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)
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.