The non-dischargeability of student loan debt is the linchpin of the higher education bubble.
Let's play out a causal chain:
1. If it becomes possible to get out of student debt through bankruptcy, then there must be additional collateral posted by the debtors.
2. This will cause fewer loans to be made, which will reduce the available pool of money sloshing into higher ed.
3. Enrollment and revenues will fall, forcing universities to:
a. Fight for some other form of government-ensured revenue stream (beyond the funds that state schools already receive). Get the popcorn out for this political rhetoric.
b. Reduce scope and conserve the more limited funds coming in the door. This probably starts with eliminating the endless program offices and initiatives that serve to swell the ranks of non-teaching staff.
c. Compete on price and return on investment by improving quality and employment rates of graduates.
From a Dutch point of view, would you save money by mimicking our University system? So no sports, no stadiums, no (or less) scholarships, privatise fraternities, privatise dorms, privatise cafeteria, privatise extracurricular activities, six-figure cap on income for all staff. We have a projected average student debt of only €21,000 which I believe is less than US students.
People that have a university degree in the Netherlands will generally have a good life and a high income. They can repay this debt without much trouble. You will pay it back based on your income and there is no intrest on it. It's an investment in your life. On average your income will double.
The alternative is having the rest of the population pay for your education. Even the ones with a low wage and no or low education. That doesn't seem fair to them.
This is the exact same story American students were told for so long. If/when it stops being true you end up fucking over at least an entire generation
This is extremely spurious, especially given that there's a significant fraction of the student population studying things that are fundamentally not terribly useful from a money point of view (think about philosophy and any of the cultural studies).
> The alternative is having the rest of the population pay for your education
The Netherlands does this, and you can easily tell by viewing the discrepancy between yearly costs for someone from outside the EU versus someone from inside the EU. You'll figure out that the money comes from somewhere, and that somewhere is the government.
> The alternative is having the rest of the population pay for your education.
Oh? Corporations are a thing. An educated workforce is valuable to corporations. The corporation taxes can be increased to reflect the cost of creating that educated workforce.
Lets stop talking about taking people and go after corporations where the real money is. (Esp since the wealthy hide their money in corporate tax structures)
Corporations aren't a thing. They're a legal construct. They're owned by shareholders, who are mostly institutional investors ... pension funds, 401k, etc ... everyday people. So you will be taxing everyone. The same people who already pay income taxes on their earnings. And that's assuming they don't just pass the additional cost down via increased prices on whatever it is they produce.
If you want to tax the wealthy, this is not the way to do it.
Yes it's mostly tax-funded, and I'm fine with that tbh, in my eyes it's a bit the same as a healthcare system. Your situation at home shouldn't limit your health situation or educational potential.
It's also not "free" for everybody. How much you pay also depends on situation your household is in (mostly a combination from total income and how many kids you have). It's possible that you have to pay nothing, or in worst case something like €5000/year for university, but then you're in situation where you can easily afford it (healthy upper/mid class double income and only one kid).
Average student debt in the U.S. is about $30,000 (27,900 euros). That's 40% higher than in the Netherlands. But average starting salary of a college graduate in the U.S. ($4,000 per month gross) is also 40% higher than in the Netherlands ($2,900).
But costs in our system are out of control. University of Maryland has only 25% more students than University of Amsterdam (30,000 versus 40,000). But it has twice as many staff (about 5,000 versus 10,000) and triple the budget ($670 million versus $2 billion).
I'm not sure if this is different between the USA and the Netherlands, but for the later almost all of that debt was used for living expenses instead of tuituon. Typically tuition would be 2k a year, so 8k for a 4 year degree obtained on schedule.
The issue with removing scholarships is that there are some groups of people that would preclude from being able to seek higher education at all - There are plenty of people in the US who absolutely cannot afford college without taking on loans or scholarships, and in many cases they may require the scholarships if they are unable to get the loans that they need (IE they have extremely bad credit).
Also, random side tangent, but I doubt you'd be able to convince America to get rid of college sports, it is too big of a thing here..
> Also, random side tangent, but I doubt you'd be able to convince America to get rid of college sports, it is too big of a thing here..
Times change. Old wealthy white males selecting men based on athletic abilities, big muscles and ability to work hard and then not paying them for their work in return for free housing. We used to call that slavery, now we call it college sports.
Sort of, but not entirely. The law doesn't mandate that universities pay for the athletes to play for their school, but rather that athletes can profit off their likeness and image. So, a football player could be paid by the local car dealership to go sign autographs as part of an in-store promotion, rather than receiving a stipend or salary from the school.
Yeah if we let students be compensated for the value they bring to the table via sports some of them would be able to command comp packages rivaling the pros
If college sports are such a big thing, can't they fund it from TV revenue like most normal sports? Seems like there should be a firewall between university budget and sports budget.
They do. I believe the big sports rake in big bucks (this is a continuous point), and subsidize other sports. It's not just football and basketball. There's a ton of programs at a given school, even at small ones.
It seems like niche, and women's sports would take the biggest hit if we approached it based purely on making money. I know someone that got a full ride for cross-country running. She would not have received that, if it were revenue based.
P.S. Whether "student athletics" is a good idea is beyond the scope of this discussion.
There is a firewall. Athletic departments are separate legal entities with separate budgets. They often report to the same board that the academic institution report to.
And as a percentage of income, TV revenue is a huge part of the revenue for non-capital expenses. SEC and Big 10 schools get on the low end of $40 million/year on TV revenue along. ACC will get close to that, but not sure because their network just launched. Pac12 could get that much, but that whole conference is mismanaged.
It certainly is a conflict of interest to provide education,scholarships,grants,food,and housing from the same budget that pays for stadiums,fields,coaches,and teams. Separate sports and education like church and st(the idealized version not the reality where governments are still deeply infected by church's).
I also strongly dislike the focus on college football but Texas has close to 100 universities as well as many additional research institutions (that can confer a phD) and many of those have serious research funding without a sports team. University of Texas systems has 14 universities alone, and only 1 football team.
Personally, I think High School Football and funding is a much larger problem in Texas.
Our debt is in part due to heavily subsidised tuition fees. Students cost about $15k a year, of which only 3k is paid as tuition and the remainder by the government. In the US many students average 10k tuition fees, or a multiplier for private universities.
0% interest also helps prevent debt from blowing up here.
And most students having multiple world top 5% universities within 1 hour by free public transport, also helps as students can spend part of their student life living at home, it's a lifestyle choice, not a necessity for many to move out.
The American university athletics business (mega stadiums, outrageous salaries for coaches, etc.) is commonly misunderstood even by Americans, let alone the world.
Athletic departments operate as separate business entities from the University. What this actually means varies from state to state and university to university. Some are private corporations, some are government entities, some are non-profits. However, in general these things are true: No, the university does not directly pay a football coach 5 million a year. No, the university does not pay half a billion dollars to build a stadium.
Athletics gets it revenue from four main sources. 1) Apparel licensing. Often any piece of clothing with the university's logo often goes to the athletics department, not the school. (again, varies) 2) Ticket sales, concession, and parking sales for sports events 3) Television rights 4) Booster donations. The last two can be a huge, huge part of the athletics department budget. For better or for worse, university athletics is an egotistical playground for rich alumni.
As an example, Texas A&M pays Jimbo Fisher $7.5 million a year to be their head coach. However, we earned $43 million alone from television rights in 2018.
An Athletics Director's job is really to worry about #4. #3 takes care of itself via conference membership. 1 and 2 are the responsibilities of operational underlings.
If done right, the athletics department gives back profits directly to the university. Usually it breaks even, but even then, it's not really a break even. Athletics scholarships is a money transfer from the athletics department to the university for the athlete's tuition. This is typically around 20k per year per athlete. If done wrong, a little money goes from the academic side to athletics. Rutgers University is one of the "most subsidized" athletics programs. That "subsidy" in 2018 was $10 million out of a 1.5 trillion dollar budget. In the big picture things, 0.6% of your budget for branding and facilities use rights isn't that awful.
TL;DR - University athletics operates as a separate legal business entity from University academics. Claims that "you're stealing money from the math department to pay for sports!" often isn't true.
I couldn’t find a more recent source but as of 2015 there were a total of 24 schools that generated net revenue. That’s out of a total of approximately 2,500 schools with an athletics program.
About 99% of schools lose money on athletics and require direct institutional support to survive. That means, yes, stealing money from the math department.
In practice it doesn’t really work out that way. Students just pay more in tuition and get the same education they would have if they paid less. Just look at UNT and what they did a few years ago. Raised tuition to fund a new football stadium.
If you’re looking at this from the perspective of Texas A&M you’re looking from the wrong perspective.
There's two definitions that are key to that report that must be understood before drawing conclusions.
1) "Grant-in-aid" are a large portion of expenses and are scholarships. This is the athletic department paying the market tuition bill for an athlete. This qualifies as an expense, but clearly has direct benefits to academics. For the university and academics, it's a "good expense."
2) "Direct Institutional Support" is the category that you're after. This is money directly paid by the academic side to the school. However, it's rarely a direct money transfer. Most of them are discounts on tuition.
I'd argue these waivers, especially a Title IX waiver, is ultimately a very good expense for the academic side and society as a whole.
