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Comment by tptacek | Hacker News Reader

The statistics in this article aren't especially useful, and could easily have been made more so by breaking debt down by attainment. Students that leave postsecondary without a 4-year bachelor's degree on average apparently owe less than $10k; with a bachelor's, less than $25k; with a graduate degree, $45k.

Roughly 1/3 of all borrowers drop out, implying (I think?) that the majority of debt is held by people who complete degrees, a substantial minority of whom obtain graduate degrees.

If the student debt crisis is about rescuing people for whom college was of no benefit (for instance, because they attended a for-profit school and didn't obtain a bachelor's degree --- the overwhelming majority of low and middle SES quartile students at for-profit colleges do not), the intervention needed to solve that problem is radically different and less expensive than "forgiving all student debt".

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The last point is key. There are so many options that provide relief for those who need it most that don’t bail out New York Times journalists who paid $150,000 for a Columbia English degree or big firm lawyers who paid $250,000 for a Columbia law degree. And given how much of the debt is subject to income-based repayment, there is also a set of options for bringing relief to those who don’t qualify to cap their loan payments at 10% of disposable income.

Though it'd be fair to point out that this article gets income repayment caps wrong, calling out the downsides without noting the fact that they also make large debts for the middle class more tenable.

There is also a free and fair option, just let people go bancrupt on their student loans. We've already seen politicians bailing out loans to help their reach friends, but saying it's all for the people.

Don't let history repeat itself

student loans are typically not dischargeable in bankruptcy

That’s based on laws that can change at any time. IMO, people should be able to discharge them in bankruptcy around 15 to 20 years after graduation.

This is in line with the “total and permanent disability” escape method which has minimal impact on the larger student loan market. https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancell...

There isn't much of a student loan market. The overwhelming majority of student loans are made by the government with no underwriting and the rates set arbitrarily.

The market is on the other end. Loans are constantly resold after being issued, which is why people regularly get new student loan processors.

I don’t believe that’s the case. My understanding is that the government holds on to the loans but hires servicers to interact with borrowers. These servicing contracts are subject to competitive bids and that’s why people regularly get new processors.

It’s true loan servicing does not always change when loans are sold they are independent.

In 2010 the policy changed, however plenty of older federally backed student loans are still being sold and resold. https://www.investopedia.com/articles/personal-finance/08121...

Loans are not resold. They stay in the government’s books. The loan processors are just contracted to provide processing services.

https://studentaid.ed.gov/sa/repay-loans/understand/servicer...

> In some cases, ED needs to transfer loans from one servicer to another servicer on the federal loan servicer team. ED transfers loans as part of its efforts to ensure that all borrowers are provided with customer service and repayment support. If ED needs to transfer your federal student loans from your assigned servicer to another servicer, your loans will still be owned by ED. The “transfer” to another servicer on ED’s federal loan servicer team simply means that a new servicer will provide the support you need to fully repay your loans.

https://www.investopedia.com/articles/personal-finance/08121...

There was a change as a rider to the 2010 affordable care act. But, older federally backed student loans are sold and resold.

Pre-Obama loans represent a small fraction of all student loan debt.

I think it’s still on the order of 3-400 Billion or so, but I am not sure of the numbers.

Either way loans go back 4+ years before graduation and people take 15+ years to pay them back. So I assume quite a few of these loans are out there even if the remaining balance is not that huge.

The problem with allowing people to BK their student loans is that it creates a perverse incentive. If you BK over a car, it gets repossessed. But nobody can take your education back. A BK at 22-23 years of age is not a strong deterrent; you'll still be able to buy a house in your early 30s, which is when a lot of people plan to do that anyways.

You can make loans dischargeable, but doing so will drastically change who loans are made available to in the first place.

BK still hits your credit score and employers might not hire you knowing you BKed on your obligations.

BK's on your undergrad also would make it harder to take out loans for post graduate courses.

Why could theoretically repossess the certification though. That is make it illegal to report you have a degree you bk’d on and make the colleges respond negatively when asked about your credentials.

I suspect that leads to outcomes that are uncomfortable for universities though.

Consider if we required colleges to guarantee student loans.

For a long time people were allowed to discharge student loans in bankruptcy. Most people didn't because costs were reasonable and it hit your credit score.

If you suddenly made that allowed again there's be a bunch of initial bankruptcies because of pent up demand and the market racing toward equilibrium but it would almost certainly revert to somewhere near the level it was originally.

Two responses to this (we're recapping a previous thread at this point):

1. Tuitions were much lower when loans first started to be non-dischargeable.

2. The provision to exempt them from bankruptcy was based on concerns that people were already ruthlessly defaulting on them.

As this article notes: the current disposition of college financing is part of a package of policy changes geared at drastically expanding access to college, and that package is generally viewed as being successful on its own terms.

Allowing for bankruptcy discharge would lead to less predatory lending (since all of a sudden the banks would have an interest in checking credit-worthiness), and that in turn would lead to universities losing many students if they don't lower tuition costs to reasonable levels again.

Not allowing defaulting on student loans was a huge driver in why tuitions are so high without any added value from the universities.

The only real lender of significance in the market is the federal government, which makes loans without regard to credit worthiness. That policy is not subject to change for policy and political reasons. What credit check is an 18 year old going to pass for a large unsecured loan? Especially 18 year olds from disenfranchised groups?

The trap with income based repayment is that after 20 or 25 years worth of payments less than the accruing interest the original principal plus all the capitalized interest is forgiven, but that forgiven debt is taxable income to the borrower. So the borrower has replaced a debt to the department of education to one to the IRS.

Surely the taxes on that income are considerably less than what was forgiven?

If nothing else, this seems like an argument for permitting the recipient of this particular kind of windfall to break it up across a few years, possibly retroactively.

When the lender is the government and the forgiveness is an intended and advertised part of the program from loan origination, I’d argue it isn’t meaningfully a windfall.

Further, I’d argue that the borrower isn’t the main beneficiary of these student loan programs. Rather they are intended to, and do, enable monstrous cost growth in private de facto for-profit universities.

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