actually have any loans because nobody would lend money under sucha scenario.
> Are you joking? Do you not realize that any current problems were caused by the current system?
What's even more telling is how that all happened when I was in school, prior to my JR year defaulting on student debt was what most did when they got to the professional levels and secured a decent job--and this was back when university costs were much lower and more broadly available, too.
I've had several boomer aged physicians/surgeons/anesthesiologists/lawyers laugh about it when I was in motorsports and told us to explore it despite the stigma as it 'paid in the end.'
In many ways I think this predatory model of extracting wealth from the youth is not only short sighted its absurd; reducing the quality of life with underemployment/unemployment creates lost generations like they have in Japan, and unless the goal is to lower the population at all costs then not much 'good' comes out of it except Zombie banks, high national//coprprate debt ratios, mass impoverishment of Society as a whole and suicide as proved by the last 30 years of Japanese Sociological observations.
Then again, some study using Machine Learning was stated to have had 'break through' results identifying India was not in poverty, only to see that Apple factory workers were paid $7/month instead of the ~$100 and proceeded to smash the factory.
Are people still in doubt we live in a Dystopic Cyberpunk existence already? Its not just an overly hyped game, its clear to see we've been in one for over a decade now. Its just not all neon, robotic enhancements and flying cars; everything else seems to be lock step with the genre from an untouchable Corporate Class, decaying environment, to poor living standards, wide spread disease and poverty.
>So instead of trying to solve the problem of crushing student debt, we let people at 30-35 tank their credit score so they can never buy anything again.
Seriously. The inability to discharge debt is the primary source of crushing debt. Predatory lenders can turn you into a debt slave through student loans and you have zero recourse. Since student loans are guaranteed by the government it doesn't matter to the lender whether you are able to pay the loan back or not. They can just give a $100k loan to someone who is 100% going to drop out. It doesn't even have to be your fault. Universities are incentivized to spend money on student retention and basically zero money on actual education.
>So we're doing NOTHING for people 22-30, and we're ruining the 30+ year old's credit so they can't actually buy a house. It doesn't help anyone. That's our point. It does nothing to solve any real problem, it just makes everything worse.
Except lenders are not going to hand out $100k loans willy nilly anymore. They will actually have to look at what and where you are studying. If students can discharge their debt then it's possible for lenders to make losses and do you know what businesses hate the most? Damn losses. Those losses will have to be covered higher interest rates and do you know what happens when people are faced with greater interest rates? The maximum principal they can borrow shrinks and there will be no more infinite flood of money that inflates tuition costs year by year. What about people that can't afford the loans? They can always choose a cheaper degree. If getting a CS, EE, civil engineering, law, medicine, whatever degree improves your employment chances so that you can pay off your loan without trouble the interest rates are going to be way down and thereby make it extremely obvious which degrees and schools are the most lucrative. You'll be able to measure the quality of a college and its degrees by the interest rates the lenders charge and even in the worst case you can get rid of the loan trivially. Collges will be able to make money off of good education instead of just admitting as many students as possible by luring them in with an expensive lifestyle.
It's funny how Americans keep telling me about the advantages of hire and fire and how it increases economic efficiency while simultaneously they have the most socialized private education industry on the entire planet which means they get none of the benefits of socialized education and none of the benefits of private education. Seriously your current system is so broken even abolishing it completely without a replacement would still lead to better outcomes than whatever crap you currently have.
You seem confident saying this, but countless youths have accumulated hundreds of thousands of dollars of debt they won't pay off until their mid 40s at no-name liberal arts schools and degree mills
There is no collateral for credit card loans either.
> Banks have to make up for that risk somewhere.
Private student loans have pretty much shriveled to a drop in the ocean of higher-ed financing since they were excluded from the federally-subsidized loan programs (for quite a long time the only “federally-subsidized” loans are direct federal loans), so banks don’t need to do anything; privately-originated loans are only a factor for unaccredited schools whose programs are not eligible for federal loans.
The only lender relevant for federal loans will do exactly whatever federal policymakers decide is desirable, so need to motivate lenders is not a constraint on policy choices.
Which is why credit card companies don't give you 100K in credit cards, but you can get that in student loans. Heck, they generally won't give you more than a few K in credit cards until you've demonstrated some credit trustworthiness.
And? So? Low balance credit cards don't have collateral. High balance ones require impressive proof of income,credit history, etc. This isn't an argument.