Another large revenue is Government support - support from the state government. While this is a direct money injection, you can't claim that the money would have otherwise gone to academics. You can argue that it should but that's different. Further, it's cyclical.
Of course, I'm not going to pretend there aren't other forms of support from the university and student fees. However, those are small compared to the budgets as a whole. Yes, the university often does chip in for stadiums, but the university will get rights to use the stadium like for commencement ceremonies. Money spent by universities usually (should) get something in return besides an investment in branding.
Finally, like it or not, athletics play a huge role in brand awareness and prestige for the school. If you look at the tiers of schools, that is, Ivy's, Tier 2's, etc., there's little movement inbetween tiers, but there is a lot of jockeying within the tier. Athletics is the most visible way of doing so. When Doug Flutie threw a Hail Mary for Boston College, the following year, they tripled the number of applications they received.
The report is from the NCAA and painted in the best way it possibly could be. And it still shows 20% of athletics income is from direct institutional support. That’s not tuition waivers showing up as revenue on the balance sheet.
Athletics is a money losing endeavor for virtually every college in the nation.
Whether money losing athletics is a net benefit for colleges is an attempt at reframing the argument. There are lots of ways to spend money that may be net positive but that isn’t what is being discussed.
At least 99% of colleges could unequivocally save money by getting rid of their athletic departments.
You're deliberately choosing to ignore what is "direct institutional support" and using your own belief as to what it is. Tuition waivers most certainly are a component of that, and very often, a very large component.
I am not ignoring it. I'm stating exactly what the NCAA says that it is. You are trying to adjust the definition to fit your argument with an unsourced article from Forbes and assuming that the NCAA is using a methodology that it clearly states it is not.
Can you provide some references for the general and school-specific claims you’ve made? The specific example of Rutgers is great but the broader claims definitely deserve some supporting evidence.
Off the top of my head, I cannot. I just know the Rutgers number because I went there and was defending our new head coach's salary (which was relatively small - 10/14 in the Big 10 conference).
The most heavily subsidized accusation is often said, so I looked it up on Rutger's budget report. It's there and within the past two years, it has been around 10 million, minus tuition waivers that I described above.
The other comment responder's NCAA report is good, but again, it's wrong to draw conclusions without knowing what those terms are. There's definitely good expenses for academics on both the athletic department side and the university side.
Yes that would be ideal. Also start paying NCAA athletes.
There is way to much added on to American universities in terms of student services and endless beuracracy. We do have the community college systems which are less or free in the case of running start [WA] or IB in other states.
Actually, for the largest fraternities/student unions in Netherland, the board often gets paid by the university. Not the smaller ones, though (and it's the larger ones that cause all of the problems).
My knowledge of US fraternities is limited to what is portrayed in Hollywood movies. Are they not funded by the associated University? What about the housing they have? Apologies if my view is limited.
You’re assuming market forces will kick in. Most student loans are made by the federal government which can decide to secure these loans or not. Today, they are not underwritten and there’s no reason to think they would be if bankruptcy is enabled. They could just view it as a subsidy which is likely the most politically popular and easy thing to do and push the costs onto taxpayers or raise the standard interest rate for everyone.
What happened to non-bankruptable debt before? My guess is that the vast majority of them just sat in limbo with no repayment and are effectively just as worthless as defaulted debt. Really this just cleans up the books and force people to have a more realistic assessment of what the debt being held is actually worth, which is always a plus.
We have subsidies in the Netherlands, but they're combined with a cap on tuition rates. (Although part of the tuition needs to be paid by students, for which they can get underwritten loans from the government.)
Another unintended consequence I could see is this could be a lead up to a debt crisis by the US government. Right now we are running 1 trillion budget deficits. If people can start discharging student loans then that will be a loss of revenue for the federal government so unless there is an equal amount of budget cuts then this will most likely result in the budget deficit increasing. If creditors get worried it could spook the debt markets. US debt won't be viewed as "safest" in the world....then starts the chain reaction series of events.
I also like to think back to what Peter Thiel says about higher education. It could be something similar to the 2008 housing crisis....where people were borrowing money to buy overvalued housing. Higher education to a certain extent could be people are borrowing large sums of money to get degrees that don't hold much value in the market place....so it becomes impossible for these people to ever repay the loans....overvalued assets and leverage spells bubble. I know people who borrowed 100k+ to get a degree in sociology only to realize after the fact that sociology is a worthless major. They then went back to spend another 100k to get a degree in nursing to finally become gainfully employed.
Revenue is an obsolete concept at the Federal level. Currency issuers are not dependent on taxes to fund spending. Taxes have other roles, like controlling inflation.
All currency issuers can always pay any debt denominated in their native currency.
Whether higher education is producing a quality product at a fair price is a completely different discussion.
Whether the degrees being produced align with the workforce needs is yet another different discussion.
Whether jobs actually require the degrees that employers specify is yet another different discussion.
You're not usually obligated to choose a major until you're 2+ years in. By then you're probably 20 years old.
Hell, most Uni students are 18, which means they're a legal adult. Most of them have been driving cars and fucking for years before then -- why wouldn't they be able to make choices about a career?
Despite the defecit hawk rhetoric it isn't the actual finances that damaged the credit worthiness. It was the GOP and their sheer sociopathic brinkmanship to make the debt ceiling a regular event to try to force their pet issues that harmed the credit rating.
There is a reason why debt in nations is always mentioned as a percentage and not a raw number - the raw number is meaningless.
As for reducing costs, maybe, just maybe, “educational” institutions could not have the highest paid employees of said institution (and in most cases the highest paid public employee in the entire state) be a freakin football coach (or basketball if you are in Kentucky)!
The bigger problem is employers insist on people having college degrees when they don't need one. Likewise, employers insist on people having college degrees when maybe different forms of education could be just as good like certifications. This ends up forcing everyone into going to college just to get a degree for the hell of it. That's the problem.
IMO, I think there is going to be a huge market for software companies that can adequately verify someone's aptitude. If I am an employer, I want the best people I can find in my specific industry. I don't care if they have a degree or not. The problem is how do you find these people in the masses of people out there. If software was created that could evaluate people's skills directly, then that would be huge.
> IMO, I think there is going to be a huge market for software companies that can adequately verify someone's aptitude.
Measuring aptitude isn't hard and we've got firms that have been doing it quite well for decades with high predictive power on future success in the domain for which aptitiude is tested.
But employers don't care about aptitude (capacity to learn a skill), because we aren't in a system of lifetime employment. They care about present skill. And, it's uolely we are going to find good tests for that that don't involve lots of samples of applying the skill, which for simple tasks that can be repeated dozens of times an hour is easy and already readily available, for complex abstract processes that involve a mixture of lots of small task skills integrated through abstract reasoning, a quick easy test would be a breakthrough. But I think there is good reason to think that that is fundamentally intractable, the issue not being in the testing method but the nature of the phenomenon being tested.
As far as software being able to judge people's aptitude... this is certainly interesting and I'm pretty sure I know some startups dabbling in it. The general problem though is hard - it's basically automating interviewing in some form. Which is easier if you let humans' write the questions & evaluation methods, but of course is then only as good as what you are screening for.
As a fan of college basketball, I have no real love of John Calipari, but I assure you he is a profit center for the school. UK basketball takes in around $45 million in revenue and dies around $20 million in profit.
Calipari’s ~$9 million a year may seem high for a state employee, but his performance is easily measurable and comparable to others in his field.
That was confusing. I iniially read "UK" as "United Kingdom" which would be the normal reading but I presume you actually meant University of Kentucky?
If you want professional pay, go work for a professional team. If you work for a school, you work for the school, not yourself. Pay the coaches the same as teachers, they don't have any right to revenues or profit sharing.
As a graduate of UW in Seattle. I wish this weren't the case just as much as you but @JackFr makes the correct point that sports are largely profit centers for universities.
Note that those aren't independent; John Calipari may be returning $20 million / year to his school, but if the other schools are running losses, that money is in a very real sense taken from them rather than being value creation. If the other schools cut their money-losing sports programs, John Calipari's successful, profitable program would suddenly be an unsuccessful money-loser for lack of audience interest.
That what is true? The claim I made was "if there is only one school participating in the college football system, nobody will care about that system". But that is so obviously true that I imagine you must have thought I said something else?
You claimed that other schools are running losses while one reaps all the profits. I don't think it is true that there are only a couple winners and a bunch of losers broadly speaking many programs bring in a surplus of money.
That would be incorrect. The “major” programs (men’s division 1 football and basketball) are almost always to be found carrying the rest of the athletic program for men and women. At very small schools it is possible that the programs are a loss, but the major sports will be closer to break-even than any others.
You realize the main driver of escalating education costs is the government reducing how much it chips in? The actual amount universities spend on education hasn't gone up unreasonably, it's just a lot has been shifted from the government to the students.
How do you determine which tenured professors aren't pulling their weight? How do you pull your weight as a professor of some non-employable field of learning? Higher learning isn't vocational training, it's about creating an educated workforce.
If a professor isn't liked by the students and is lagging in publishing, there's a good chance they're mostly dead weight. Likewise, if their peers consider the professor's research worthless and teaching ineffective, they could actually be harmful for the University.
In essence, does the professor still fit the reasons they were granted tenure?
