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Comment by ajross | Hacker News Reader

No offense, but that's ridiculous. There's money owed here. The schools already got it, the banks are owed it. Someone needs to make that right, you can't just "forgive" debt without some party taking a huge hit. Which one?

I'm guessing the developed version of your proposal would be for the government to step in and make the payments to the banks. But.. that's ridiculous. If you want to throw around government money to reduce education burden, what you do is pay the schools directly by offering grants. You don't prop up the imbalanced loan system by making loan payments with tax dollars.

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I think you misunderstood. He/she said "default", not "forgive". As in, the people with the loans walk away from them and take the massive credit hit that comes with that, likely by filing for bankruptcy. The issue is that student loans are uniquely sticky, so a person with student loans today basically can't get out of them.

If it were possible, many people would choose to file for bankruptcy to release the loans, take the temporary hit, and start again. This would burn the treasury and banks who hold the loans, just like they get burned when they loan mortgage money to people who can't afford one and later default on it.

Bankruptcy is yet another thing though. And I agree, by the way, the laws as written are unfair and don't help anyone.

But bankruptcy isn't the ability to "walk away" from a loan. You literally need to be bankrupt: you can't hold any other assets beyond the statutory minums. Most people suffering with student debt aren't literally destitute (obviously some are), they just have a cash flow problem. Bankruptcy won't help them.

I doubt that Drumpf was ever destitute when declaring bankruptcy.

Students get off easy as far as assets go. they don't have any yet, so there's nothing to get rid of.

You probably get this a lot, but here is one more data point.

Almost nobody who uses the term "Drumpf" is taken seriously. It's the 2017 equivalent of using M$ to refer to Microsoft. It's a way to immediately get your opinion written off.

I think you might be overestimating the requirements for filing Chapter 7 bankruptcy. In many cases it's a strategic choice much more than a need due to being destitute. Take a look here [1].

In general, if your income is below the state median (which most recent grads' income will be), your debt is more than half your income (easily the case for most recent grads), it would take more than 5 years to pay off (again, easily the case), and your disposable income is low, you can file for Chapter 7.

[1] http://bankruptcy.findlaw.com/chapter-7/who-can-file-for-cha...

>No offense, but that's ridiculous. There's money owed here. The schools already got it, the banks are owed it. Someone needs to make that right, you can't just "forgive" debt without some party taking a huge hit. Which one?

No offense, but the banks should take on risk if they're charging interest. Right now, they can have their cake and eat it, too, which is stupid - no offense.

> No offense, but the banks should take on risk if they're charging interest. Right now, they can have their cake and eat it, too, which is stupid - no offense.

i'll skip the faux politeness of "no offense" and just point out that this is foolish.

even if payback is literally guaranteed, interest is still required, because money now is worth more than money later, due to opportunity costs. the US federal government, which everyone considers the pinnacle of credit worthiness, still has to pay interest.

further, just because the debt can't be discharged doesn't mean its paid off in a timely fashion. the interest rate has to be further increased to account for folks who just don't make payments for years at a time.

My argument is not that the banks shouldn't collect interest; my argument is that they should accept risk.

>You'd think a surefire bailout would decrease resistance to debtor relief. But investors want timely payments; they fear federal relief programs might slow cash flow from an otherwise "bulletproof asset class." This creates twisted incentives, especially for SLABS players involved in loan servicing: They often have a stake in borrowers defaulting rather than paying smaller amounts over a longer period of time.

It's perverse policy — bankers are pampered because student debtors are hounded and pounded. To help borrowers, the government should facilitate bankruptcy reform and expand federal relief programs. But we have deeper problems: Lenders, servicers, collectors and investors prosper while students suffer because schools increasingly rely on private tuition rather than public funding.

http://www.rollingstone.com/politics/news/how-wall-street-pr...

> interest is still required, because money now is worth more than money later, due to opportunity costs

But where can I get the kinds of returns that banks get from student loans? Especially without doing any real work?

Wait. Isn't that how investing works? You invest hoping to get a return - but sometimes you don't. A loan in which students (or anyone) can't default is getting close to debtors prison. Whoever invested without caring who they gave the money to should, well, get those returns: $0.

Having the government step in and pick up the tab isn't as ridiculous as you think. The majority cost increase (65%)[1] of higher education in the US over the last couple decades is due to a systematic defunding of government support for schools. It would be nice if we started investing in our country's education again.

[1]2015 Study by the New York Federal Reserve - https://www.newyorkfed.org/medialibrary/media/research/staff...

How about the government lets the banks pick up the tab? Why should taxpayers bail out (wealthy, educated, intelligent) bankers who made bad loans?

Maybe it should be a problem for both the banks and the government. The banks have undoubtedly mixed in the student loans with the rest of their portfolios which back the returns of numerous investment and retirement accounts held by US citizens.

Why shouldn't Americans bail out Americans for the collective decisions of Americans?

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