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.