That being said, I don't think that's the right place to focus. I heard that there's a ton of overhead that could be trimmed, such as administration overhead (probably dealing with financials). It would be interesting to compare private and public schools to see what their costs look like and see if maybe we can simplify things to cut costs.
Pubic vs Private? I'm not sure what your trying to say here, there is such a broad range on both sides with a lot of elite private schools having the most expensive tuitions.
I think if you really want to look at how to lower costs you look at how the community colleges do it. Rick Perry (for all that is wrong with that guy) was spot on, when he basically said that it shouldn't really cost much more per year for a 4 year college as it does at a community college. Thats really the key to free college. When people look at Sanders plans, the conveniently forget that we manage to educate these same kids for 13 years without bankrupting the country, adding another 4 years should be a small increase, not a budget busting problem.
> 1. If it becomes possible to get out of student debt through bankruptcy, then there must be additional collateral posted by the debtors.
I don't think we'd see an increase in collateral as an increase in interest rates, to account for the risk of non-collection. This would likely result in STEM and highly-qualified students lobbying to have interest rates take into account declared major or GPA or some such thing.
But in general, we would still see your #2 as a consequence.
> This would likely result in STEM and highly-qualified students lobbying to have interest rates take into account declared major or GPA or some such thing.
I think you're assuming that lenders care what kind of degree you have. Someone who takes a few gap years to establish savings and credit will end up with better interests rates. As it should be. Kids should rack up a few years in the real world before they drop 80-200k and ruin their lives with debt.
d. Offer a degree in return for a percentage of future income rather than a fixed payment.
"Graduates of Outer Bumfuck University average an annual income of $60,000! We offer tuition at Outer Bumfuck for your choice of:
- $10,000 per semester
- 2% of your income for 10 years, per semester (deferred until your first full-time employment)"
There are obvious holes in this plan (e.g. a short-term cash shortage, the potential for abuse by students), but it seems fundamentally sound. It also provides counter-pressure to inflating the job prospects of graduates, since the university comes up short in cashflow if their stated numbers are wrong.
This system also provides a sort of insurance plan for college students. You'll never be stuck with loan payments exceeding your income, since your total cost is based on your income!
This feels like such a gameable/difficult system. Think of how many people at the average college can't even complete regular trainings. There's no incentive to pay, actually there's a disincentive, you have to give your salary to an office, something most people are very sensitive about.
Currently, if you don't pay for college, they just stop you from enrolling in more classes. You don't enroll in classes, you don't get a degree. Very clear cause and effect. In a future income system, the student doesn't pay their fee, and maybe the school files a collection action on them, if they can track them down...
Parents could put up a portion as cash. They could also stake the house or car on it -- some tangible property to repossess, just like other loans.
Since students basically have zero assets, another commenter pointed out, the more likely scenario is simply higher interest rates due to the increased risk to the lender.
Forget discharging the debt. Make the universities pay it back. Go after the endowments. The universities committed widespread fraud against an entire generation.
Except they didn't, even remotely. A college degree is still an income premium, even after the debt is factored in. And I'm really iffy on the idea that the poorer two thirds of the country should have to subsidize the debt repayment of the richer third of the country
Two things can be true at once. It is true that having a degree allows workers to demand a wage premium. It's also true that University degrees have seen healthcare-like price inflation without a correlated wage inflation for degree holding workers. There are many causes of this, but two big ones have to do with rapid expansion of administration and pretending like the tenure system can sustain an exponential growth pattern which it was able to do up until about the 1980s. The latter trapped a lot of young people, particular in the science industries in low wage "grad student" positions which are never going to lead anywhere from a career perspective.
The fraud is that they told the middle class this was their key to financial success, or at least financial security. And yet we're talking about a massive scale debt bubble that is holding back an entire generation of young workers. It was a lie. I believe they knew it was going to be a lie. But they also "knew" the taxpayer would be on the hook, so they didn't care. That's why I think the taxpayer should shove it back on the universities by holding them accountable for selling students a lie.
this assumes that college graduates can get better jobs because of their degrees. This is not true for everyone. And is largely false for college dropouts, who can end up with a large fraction of the debt from trying to get a degree, and none of the value of the degree.
It's really unfortunate that we changed from an attitude that education is a public good that benefits everyone - e.g. employers getting access to a more educated workforce, the economy being better for everyone, etc - to it being an investment in individual people, that those same people are then expected to pay for up front.
To me, the biggest problem is that universities have hired huge administrative staffs that are largely unnecessary, and students are living in posh dorm apartments instead of the concrete block buildings back when I went to college. If student loans weren't so easily obtainable, universities would have to cut their administrative staff and become more efficient. As long as the money is flowing in, they have no incentive to do that.
this is huge. this terrible bush era provision set up some really perverse incentives for college administrators.
if you think about it, it's really pretty sick. let's soak young people who know nothing about money with nondischargable debt in the name of something that is supposed to be good before they're even eligible for a credit card.
if you ask me, i think people should be losing their jobs and/or going to jail for this sort of predatory behavior.
The original argument was that education debt should not be dischargable insofar as it allows a person to increase their earnings and cannot be “stripped away” from them if and when they enter into bankruptcy. At a first glance, that’s almost reasonable (although terrifyingly vindictive and materialistic) but on closer consideration it’s not at all consistent with many other paid-for advantages (such as medical care, which though inordinately expensive, certainly does, by virtue of keeping a person alive and functional in the workplace, enhance their future earnings).
Non-dischargable debt thrust upon youngsters and carried by them like the burden of original sin for the rest of their lives must come to an end.
(I’m European, fortunately I have never had this problem.)
I always thought that the reason it wasn't dischargeable was because the product couldn't be taken back in bankruptcy either. Like, why wouldn't you just go to medical school for 12 years, then declare bankruptcy? I'm probably missing something about how bankruptcy works, but it seems like you'd be set for life in that situation.
In this case, the petitioner went to law school and simply decided being a lawyer wasn't for him.
A medical school graduate could declare that they want to pursue a career in music, thus making them qualify for both #2 and #3. #1 perhaps not, but "good faith" is pretty squishy.
So anything that is either used up or that loses value - which is pretty much everything there is apart from very few things that keep their value or increase - would fall under the same argument. That would apply to most loans, and even houses don't have a natural law that their values always remain or increase.
Seems like a lazy and made-up excuse to me rather than an actual reason. I don't mind people making lazy arguments - I mind those that accept them unquestionably and even more lazily (because finding fault in other people's words is far easier) much more, meaning not anyone here specifically, but the fact that that argument could spread so far in the first place.
> So anything that is either used up or that loses value
No, exactly the opposite. This is the one case where the item gained in creating the debt both cannot be recovered (or even destroyed) and still continues to have all of its original value to the owner.
I think it's a huge mistake to make it such that the student loans couldn't be discharged.
But I wonder: were people taking on debt that they couldn't handle with the intent of declaring bankruptcy later? Or perhaps was this sold as a way to decrease the cost of lending? What was the case for making this change?
If you track where the money went, I'd say it's education institutions' lobbying.
Loans should only be given to those who stand to create more value than the loan itself.
I still believe education is valuable, but not every degree is worth the loan - and with non-dischargable loans, the lender has no incentive to check if the loan makes sense for the degree.
The traditional fear with making student debt dischargeable and market-based is that lenders will ask for your parents to co-sign.
And that'll be no problem at all for middle- and upper-class families where the parents have savings and good credit, but bad for orphans and kids from poor families.
Of course, the current unlimited-loans system that has let costs spiral out of control has problems too, albeit different ones.
How do you suppose they were planning on discharging student loans everyone knew couldn't be discharged outside of truly extraordinary situations? It strains credulity to suppose that they made such a plan with this legal battle in mind.
And this is loan is made contingent on the promise that graduating from university will grant you a middle-class job, which in the case of being underwater in student loan debt, means they failed to provide. People wouldn't take these loans if they didn't think college was supposed to pay them back. That's the only reason 99% of the population would go into debt attending college. And that's the lie we've hammered into kids since they were in first grade like a cult.
>And this is loan is made contingent on the promise that graduating from university will grant you a middle-class job, which in the case of being underwater in student loan debt, means they failed to provide.
That's not necessarily true. In this case, he got a job at a law firm, but chose to quit it because he realized he didn't like the career. Now I don't think he should have been forced to work as a lawyer, but let's not claim that all instances of being underwater are because the university didn't keep the promise of getting you a good job.
Since the Brunner test for deciding whether student loan debt is dischargeable is from a 1985 case[0], I don’t think this can be said to have anything to do with either Bush.
That whole law was a giant middle finger to the population.
It wasn't like judges were handing out debt forgiveness like candy. Yet, the law acts like they were and creates a means test that removes ~50% of the population from being eligible.
There are thousands of really ugly laws like this. This is why I think the democrats are incompetent. Its Obamacare's bad marketing, where if you ask random people what the law did, overwhelmingly most people aren't going to remember the positive things, only the individual mandate and all the negative things being used to reduce its public appeal. The entire democratic party has this problem, partially because they don't have a #1 propoganda channel running reminding people of these failings.
There are plenty of left-wing propaganda channels. They just push "woke" agenda items and not financial ones.
Some of this is because, like with the right, it's easier to push emotional issues than abstract financial ones -- how many average voters understand Glass–Steagall?