Your second point needs a HUGE citation. Please provide, thanks.
The problem isn't the banks. The problem is needing a college degree to have any semblance of a middle class life in America.
The vast majority of students are only taking on these loans because they have been lead to believe that their income will increase, more than offsetting the cost of the loan. But we know very well now that it doesn't play out in practice. As we educate away those flawed ideas from history, those with profit motive will be scared away, leaving those who are there for education's sake. When only they are left, costs will start to align with what education is actually worth.
Then again, a diamond remains forever, so perhaps you cannot educate the educated.
There is no arms race, simply a misunderstanding of the data around the filtering that takes place with increasing levels of academic rigour. Those who fall down to that rigour also fall down to the rigours of the working world, statistically.
https://www.purdue.edu/dfa/types-of-aid/income-share-agreeme...
Then again, the Lambda school ISA selling issue demonstrates the potential to eliminate this alignment of incentives. In universities, there's also the issue that colleges might only accept ISAs with students interested in majors with good employment prospects. But if we view university as an investment where the return is better employment, then this is working as intended.
As for how you would do it, you'd have to convince your congressional representative that reform is worth doing, and is worth the inevitable political cost to them. Making loans somewhat harder to get will inevitably make universities upset with the politicians (as universities are the ones that actually receive the bulk of the financial benefit from these loans). For this reason, I see this reform as unlikely to happen, at least as I described it. You would have to pair it with more direct funding for universities.
My thought is that in the future, privatizing higher education will seem like a quaint historical anomaly, like privatizing health care, both of which have made themselves at least twice as expensive as necessary.
If we can't force private colleges out of existence, we could concentrate on solving the education funding crisis starting at the level of state and regional colleges and trade schools. Preferentially direct research funding toward those schools, to build or expand on research institutes in areas where a few extra jobs would be welcome.
Ironically I believe we could destroy the private colleges by eliminating all government oversight of the admissions process, and letting them compete with one another with no restraint.
For example, BYU and BYU-Idaho provide affordable education for tens of thousands of students every year. Sure they're religious, but they serve as price competition to state schools in the area, keeping prices down across the state of Utah.
Secondly, the reason things are so expensive is because the federal government gives loans to everyone, driving up prices. Why would public colleges ever cease their continuous tuition increases if the government gives unlimited loans to anyone, regardless of the price? The federal government should just give a set amount per year to states that the states can allocate among their universities, so that they can continue operating, and then get rid of government funded loans.
With the government funding the schools directly, they will have enough to set up lower cost programs and then be forced to compete for the lower amount of dollars provided by students, driving down prices.
Also, the federal government should put a condition on this money that if a college takes it, they have to charge the same for in state and out of state tuition, creating a more national, competitive market for students in order to bring prices down.
Maybe we'd see more schools go to a partial or full online model, which could really drive prices down. Honestly part of the federal money could be conditioned on creating online programs which are even cheaper for students.
I'm paying tuition to two of those schools right now for my kids -- a state "flagship" university, and a regional campus of the state university system.
There are certainly tiers of private colleges, and I wouldn't want to mess with religious schools. I'm mainly thinking of letting maybe the top 20 private colleges in the country become the destination for the top 20000 kids based on whatever criteria they want. But don't let that system continue to distort educational policy and funding for the rest of us.
Only problem is you will lose to other politicians that are able to promise lower taxes because giving out federal loans to students is cheaper for taxpayers than giving money to schools directly. People will vote for the person “helping” students by lending them money, rather than the person that has to help students by giving schools money, and therefore raising taxes.
This ensures loans can never become a crushing burden. But more importantly, it incentivises the banks to provide very useful information to the potential students. Unlike colleges who, since they get paid up front, are strongly incentivised to let marginal students study expensive things.
Make it the 10% of discretionary (not gross), and up the limit to 25 years of any of the loans covered graduate or professional study, and you'd have an existing option for current federal student loans.
Make this the only option for federal loans, remove private loans from the protection against bankruptcy discharge, and you the job is done.
> But let the lenders see everything -- school, major, test scores.
Private lenders can, AFAIK, already put terms like this in contracts if they want.
That might include you taking a hit e.g higher taxes, but it's group think and individualism that brought the country to its current state.
So voting for:
- free public education
- higher teacher salaries
- higher taxes on the wealthy
- forgiving all student loans