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Comment by tptacek | Hacker News Reader

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.

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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?

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.

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.

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