"A charismatic college grad drenched in debt will stand up and shout: “I’m NOT paying back my student loans. You can repossess my car, evict me from my house, revoke my diploma, throw me in debtors prison… but I’m not paying. EVER. Who’s with me?”
"When the Mall in Washington DC is jammed with Millennials standing together in solidarity, the dominoes of higher education will fall."
"The art of manipulating 18 year olds into non-dischargeable loans leading to dead-end careers has driven tuition into the stratosphere."
"Schools and banks are guaranteed their dinero, even if the student never lands a job, even if the degree is in Elizabethan poetry… and not even bankruptcy gets you out of hock."
"This runaway train WILL crash. The bubble WILL pop… this decade."
It reads like the guy had the ability to pay off the debt, but left a job he didn't like. I feel like he made a mistake going into a field he didn't like or just started at a bad company and could have used those skilled he borrowed to get to pay it off and made a decision not to.
The student loan situation isn't great, but this doesn't seem better.
If this becomes common, so will having to secure loans against likely the assets of your family, which a lot of people don't have that as an option.
The current situation of 70k a year college is predatory, but a student accepting that cost should be smart enough to know what that means.
Modern concepts of debt seem to incorporate some risk to the lender. That gives some incentive to the lender to only lend to good investments. Student loans don't seem to have that level of risk for the lender.
One of the reasons colleges cost so much is because they can. As long as there is easy debt people will take it. As long as they take it they can pay high tuition fees. If they money dries up collages will have to reduce costs and lower fees.
You're on Hacker News -- 99% of startups fail. Every person is just a one-man startup. He tried something, it didn't work out. If he was a company, nobody would bat an eye at bankruptcy.
I had to secure a summer loan against my grandparents assests to graduate 6 months earlier because my parents didn't have the credit. It's likely if I had to secure my entire loan debt that I likely wouldn't have gotten a phd or finished college under different circumstances.
Take this to it's conclusion and this guy is securing his loan against his parents house which gets repoed.
A company's loan is frequently secured against the assets of the owner. The dog fish head brewing in the documentary on it secured his new building against his house, which he would lose if the factory went under.
This guy sounded like he had the option to continue working in a high paying field and chose not to.
Seed funding isn't a loan, it's equity. Nobody is suggesting that students give up 20% of all future income to the entity funding their education, which would roughly correspond to seed funding.
That being said, there are some efforts towards equity-financing humans that are in their infancy.
GP said that startups aren't given unsecured loans of $250k, and therefore it would be madness to give unsecured loans of that magnitude to individuals, so they can invest in a college education for themselves.
...except startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults.
So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity.
You can't put "almost" on a false statement and make it true. Equity isn't "almost" a loan by any stretch of the imagination, just as going to a movie isn't "almost" "making an unsecured loan to a movie theater" (if you don't enjoy the movie, you still lose your money).
> startups do get money of that magnitude that is essentially unsecured. If the startup folds, the investor loses the money, in the same way a borrower loses the money if the lender defaults.
This is stretching the meaning of debt beyond all recognition (and accuracy). The ownership that comes with seed funding doesn't just involve giving them money like debt does. First off, you're entitled to a _proportion_ to their value/revenue in perpetuity, as opposed to a fixed principal+interest as with debt. Secondly, part-ownership of a company gives you rights to the company you own beyond a revenue stream: which is why seed funders have partial control over the companies that they partially own (eg sitting on boards).
> So if there's a way to get unsecured money to startups for risky ideas without the founders having to indebt themselves for eternity, there ought to be a way to do the same for individuals wanting a college education without indebting themselves for eternity.
As I said in my comment, equity financing for humans is in its infancy, and I've been in support of it for a long time. The comparison to seed funding, however, is ludicrous, since (as I said), rights in perpetuity to income streams are not on the table, and neither is the ability to (partially) make career decisions for the recipient of the funds.
Actually, people are. Income based repayment of student loan debt is already one such mechanism. But there are also universities that are piloting post-payment of college tuition via income sharing agreements.
Yes, I mention that in the last sentence of my extremely short comment. But my point stands: none of these plans come anywhere near seed funding's 15-20% of ownership, or the rough equivalent for "equity financing" humans: the rights to 15-20% of labor income in perpetuity.
Hah. I misread your last sentence as "equity financing humans in their infancy" as in from birth. That sounded pretty batty to me, which makes sense now I see that's not what you said. My bad.
That's actually how it works in Europe. Universities are government paid, the student pays something below $ 2000 per year. But tax rates here are higher, so it is indeed roughly "in exchange for 20% of all future income"
> That being said, there are some efforts towards equity-financing humans that are in their infancy.
I find this pretty funny, because equity investments in humans go back thousands of years under the traditional name "slavery".
(Edit: expanding on the point a bit, it is true that legally a slave's owner almost always owns 100% of the equity. However, this is so suboptimal for skilled labor that skilled slaves held equity in themselves, in the form of a "right" (agreement with their owner, though the rate could be set by custom rather than negotiated) to keep a percentage of their earnings. This equity was a gift from the owner, but it boosted his total earnings.)
I see people say this a lot, but the details of the equity investment really do matter.
For example, an equity investment that gives the investor rights to 10% of the student's income for 20 years, capped at $100,000 total, is not at all the same thing as rights to 100% of income in perpetuity (which would be closer to "slavery" as commonly understood). Note that student loans that are large enough to not be effectively payable are a lot closer to the latter than to the former.
"Slavery" also tends to come with legal restrictions of various sorts (on freedom of movement, freedom to make various choices, etc, etc) and inequality before the law (different punishments for the same behavior). Those sorts of things are emphatically _not_ being suggested in modern-day equity financing.
(There are also income-dependent loans, including with expiration dates; in practice those can be hard to tell apart from equity financing with a finite time horizon and a payout cap. The UK has been funding college via such loans along these lines for close to a decade now, I believe.)
Anyway, the most important question here from my point of view is how to properly align incentives. With equity financing, _if_ the student is interested in having a good income it is very much in the financer's interest to help that along (via mentorship, access to professional networks, etc), and incentives align well. If the financer is the university itself, that also provides incentives to produce graduates who can get a reasonable job. Of course if the student's goal is _not_ a "good income" we end up with incentive misalignment; similar if we want a university education to provide more than preparation for productive employment. (This last is already a problem in practice if universities get rated on how their students do in the workplace, by the way.) So I won't claim that equity financing is the right thing in all cases, but there are definitely situations where it would be a lot better than what we have now, and I think people should have the choice of financing their education this way if they want to.
> is not at all the same thing as rights to 100% of income in perpetuity (which would be closer to "slavery" as commonly understood).
It might be closer to slavery as commonly understood, but it's pretty far away from slavery as practiced.
> "Slavery" also tends to come with legal restrictions of various sorts (on freedom of movement, freedom to make various choices, etc, etc) and inequality before the law (different punishments for the same behavior). Those sorts of things are emphatically _not_ being suggested in modern-day equity financing.
If equity financing happens at all, they will be, as conditions of the initial "loan".
> It might be closer to slavery as commonly understood, but it's pretty far away from slavery as practiced.
Slavery as practiced looked quite distinct in different places and different time periods. But yes, it was rare to claim 100% of the work product because then the slaves would starve.
> If equity financing happens at all, they will be, as conditions of the initial "loan".
Like I said, as far as I can tell equity financing has been happening for almost 10 years in the UK, without such conditions.
The very fact that you can rationalize the enslavement of a young person by saying "at least we 're allowing them to go where they want" is absolutely fucking horrific.
It should be illegal to agree to give away future earnings in this manner, specifically because morally corrupt people like yourself can rationalize your way into it.
I'd really like to understand where you're coming from here, because I feel like we're talking past each other. I'll ignore the personal attacks, and hope you'll refrain from them in the future.
First of all, a misconception I really want to correct: I am talking about "no restrictions on what the young person chooses to do" (including what work they do, etc), not "at least they can go where they want". This seems pretty clearly different from "slavery" to me, and I'd really like to understand why you feel differently.
The way I see it, we have an adult who wants to learn a set of skills (and the argument over whether _that_ is the purpose of postsecondary education is a very important one, but the fact of the matter is that attempts at "universal college" seem to be driven by the "it will get you good jobs" motive, not by the "it will make you a more reflective and critical thinker" motive). Yes, they are young, but they are not a small child incapable of making decisions. And yes, I would support guardrails to prevent abusive contracts, not because they are young but because this stuff can be complicated and not everyone involved is in the top 5% in intelligence; those guardrails are sadly lacking in the current college funding setup in the US.
If you disagree on the basic premise so far, I'd like to understand where you disagree.
If you agree on what the goal is (teaching people skills), there are various ways to finance the acquisition of these skills. The ones I am aware of:
1) One could save up enough money to pay for the relevant lessons, then take the lessons. Or be earning enough money while taking the lessons; the "work your way through college" route. This has the chicken-and-egg problem of likely wanting the lessons to increase earning potential (though perhaps just to have a less-uncomfortable job, of course) and therefore lacking that earning potential, and hence ability to save, right now.
2) One could take out a loan to pay for the lessons now, with the goal of using the increased earning power to pay back the loan. This is the current US model, in large part. Especially for socioeconomically disadvantaged students. There are all sorts of well-known issues with this model.
