I completely agree that they shouldn't be risk free - that was probably a harebrained idea to make college cheaper and more accessible to everyone, but it completely messes up the incentives.
And I know they're technically optional. What I was saying is that we shouldn't be trying to build the idea that it's OK to default if you're better off financially not paying people back into our culture. Trust is important to the functioning of society.
> What I was saying is that we shouldn't be trying to build the idea that it's OK to default if you're better off financially not paying people back into our culture. Trust is important to the functioning of society.
I disagree with this. We saw people during the GFC screwing themselves by continuing to pay mortgages that they were underwater on out of some misguided sense of honour.
In that case, they should have walked away and left the bank saddled with the stranded asset. Loans are a commercial proposition with a risk and a reward. Introducing washy hard to define concepts like 'trust' to pressure one side only screws the good guys - the unscrupulous ones will do what they want.
Better to have a clear playing field where both lenders and lendees understand there will be situations in which the loan isn't going to get repaid and have the risk of that priced in.
And I know they're technically optional. What I was saying is that we shouldn't be trying to build the idea that it's OK to default if you're better off financially not paying people back into our culture. Trust is important to the functioning of society.