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Comment by mgkimsal | Hacker News Reader

"for other people's bad financial decisions"

Why is making loans to people that have, statistically, a very low chance of paying off somehow not also a "bad financial decision"? We pay for "bad financial decisions" regardless of who makes them - debt forgiveness for individuals or bank bailouts when they get in over their heads.

Banks only lend for education because it's not dischargeable - there's no penalty for the bank making a 'bad decision' because they'll get their money one way or another.

Yes, make all student debt able to be discharged in bankruptcy, and we'll see a different dynamic play out. However... there are more predatory lenders out there that specifically target the newly bankrupt so... it may not 'cure' all issues, just shift some of the burden around.

EDIT: had meant to add that we already pay for people's bad health decisions via insurance pools, and we already pay for people's bad life decisions via prisons.

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> Why is making loans to people that have, statistically, a very low chance of paying off somehow not also a "bad financial decision"?

I agree that the government shouldn't be making bad loans to people who are unlikely to pay them back. In fact, that's exactly what I said in my comment: the government should get out of the loan business.

Unfortunately, loan forgiveness would mean me (a current taxpayer) having to pay for the past poor decisions of students.

> We pay for "bad financial decisions" regardless of who makes them - debt forgiveness for individuals or bank bailouts when they get in over their heads.

Banks pay significant penalties for bailouts, while people seem to want debt forgiveness with 0 repercussions. Not to mention this whole issue of banks is orthogonal because most loans are from the government.

If we let the bankruptcy system handle it, people could get out of their loans but there would still be consequences.

> Why is making loans to people that have, statistically, a very low chance of paying off somehow not also a "bad financial decision"?

It's important to recognize that you're talking about the federal government and not really banks. Whether it's a bad decision to issue student loans to people who are unlikely to pay them back is irrelevant to the parent question about fairness. The government doesn't have money of its own. It has your money, and my money.

There is no scenario in which the government gets penalized for poor lending practices. The citizens get penalized, and that's why people who were conservative with their educational loans and expenses tend to be less than impressed with the idea of writing of a trillion dollars in student loans. That trillion dollars is largely going to come from the pockets of people who aren't carrying student loans.

When I took out my student loans it absolutely was the banks. Federal takeover is only a recent thing.

> Banks only lend for education because it's not dischargeable - there's no penalty for the bank making a 'bad decision' because they'll get their money one way or another.

I was under the impression that only federal student loans were protected from bankruptcy. However, it looks like that changed in 2005 when Congress largely extended this protection to private student loans as well. I still don't quite fully agree with your statement since financial institutions often have a hard time collecting on debt regardless of their legal rights, but you are certainly correct that this encourages financial institutions to take on more risk. Private student loans are performing much better than federal student loans though (11%+ vs 4%+ delinquency rates) so the data implies that they are still practicing somewhat strong underwriting practices. Further, nearly 95% of all private student loans have a cosigner.

Regardless, the private student loan market is very small in comparison to the federally subsidized student loan market. I know it is easy to blame the 'banks,' but in reality this situation has developed largely from societal pressures (college=success), federal and state policies ('cheap' and 'accessible' loans), and unchecked spending at colleges.

Link of an interesting paper on the subject for those curious: http://law.emory.edu/ebdj/content/volume-32/issue-1/comments...

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