3) One could rely on one's family/friends/whatever to finance the education. This is largely the historical university model pre-20th-century and is a big part of the model in the US for socioeconomically advantaged students. This model basically involves an intergenerational transfer plus an implied "pay it forward" obligation. In some families the obligation may be explicit (e.g. parents finance older children who then promise to help finance younger siblings). This model has obvious inequity problems.
4) One could rely on labor performed as part of the learning process to finance it. This is the historic apprentice/journeyman model. I think it's under-explored in many cases today, though internships _can_ be something along these lines. The mismatch between how much those pay and the actual costs of postsecondary education mean this model doesn't work very well typically.
5) One could rely on "the state" to finance education. This is similar to #3 except (1) it does not rely on accidents of birth and (2) the "pay it forward" obligation is compulsory, via taxes or a period of restricted work options after graduation (e.g. as practiced in the USSR). This model does well on fairness metrics, but I think it suffers from some serious incentive misalignment and resource misallocation issues. It can also be adversely affected by demographic trends (e.g. if the financing structure assumes population growth which then does not happen). Fundamentally, this is in fact equity financing, done by society at large.
6) Equity financing of some sort by non-state entities. This avoids some of the failure modes of option #3, in that financing is not based on parentage. It allows the time-shifting of expenses vs income all the models except #1 manage. It does involve a commitment of part of future income, as does option #2 and option #5 (albeit this last hides that commitment more). I believe it's preferable to option #2 because it builds in things like "your payments won't be too much to bear" by default, whereas option #2 requires hoop-jumping as soon as something doesn't work as expected.
There's an important discussion to be had between option #5 and option #6. I think that discussion is a valuable one, and I _think_ incentive effects can be better with option #6 and option #6 is more likely to lead to more flexible terms that can be better tailored to suit preferences. But I can also see state-funded fairly flexible programs; it really depends on how its set up. I would not be at all surprised if the tradeoff here varies widely by individual and by how non-corrupt and competent your government is.
I do think that option #6 is definitely a much better fit than options #1-4 for modern post-secondary education.
I also think that option #6 can be trialed, and even largely transitioned to, without needing to solve the coordination problems that option #5 involves (i.e. legislation). So even if someone feels option #5 is clearly best here, it may be worth supporting option #6 over option #2, say, while at the same time continuing to push for option #5. Again, I feel that in practice options #5 and #6 are more similar than many people seem to think.
Note that _all_ of these options except #1 can be (and have been), abused in various ways, unfortunately.
Do you see other options for financing post-secondary education? What options do you prefer out of the list above or whatever ones you add? Do you have fundamental disagreements with my characterization of the 6 options above?
You're morally corrupt and I have no problems repeating that.
I read just far enough to know your argument was going to be "free will to decide what contract to sign".
Except that entire line of thinking can be destroyed with a single observation.
contracts freely signed can and are deemed invalid if they're too onerous. Boom. Your entire argument falls apart.
Allowing a 17-18 year old to sign away their labor for longer than they've currently been alive is called ownership. We do this with corporations in the form of stocks. WE DO NOT DO THIS WITH PEOPLE.
There are things in this world that we as a society do not fucking do, and selling ownership to young adults is one of them.
You're completely ignorant of people and the world. completely. The first thing these companies will start doing is trying to protect their investment, only because it's a human being involved it's going to start turning into control and oversight.
> I read just far enough to know your argument was going to be "free will to decide what contract to sign".
Uh... That means you literally needed to read one or two more sentences to see that this is not the argument.
If you're going to make claims about me and my understanding of the world, please have the decency to base them on what I say, not on what you guess I am going to say.
> The first thing these companies will start doing is trying to protect their investment
Why are you assuming that the equity financing will be by "companies"? The entities trying it right now are non-profit universities and governments. Who can still fuck it up in the way you describe, of course, just like they have already fucked up debt-funded education.
And there is plenty of "contol and oversight" going on with state-funded education (my option #5) as well, I should note. And I absolutely agree this NOT a good thing.
Hrm. Seed funding gives you a piece of the action, while debt gives you the right to repayment under defined terms. They are pretty distinct economically, to the point that they fall into entirely different asset classes. They are approximately the same thing the way a banana and an apple are approximately the same thing.
Yes, some startups can get seed funding. If you have the right vision, product, market, team, and strategy. Assuming you know or can get introduced to the right people with the necessary capital, that you’re willing (in most cases) to give those people some degree of control and direction over your company, that you are willing to give them preferred equity in your company which will be paid first (and before you) in an exit, and a host of other technical and legal rights.
Assuming all that is true a startup can take money from investors, under a strict regulatory framework, such money which must be spent properly for the benefit of the company subject to oversight by the SEC, among others.
In short, the ability of startups to raise money is highly regulated and highly specialized work.
It’s a very different thing indeed from the essentially guaranteed issue funding which is available in the form of student loans.
But all that aside, the central point is just this. If a bank is making an underwriting decision, then the bank is setting the interest rate and taking the risk. If the loan fails to pay back, well that’s why the bank diversifies.
In the case of a federal student loan, there is no underwriting. There is no sliding scale interest rate - or if there is one it’s more likely to include subsidies for higher risk borrowers than an actual risk adjusted rate.
In return for this, it becomes a sort of super-lien which can’t be discharged. This makes sense from a theoretical perspective and even from a policy perspective as long as a college education provides a strong ROI on average.
The system breaks down when the ROI from attempting to get a degree is a wide distribution which includes a fat tail of people who see zero return on the most sizable investment they ever made or possibly will make.
IMO the solution is 1) that the repayment should always be income based, and 2) the school should have to refund a significant portion of the loan IF the tax returns of the student over the next 10 years don’t support the repayment of the loan. 3) the student pays for 15 years post-graduation maximum.
Students used to be able to pay for a year of tuition from a summer job -- the costs of schooling has risen directly in proportion to the availability and size of student loans.
The fact that student loans are not subject to same market forces as other loans has created this ridiculous situation.
Perhaps a better metaphor would be a startup entrepreneur that takes VC and then folds the company when he doesn't like it anymore. He'd be in pretty hot water for a stunt like that.
It certainly depends on the context, but it's not unheard of for founders to realize their startup isn't experiencing hypergrowth and to shut down the company and return what's left of the money to investors. Usually investors are happy to get some money back versus none.
Of course on the opposite end of the spectrum you have Adam Neumann, who engineered his way to being a billionaire with VC money for a company he seemed pretty happy to jettison once it was convenient to do so.
Yea, that's the mechanism by which you're forced out when you hold equity. I'm not saying that he didn't make out like a bandit, but mood affiliation isn't an excuse for making false claims, and claiming that he "jettisoned" the company is flatly false.
The average 18-year-old entering college has no idea what $70k a year is. Many of them have no idea what occupation to pursue, or if it even suits them.
Many folks rou the kids taking on too much student debt, but I bet there are thousands more kids, like me, that didn't go to the prestigious school because there was no way I could fathom paying $200k (a while ago) in college tuition.
Or just work a job you don't like for a few years. I have a few lawyer friends doing that now and have tons of options open to them now they they are debt free and have a massive income. A few made transitions to careers they liked after not liking work for a time.
It is not in fact as easy as you think, or as it used to be, to get a high-paying job out of law school, such that you can pay off your student loans ($200-300K is not unusual) in only a few years and have a 'massive income'.
I know people out of law school who DO want to be lawyers, have lawyer jobs, and are struggling to keep up with their student loans. (No, they are not terrible incompetent lawyers).
If you are a Harvard grad working at a top tier firm, that may not apply.
But lots of people are making only $60-$70K out of law school. With huge debt. If you want to work for government or non-profit, you'll make even less. It's going to take more than 'a few years' to pay off $300K of debt like that.
It's pretty well known, lawyers' salary is bimodal. Most will make 60-70K while about 15% or so will start with 180K or above [1]. IMO those who start with 60K are more or less set for low end career which don't make for flashy legal shows on TV.
(Yes, yes, I know, that article begins with talking about 'second-class' partners who "can expect to make $800,000 at most" [at the top of their careers], I know, $800K is HUGE MONEY, that's still a top tier law firm and NOT anything like median lawyer salaries,that's not the reason I suggest the article. Check it out though, it'll surprise you if you still have a model of legal careers that's an idealized version of a couple decades ago)
But we're trying to build a society in which people can find some fulfillment in their work though, right?
Productivity in human work is becoming less and less important, as society as a while behind more capable of supplying basic needs with less human input.
Happiness is a goal, isn't it?
(Just so long as that other guy isn't happier than me, fuck that guy, she's always had all she needs. Right? Right! /s)
Finding a job that makes you happy is a luxury that only a few people in first world nations enjoy.
Sure, it’s a lofty goal, but 99% of people do their job because they need money. Even the ones that are paid well.
And productivity is improving, but unless you want our standard of living to free in 2000, improvements in productivity can be used to support a society where most people don’t work.
That link doesn't say the gains went to the top 0.1%.
If you want a more accurate picture of that graph, many well respected authors have pointed out that it was made using various mistakes, such as using different deflators for the time-series involved, not using total cost to employ which tracks cost of legislation and employer paid benefits, and other issues.
Here's one reply that computes the same data including these relevant factors.
>The current situation of 70k a year college is predatory
Average 2019 college tuition and fees for public in-state is $10k. Private averages $36k/year. Local and community colleges are often cheaper than both these. There's plenty of affordable colleges around.
