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Comment by exabrial | Hacker News Reader

I have tried to explain how student loan forgiveness would actually work to deaf ears.

There is no universe where a multi billion dollar bank is going to let billions of dollars of loans evaporate. They have all the connections in government and the all the right people out to dinner to prevent that.

Instead, the banks will get their bad loans paid off by the taxpayer. This further incentivizes them to embark on worthless loans as they know there can feel a nearly infinite stream of money into their pockets.

The best solution is education: nobody should take out a 70k loan for a job that could only pay 30k. The second is default: lenders should feel the sting of making bad loans and_should not_ be rewarded for bad behavior and taking advantage of kids.

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> The second is default: lenders should feel the sting of making bad loans and_should not_ be rewarded for bad behavior and taking advantage of kids.

This would require being able to get rid of student loans during bankruptcy. Maybe the best policy is to just allow that.

But the problem is how do you have someone with no assets get access to capital to allow them to build a better life?

One approach is free education of course, but I think the context here is to make it work within a free market system.

>But the problem is how do you have someone with no assets get access to capital to allow them to build a better life?

Reduce the cost of building a better life.

If lenders don't want to make non-guarenteed student loans, then the schools will have to figure out how to lower prices or deal with sharply declining demand.

The ballooning administrative overhead at American universities is a well known phenomenon. Guaranteed student loans means there is little downward pressure on it.

At least for public universities, how about sidestepping the lenders entirely, and replacinh tuition with payment of a fixed percent (say 20%) of 10-year post-graduation income?

Aside from the effects that wealth can have on early education (which can't really be dealt with effectively so late in the education process anyways), this would eliminate wealth as a barrier to higher education or to continuity of higher education, and protect students from both predatory lenders and misleading marketing by universities. This would also incentivize colleges to invest more heavily into the aspects of education that actually contribute to career success (e.g. practical skills over fancier stadiums) and to rebalance the number of degrees they offer in each field to what is actually valued by society. For example, if they graduate too many people with degrees in communication, and only half get jobs and pay for the education, then maybe they offered too many communication degrees. Likewise, if every mechanical engineer graduated paid highly for their educations in the 10 years post graduation, they should consider offering more of those degrees. Interestingly, this would incentivize high-value education without any more information than level-of-payment; if, for some unknown reason, all of a university's 'basket weaving' graduates make tens of millions after graduation, then you don't need to know how they made so much money to know that you did something right in how you educated them.

At which point nobody would ever give out student loans anymore, and bankruptcy would be the logical choice, even for those who can afford college.

And then of course every single generation from now on will ask for student loan forgiveness.

Unless it was paid for by the the government. In which case colleges will keep 10xing prices (as they already did in the last generation), for a subpar education, and have taxpayers foot the bill. Soon people will be asking for autoloan forgiveness.

At a certain point, if colleges are making enough off of students from taxpayers, they will be incentivized to eventually start offering perks to students to come to the college, like kickbacks, automatic 4.0 for 4 years of partying paid for by taxes. Or maybe more than 4 years.

> At which point nobody would ever give out student loans anymore, and bankruptcy would be the logical choice, even for those who can afford college.

I bet they would.

This is a completely solveable problem without going to the extreme of "no bankruptcy ever." Make bankruptcy contingent upon working for one year per year of schooling. If you still don't have a job that pays well enough to cover your loans and living expenses, then bankruptcy is totally appropriate. Doctors and lawyers won't be eligible until well into their career.

That prevents people from immediately declaring bankruptcy.

Also, bankruptcy sucks a lot more now than it did in the 70s when this policy was put into place. Bankruptcy now prevents you from renting apartments, buying cars/houses, or getting certain jobs. Anyone declaring bankruptcy after college is looking at being in their 30s before they become truly financially independent.

I can't think of a worse system than what we have now. Bankruptcy is a really important component of a functioning financial system, and, IMHO, the lack of bankruptcy for student loans is one of the primary drivers of excessive student loan debt.

I believe a better solution is to cap the loan repayments to at most 10% of the borrower's Adjusted Gross Income (AGI) each year for a duration of at most 10 years after graduation. You will automatically see lenders recalibrating loans to what a degree is actually worth in the job market. That would induce universities to change fees as well.

I think this would be a great start. Banks will definitely find a way around it, but the instant impact would really affect their economics.

There are multiple kinds of student loans in the US, but for the most common kind, the "bank" is just the US Treasury (via the Dept of Education). Any forgiveness of loans still would arguably be paid off by the taxpayer, but I think you're imagining loan forgiveness being more complex than it actually is.

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