> a student accepting that cost should be smart enough to know what that means.
It shouldn't mean debt until death. Corporations are full of smart people, including dedicated finance professionals, yet they can discharge debt in bankruptcy.
And let's be clear: a college student still has a developing brain and intellect, and they are quite naive and unwise, and should be protected by the law from lending predation.
That would be a good thing, not a bad thing. It would force colleges to conform to the rules of capitalism, making the market for education sane again.
Student loans should not be handed out as easily as they currently are.
> Student loans should not be handed out as easily as they currently are.
I would argue that 'student loans should not be handed out as equally as they currently are' -- in that loan terms are independent of major selection (and career prospects).
By all means continue to mandate that loan terms be familial-wealth blind (and institution-blind), but allow lenders to differentiate with rates on the basis of area of degree earned.
It's a lagging indicator, but it's insane that we specifically break market signals between the actual job market and the primary methods by which students finance their education.
If someone wants to get a degree in medieval plant philosophy, then they can bloody well self-finance that.
> but allow lenders to differentiate with rates on the basis of area of degree earned
This makes little sense in the current system, where many students don't even declare a major for their first year (or two, sometimes). They'd be halfway through college by the time they were able to know which degree they'll earn.
Intended major is just as bad of a metric. I think we all know many people who intended to go into one major and ended up in another.
So I’ll double major in biology and something else I’m actually interested in, say my intended career is medicine (even though it’s not), and maintain my low interest rate for four years (or even longer)?
> By all means continue to mandate that loan terms be familial-wealth blind (and institution-blind),
Student loan terms (private and public) are blind to neither of these factors.
> but allow lenders to differentiate with rates on the basis of area of degree earned.
Lenders outside of the federally guaranteed system are allowed to do this, as well as to consider all of the other factors you suggest loans should “remain” blind to. The only lender inside the federally-guaranteed system is the federal government itself (and it is also not blind to the factors you suggest it should remain blind to, since both are factors already.) Further any argument for major sensitivity is a much stronger argument for much additional weighting by institution, since all the market factors that apply to majors also apply to institutions.
(Clarification: I'm talking about the US loan program)
> Student loan terms (private and public) are blind to neither of these factors.
They are negatively blind, in that I cannot charge someone with family wealth in excess of $1M a lower rate than someone with negative family wealth. Correct me if I'm wrong.
> Lenders outside of the federally guaranteed system
I'm limiting these statements to the federal loan system, because that where a huge chunk of debt is created.
> The only lender inside the federally-guaranteed system is the federal government itself
Apparently this was changed in 2010? Prior to that, this was absolutely not the case via FFELs [1].
> and it is also not blind to the factors you suggest it should remain blind to, since both are factors already
See clarification about positive vs negative blinding.
> Further any argument for major sensitivity is a much stronger argument for much additional weighting by institution, since all the market factors that apply to majors also apply to institutions.
Not intrinsically. The problem with allowing rate sensitivity is making it outcome-sensitive while avoiding it becoming pre-existing wealth-sensitive.
I think everyone would feel it's unfair if Harvard loans charged 2% interest, while Community College loans charged 25%, because the acceptance demographics and underlying default rates supported that difference.
> They are negatively blind, in that I cannot charge someone with family wealth in excess of $1M a lower rate than someone with negative family wealth. Correct me if I'm wrong.
Private student loans (which, like federally guaranteed loans, have reduced bankruptcy dischargeability since 2006) have no such restriction.
Federal loans do have such a restriction, but that obviously doesn't exist to influence lender behavior, if it ever did, since the entity imposing the rule is also the only lender now permitted to issue such loans.
The U.S. spends basically the same amount of public money on universities as Germany: https://data.oecd.org/eduresource/public-spending-on-educati.... 0.91% of GDP versus 1.0% of GDP. That works out to about $550 per man, woman, and child in the U.S. versus $450 in Germany.
Attending a state university as a resident is actually well within reach for almost everyone. And people who can’t afford it usually qualify for financial aid and grants. The problem is that too many people overspend on higher education. And most people are only able to do this with access to humungous student loans.
Right, the problem is higher education is required. Reform secondary education so higher education is not required, and only fund public institutions that give people additional skills to help 'live on.' As long as public money is subsidizing 4 years of 'drama camp' or whatever it those kids do, we should be investing in people that want to do actual work for a living.
> The current situation of 70k a year college is predatory, but a student accepting that cost should be smart enough to know what that means.
Potential college students are 18-ish years old, hardly old enough to have enough mental composure to make the "no" choice in a country that bombards them with the message that going to an elite college is the ultimate goal.
Also, after thinking about it a little, your argument of "they should have been smart enough" pretty much applies to every bankruptcy situation. Homeowners, many of whom are much older than these students should be smart enough to know what they are getting into with that mortgage, et cetera.
And yet we just passed another 21 year old age limit in the US. This time to buy cigarettes, with hardly any actual public debate.
So again, we prove our double standard, you can't buy a drug that is harmful, but you can join the military and get killed, or take out loans that will make you an indentured servant for life.
>Potential college students are 18-ish years old, hardly old enough to have enough mental composure to make the "no" choice in a country that bombards them with the message that going to an elite college is the ultimate goal.
If they aren't responsible enough to take out that loans then they probably shouldn't have the ability to take out these loans. That would make it simple, right? If you're poor and can't get scholarships then no college for you.
At some point, we need to be able to hold people accountable for their actions. Otherwise we're going to lose a lot of privileges in society.
This is a country where people are able to take out hundreds of thousands of dollars in loans and kill or be killed in a foreign war before we trust them to buy alcohol or cigarettes, and before we trust them to rent a car. And the same country's legal system will treat a preteen child as an adult and sentence them to life in prison (Lionel Tate, 2001).
Maybe "at some point we need to be able to hold people accountable for their actions" but the first step might be figuring out an actual age where they can be held accountable. Perhaps the youngest age someone should be able to take out student loans is 21, when they're able to buy a pack of smokes and a case of beer? Or maybe 12, when they're responsible enough to serve life in prison?
I would argue that people are buying an expensive investment that doesn't pay off. It doesn't pay off because the product is defective -- college often doesn't lead to hire salaries.
Often times admissions has turned into an unregulated used car industry where lemons are legally bought and sold each day.
But not overturned because he wasn't tried as a minor? If so the point absolutely stands nowhere near a bed if what is being discussed is the application of law based on age.
Mental competency in this case referers to the capacity of a 12 year old to reason about the consequences of his actions. In other words, 12 year olds are not adults and cannot be treated like adults.
Bringing up the age and maturity is always a red herring. It is effectively a choice of potential maximum wealth and social class. While some may rise high in spite of a lack of higher education they are outliers among outliers.
Students know one essential aspect for the choice - do they want more schooling and are they remotely capable of handling it?
Of course the other myth is that being smart enough is sufficient for the unknowns and bad hands that can make failure a foregone conclusion. What is normally the "smart" choice can bring about disaster and doijg something "stupid" at the right time can bring about success in a very narrow circumstance. Even a brilliant trust fund kis can wind up homeless if they will develop severe schizophrenia around twenty.
Life isn't fair - I don't mean this to justify injustices but to note that it is possible for anyone to be screwed over for reasons beyond anyone's control. Victim blaming for such is wrong both morally and factually.
>Potential college students are 18-ish years old, hardly old enough to have enough mental composure to make the "no" choice in a country that bombards them with the message that going to an elite college is the ultimate goal.
Are you saying 18 year olds aren't adults?
I was a 17-turned-18 year old who chose a college that was inexpensive. Of course, I also didn't get _into_ an elite college, much like the 80-95% of folks that apply. I'd ask for more sympathy for the 80-95% of us before we infantilize the 1%.
>The current situation of 70k a year college is predatory, but a student accepting that cost should be smart enough to know what that means.
Many students who accept these loans are 17-18 years old. Expecting children to make solid financial decisions regarding hundreds of thousands of dollars is optimistic at best.
That doesn't quite describe things accurately. Students take out these loans. They do so, because their parents, along with government-employed guidance counselors tell them that they have to go to college. In half of the cases, the people accepting the loan money are public colleges and universities. Then you have political candidates getting on TV and talking about how its essential for everyone to go to college. And to put the cherry on top, it's the government that lends these students that money.
So I agree that 17-18 year olds aren't in a position to make solid financial decisions. But its the parents, teachers, and the government encouraging those kids to make those bad financial decisions.
At any age, if you take out any 100k loan, you can discharge it in bankruptcy. Except student loans. Why do we make an exception for the loans being made to the youngest people? I'll tell you: because banks and universities are taking advantage of them.
Perhaps after 1-2 years of mandatory military or civil service. Experiences like that put things into quite a perspective. At least for me, going on to university straight from high school was the most illinformed thing I ever did.
Get a job. There, now you can afford a gap year if you save. Spend six months working all the hours you can get, whether it’s in McDonald’s or something better and if you continue to live like a high school student you can absolutely afford six months in South or Southeast Asia.
Youth unemployment, even at the lowest it's been in more than 50 years and even with the low labor force participation rate among youth, is still quite high. So “get a job” is far from automatic with desire.
> if you continue to live like a high school student you can absolutely afford six months in South or Southeast Asia.
But living like a high school student means “fully supported by your parents in their home”, which, if your parents aren't in South or Southeast Asia, you probably can't manage there. Aside from (and because of) that, high school students tend not to have a particularly spartan lifestyle, actually it's often quite profligate, so I'm not sure what you are trying to say here.
In a country where people who can’t speak the majority language and have no legal right to work have little trouble finding a job I doubt there’s much difficulty finding work for most.
Forgive my lack of clarity in writing. If you work a full time job while living at home with your parents for six months after graduating high school, maintaining the same spending patterns as previously you will be able to go back packing for six months, no problem.
I know this is true because one of my friends did that except in Europe, which is much more expensive, and another spent a year doing SE Asia, usually on under $20 a day.
A gap year is affordable for active who can get a job. If Taco Bell is offering $100K a year for managers the labor market must no decent even for unskilled entry level workers.
How does a college spend that $70k? It seems awfully high.
In a subject where there are 500 students in the lecture hall, 1 or 2 of those are paying for the lecturer and building use. What's happening to the other $34M?
I agree with your point but I think it's important to use more realistic numbers.
According to [1] the average tuition numbers are closer to the following:
$10k public in-state,
$25k public out-of-state,
$50k private
In my own personal experience at a large public university, only freshman-level classes have on the order of hundreds of students. But even supposing the average lecture hall contains ~40 students paying ~$20k per year each, that's about $800k per year. Maybe each student has 4 classes, so there's about $200k for each course. Let's say the professor teaches two classes, taking a generous salary of $50k per class. That leaves ~$150k per class unaccounted for! Not as outrageous as your $34M number but still quite unacceptable.
No, no, no! A judge ruled in one specific case that a certain individual’s student loan debt was dischargeable under the Brunner test for undue hardship. Yes, it is a more lenient application than usual, but this does not mean that anyone’s student loan debt is now dischargeable!
The "Brunner test" that the OP commenter mentioned looks at 3 things:
1) Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
2) Your current financial situation is likely to continue for a big part of the repayment period.
3) You have made a good faith effort to repay your student loans
In this specific instance the judge ruled the litigant had passed the Brunner test. It may have been a lenient application of the test, but the law remains the same.
Other judges cannot look at this case and abandon the Brunner test, which is what you seem to be implying should/will happen here.
If you want the system changed you'll need Congress to pass a law.
The problem with the Brunner test is that it is very rarely applied, and applied inconsistently. The test itself is incredibly vague in specifics and is pretty much at the discretion of the judges, who generally always rule on the side of the government, which makes sense, the government pays their salary.
I have one friend who is permanently disabled and spent 4 years trying to get his student loans forgiven. He gave up and fled the USA.
The courts have fought tooth and nail in the interest of their corporate overlords to prevent the Brunner test being invoked.
If more judges do the right thing and allow the Brunner test to actually be applied, it will have a significant impact.
Precedent here would be the Brunner test and its application plus quality of evidence/testimony from the defendant to support the judges decision.
Moving forward, judges can cite this as an example/landmark case without excess research or work in their own decisions. It's a good thing, I think, but definitely not a rubber stamp to discharging loans.
Sure, there's some leeway in how these vague tests are applied. But just because one judge gave a generous interpretation it doesn't mean the law has somehow changed significantly.
If judges just abandoned it they'd probably be overturned by appellate courts.
I'm not arguing the injustice of it, just reinforcing the OP commenter's point: the law has not changed, and this ruling does not materially affect that.
I hear the term predatory used with school loans but I don't get it, what is predatory about them? Almost all of these people are HS graduate adults. These adults have choices- no college, trade schools, community college, online college, state, private, etc. Most (the normal non-star athletes or geniuses) people who choose college pursue the college, the college doesn't pursue the person. Those who choose college normally apply to a few different colleges because they may not get in. The student has to fill out a lot of paper work that takes time, this isn't some ToS agreement where looking at a college means you accept any loan and debt.
If colleges cold called prospective students and lied about the cost of education that would be predatory. The borrowers are not passive victims- it is only by their overt choices and actions that they go into debt.
250k for a 40k per year job is a bad investment but simply being a bad investment isn't predatory. A TV is a bad investment, Starbucks is a bad investment- they aren't predatory.
What is it about student loans that makes them predatory?
For those who believe people 18-24 are still developing and need special protection- do you think the voting age should be raised?
I always saw the lenders themselves as predatory. If a student tried to take out a mortgage, the bank would look at their ability to feasibly pay back the loan before denying them or approving them at a lower amount. It seems like folks just get their student loans rubber stamped. Since it's so easy to get lent more money, colleges are incentivised to charge more.
I'd be interested to see a world where your degree itself was factored into the equation. Pursuing biology? Nope, we've got too many of those and biologists don't make enough money on average. You'll only get lent a safe amount. Pursuing law? Now that's a safe loan with good payback odds! This would likely incentivize schools to put more scholarships in the less lucrative fields, and potentially keep those fields from becoming overpopulated. Or maybe folks will need to start their education in a community college or state school to build credibility. I'm sure the implications would be more nuanced than that, but I think that the incentive system for lenders is currently not working as intended.
What's predatory is the for-profit colleges that generally turn out students with basically worthless credentials. In plenty of cases it's even been found the signatures on the loan documents were forged.
People claim this is a huge problem, and at this point I suppose it is, but it was not always so. The government should get out of the business of giving and guaranteeing education loans and this debt should be disposable in bankruptcy. The problem would go away very quickly. Lenders would have to take a close look at the borrower, their academic record, their major, career prospects, etc. before making these loans. Which is how it should be in the first place. Of course there will those that whine about access to higher education, but I think that argument has already failed spectacularly. We are witnessing first hand that higher education is not for everybody and for many degree programs has zero bearing on future financial success.
The weird legal protections for student loans seems bizarre to me. The effect of making these loans exempt from bankruptcy just inflates their value which puts colleges into a position where they can inflate their fees - safe in the knowledge that banks will lend practically anything and students have very little choice. But I'm still left wondering- what is the reason that bankruptcy exists at all, and if there is a good reason, why does that reason not extend to student loans?
The argument for bankruptcy protection for student loans is that, at the end of college, students are in a uniquely advantageous position to file for bankruptcy. They don’t have any assets, they don’t have any significant income earning history, etc. I think the original intent was to incentivize more lending, and thus more access to higher education, by giving lenders more protection.
College loans rates (costs) would certainly spike if they were made dischargeable.
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.
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.
A big part of the problem is the US's annoying penchant for privatization which then means you need a profit motive. There's a revoltion against any kind of program purely for the public good.
Come on, the student loan program has been almost entirely taken over by the government. It is an example of the literal opposite of privatization. Citing a progressive source here:
... federal student loans, which are the largest single source of college debt, representing more than 92 percent of outstanding student loan balances.
The federal student loan programs are actually awful value-wise. If you're in a degree program that typically pays well upon graduation, private student loans usually offer much lower interest rates -- lower than even the subsidized federal loans. I got my loans from SoFi at 4.5%; federal rate was around 7.5%.
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.
Much like subprime loans, they're often the only ones available to the ones most in need of them. The idea of "risk" based on things like one's race or or location of residence or income actually INCREASING the price of these loans is cynical and deplorable.
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 was something put into place by the Obama administration. which was years after the status quo had been set by private corporations, when the government began letting them administer federal loans (in the 90s, I believe).
The loans are from private lenders and gauranteed by the government. If it was just a government program they wouldn't have had to have the draconian anti bankruptcy provisions which were put in place to attract the private lenders.
That's also why Obamacare had to be this rube goldberg public/private complication.
That hasn't been true for a decade. There are still old private loans out there, but since 2010 student loans are directly made by the government, and make up almost all the market. You might have a secondary private loan, but you'd start with a govt. loan.
No, there's an understanding that nobody works 'purely for the public good' because we have no selfless angels that we can assign to run the government.
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.
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.
Or they could just become more selective and only loan to people with good prospects of repaying. Maybe they’ll look at your major, maybe discourage private universities.
The problem with "good prospects of replaying" / full-knowledge lending (and what the system was originally intended to prevent) is that the best lendees are wealthy students from socioeconomic groups with good employment prospects.
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 agree with everything you said, but doesn't lending money to the group of people that are less likely to make repayment puts them in a worse place? Instead of being in a socioeconomic disadvantage, they now also have a loan that they can never payback. It honestly feels predatory and sounds like payday lending or one of those "more credit = more cash in your wallet" ads.
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.
>I agree with everything you said, but doesn't lending money to the group of people that are less likely to make repayment puts them in a worse place?
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?
> 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.)
University degrees are not actually that expensive to obtain. You go in-state, live cheap, and, if you’re poor, apply for scholarships. Loans are really only necessary if you’re obtaining a graduate degree or if you’re going to an elite school. I think loans would be available to most people in either circumstance.
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.
Compare that to UMBC right up the road. Full-time tuition for a year is under $12k, plus a few thousand in books and fees leaves you at less than half of your private schools number less financial aid. And everyone gets aid if you're instate in MD.
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.
Hah, no kidding. For what its worth, I grew up in a family that moved often, and was not technically in-state anywhere. If I had known that my family would also move to Maryland, College Park would have been probably where I would have aimed for. Younger siblings attended there, and with the Maryland scholarships essentially graduated debt free.
I realize now that I wasn’t explicit, but implied by “in state” is going to a public university (since those are typically where in state tuition is different than out of state tuition).
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.
The flip side of dischargeable loans going largely to the currently entrenched is that those most victim of non-dischargeable loans are the ones most in need of protection.
School in the US is already funded by the people in the immediate area, meaning that poor families have worse schools. Also wealthy families wouldn't need student loans anyway.
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.
I did know a guy who was on a neighboring-state subsidized grant for a nuclear engineering major... and only taking classes in humanities while summering abroad in France.
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)
It's called Academic Common Market, and it only offers in-state rates to out of state students. (There's no direct scholarship or money, although sometimes unrelated scholarships are also awarded.) It's not really subsidized any more than regular in-state tuition, since it's a reciprocal program between states.
Because he faffed around France for multiple years while choosing not to pursue the major expected by the program that helped fund his attendence in the first place?
I've got no sympathy for someone who deliberately makes unethical choices.
> Well you won’t switch your major if your loan depends on 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.
> while removing market influence on guiding students to choose majors with a return on investment.
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.
The market influence referred to is lenders being more choosy about how much they lend to whom, specifically because 18 year old don’t make good decisions.
Yea, but I don't think it's accurate to describe it as "market influence being removed": the responsibility just shifts from the lender to the borrower (who is better-positioned to make the call, from an informational standpoint).
> 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 the original intent was to incentivize more lending, and thus more access to higher education
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!
It seems like having a bankruptcy on your credit report for the next seven years would be disincentive enough, especially now when everyone from the phone company, to your landlord, to your employer may look at your report.
Yeah, if I could borrow $250k+ at the start of my career knowing that I'll never have to repay a penny of it, and the only consequence is that I couldn't get a mortgage in the first two years out of university...
...why wouldn't I just borrow every cent I can without even intending to pay it back?
By showing that you made no reasonable effort to pay it off. They’ll just ask why didn’t you work and pay it off as normal.
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.
I doubt they would give you the whole amount up front if it were dischargeable, so your clock is wrong.
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.
Generally, you don't make payments on student loans until after you graduate. That means you have years to spend the money before you have to worry about refusing to pay
All of which, I guess, says that if student loans can be trivially discharged in bankruptcy, then we should expect that non-government loans will quickly go away, and government loans will start to have a ~100% default rate
(or this judge's decision won't become universally applicable, or the law will be changed to circumvent it)
why would any of those people care if you have declared bankruptcy? It's much worse for your credit to have a bunch of debt that has higher priority than what a creditor might extend to you. If I'm selling you a cell phone on a payment plan, I would much rather it be the case that you don't have 100k of student loans to pay for first.
In corporate finance it wouldn't. They would look at your cash flow and ability to service the debt. Personal finance is weirdly moralistic and backward looking.
> why would any of those people care if you have declared bankruptcy?
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.
Tens of thousands of dollars in unpaid student loan debt is bad credit. Your credit score goes down the more money you owe. It is first and foremost a measure of how much you currently owe. This largely determines whether you will be able to take on another debt.
Brilliant strategy - graduate college, file bankruptcy, get rid of the student loan debt. Most college graduates rent for the first few years and with the utility of VISA debit cards, no need for a credit card. Live in a city, use public transport ad Uber, no need for a car loan. In 7 years, you can buy a house.
You can get an FHA loan two years after bankruptcy. Twelve months in limited cases. An FHA loan has less desirable terms than a conventional loan but not so much so that it would dissuade anyone from getting $100k in student loans dismissed.
> Most college graduates rent for the first few years
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.
If it was a common practice for college graduates to declare bankruptcy in this manner then landlords would take that into consideration. But of course, if it were a common practice it would also promptly be banned and we would be back in the same place we are now.
Also, since there is a waiting period between bankruptcy filings, the potential creditor knows that they have a specific window during which the debtor can't legally dodge the debt.
Ironically the issue is that banks tend to be too forgiving for that to be the deterrent it used to be. I suppose medical bankruptcy also shares some of the "blame" from a number of no fault of their own bankruptcies.
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.
I see a number of replies in the comments saying you could just take out the loan, get the degree, declare bankruptcy, get a job and 7 years later buy a house and be all good.
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.
The average loan in the US is about the same: $29,800.
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.
Yeah, generally when people talk about student loan debt being an issue in the US, they’re not talking about people with $30k loans. That would be comparable to a loan on a new automobile and would be affordable to most Americans. Generally, the problem is that many people are ending up with loans in the $100k+ range and often for degrees which don’t confer any kind of special earning power.
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.
Here in NZ Bachelor's degrees are usually three years. The first year is not supposed to be exploratory, you should more or less know your major before you start.
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.
The statistics show the average US student loan dept is around $35k/borrower. However there are some who go to out of state private colleges which can get expensive. And there are for-profit private colleges that are basically scams and rack up significant debt.
Is that the average amount borrowed or the average amount still owed? If the latter I am not sure how useful it is. It would be more useful to know how much students need to borrow today (or in 4 years time).
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.
Agree with the numbers in the other response. About $35k NZD if you include the allowance you have to pay back. Some people take that, others don't. Mostly people pay it off as they earn over a period of about 10 years.
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.
> I think the original intent was to incentivize more lending, and thus more access to higher education, by giving lenders more protection.
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.
Student loans are unlike nearly any other loan. First, the government is the lender for almost all student loans. Second, the government makes loans almost without assessing creditworthiness. Even people with extremely bad credit can get hundreds of thousands of dollars in student loans. Third, the government has an income based repayment system for student loans.
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.
The first two points don't seem to have anything to do with _why_ bankruptcy shouldn't be used for student loans. The government makes plenty of loans and to my knowledge all of those other classes of gov backed loans are dischargeable. And in any case many student loans are in fact not government but private, see, e.g. SoFi type outfits. Though I don't know the percentage of gov:private student loans offhand.
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 first two points don't seem to have anything to do with _why_ bankruptcy shouldn't be used for student loans.
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.
> The reason is so that these loans are low risk (no risk?) to those providing the loans.
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.
Printing money still represents a risk; the taxpayers provided real resources to people who then aren't going to pay them back resources back. If they are happy with that it is because they don't understand it rather than that the situation is acceptable.
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.
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.
This sounds eerily similar to what happened with mortgages before the recession. This may be naive, but what's the difference here and why would your suggestion not be as dangerous as the tranches sold previously. My understanding is that the system fell because these were being falsely rated, under the presumption that everyone pays off their mortgage. But the issue was that people were taking out mortgages that they could never repay (though they were being sold that they could). This definitely sounds similar to student loans to me.
(Finance isn't my primary job, so happy to be corrected)
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.
> The first two points don't seem to have anything to do with _why_ bankruptcy shouldn't be used for student loans.
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 first two points don't seem to have anything to do with _why_ bankruptcy shouldn't be used for student loans. The government makes plenty of loans and to my knowledge all of those other classes of gov backed loans are dischargeable.
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.
> The rule around bankruptcy is basically a trade off to make the loans more accessible.
> 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 college tuition cost around $500, that might work. But good luck finding somewhere which will provide $50k of unsecured debt to an unemployed 18 year old.
> First, the government is the lender for almost all student loans.
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.
My mother’s credit worthiness was terrible and I was denied on most loans and the ones she did qualify for were capped and not enough to pay for each semester.
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.
What kind of 17 year old kid has a good credit rating? I feel like the 17 year old kids with good credit are the ones that probably don't need a loan in the first place.
Graduate high school, take student loan, get a bunch of junk credit cards, go on a spending spree, have fun in college and maybe get a degree out of it. At the end of it, declare bankruptcy. You ruin your credit, but you didn't really have any to begin with, and you end up with a degree that can't be taken away. Get a job and by the time you hit your 30s you will be right as rain. (still a bad idea, but its the thought process)
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.
Any average economist (irrespective of political leanings) would have predicted these secondary consequences of not allowing students to file for bankruptcy.
>> I'm still left wondering- what is the reason that bankruptcy exists at all.
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).
But that's the dark little secret of the proliferation of student loans. That is, they've been instrumental in driving up the cost of higher edu. Making loans more available increases demand. They've also allowed the edu instutions to raise prices because the market can bear those increases.
Medical and Law school students widely abused bankruptcy for student loans in the 60s and 70s. My recollection is that this became even more common as rates went up, (a mortgage in the late 70s could be 15%) prompting the changes in the law.
> The effect of making these loans exempt from bankruptcy just inflates their value which puts colleges into a position where they can inflate their fees - safe in the knowledge that banks will lend practically anything and students have very little choice.
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.
Let's play out a causal chain:
1. If it becomes possible to get out of student debt through bankruptcy, then there must be additional collateral posted by the debtors.
2. This will cause fewer loans to be made, which will reduce the available pool of money sloshing into higher ed.
3. Enrollment and revenues will fall, forcing universities to:
a. Fight for some other form of government-ensured revenue stream (beyond the funds that state schools already receive). Get the popcorn out for this political rhetoric.
b. Reduce scope and conserve the more limited funds coming in the door. This probably starts with eliminating the endless program offices and initiatives that serve to swell the ranks of non-teaching staff.
c. Compete on price and return on investment by improving quality and employment rates of graduates.