Skip to comments.would it be good to make student loans dischargeable consumer debt?
Posted on 06/11/2012 12:25:20 PM PDT by TurboZamboni
IOW, why would it be good to make student loan debt dischargeable in bankruptcy like most other consumer debt?
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tax payer is missing from the discussion?
Student debt totals $870 billion!
It would be good to start titles with capital letters.
It isn’t now because Republicans changed the law (at the behest of the private student loan lobby—bankers), such that in 2004, any guaranteed student loan is no longer dischargeable. What is the purpose of bankruptcy? To eliminate the debts of citizens so that they have a fresh start. To not include student loans denies the purpose of the bankruptcy laws. There is no “fresh start.” If you are against including student loans, then you should be against bankruptcy laws.
No, don’t make it discharged through bankruptcy. Let these brilliant young minds do whenever consumers are ripped off wholesale - make them file the class action lawsuit like they should have.
And I’ll tell you where to start: Fraud, in charging ‘mandatory insurance’ to the student account. Student account items are supposed to be ONLY items directly related to the academic education of the student. Which means ASB is out, sports equipment can’t be charged to the student account, etc.
There’s enough relief in there to hammer out a more long term negotiated dropping of the student loans, and it would shut down immediately the wholesale ripping off of students by universities.
I think it would be great, provided the US Taxpayer no longer guarantees or subsidises the loans.
Get the Federal Government out of the money handing out business, and make student loans like any other loan. You have colateral, borrow on it, don’t have colateral, work for it.
If the Government was in charge of sand in the Sahara, there would soon be a shortage.
The federal government kicked private lenders out of the student loan business a couple years ago. If student loans are to be forgiven, it would be purely at the expense of the taxpayer. Forgiving student loan debt would simply be another way of encouraging young people to go to college who otherwise should not. It would add to the welfare/dependent on the government mentality and to the real numbers. Who will be left to pay taxes in the future?
For those who use student loan debt wisely, the outcome can be very good. They can potentially get into a career otherwise unavailable to them, and the earnings are generally better. I am thinking for positions such as health care fields, engineering, education, for example. If the students are also careful to select colleges and universities based more on costs than “status”, use junior college and state schools when appropriate, work some hours while in school, live at home if necessary, the student loans can be kept in check and be reasonable for repayment after graduation.
That being said, which kind of debts should be allowed to be “charged off” in bankruptcy ? Any? All? Some? None?(”not paying your debt is wrong. Period”)
Whats the alternative? We dont really want debtors prisons, do we?
I can sympathize with the argument on huge medical bills, but IIRC, those are a very small percentage of the actual reasons for personal bankruptcies.
They aren’t now because they’re guaranteed by the government, if they were dischargable they’d no longer be guaranteed, and by and large the people who need them wouldn’t be able to get them (nobody is going to give you a loan based on potential future earnings if you pass you classes).
It does Johnny no good to come out of college with a four-year degree in Sociology and fifty grand worth of student debt, but the universities don't care... they've already got their money up front. In fact, it's actively in the interest of universities to produce just as many such Johnnies as they can.
Reminds me of the housing debacle:a government-created circular firing squad.
Let private lenders make student loans based on what a degree is potentially worth. You want to major in mechanical engineering or nursing? great, here is your loan at 3% interest.
You are going to major in ethnic studies. OK, but it will cost you 18%.
College tuition would come down overnight. Colleges would set up their own funds and work with private lenders to keep their students. Hillsdale College already has a successful model in place doing exactly that. Grove City, Brigham Young, Liberty University and others are in the process of doing something comparable.
So far, only conservative colleges. But the principle is the same: teach kids something useful, they get a marketable degree and will pay back their loan, with interest, in a fairly timely manner.
Its a simple matter of personal responsibility. To the best of my knowledge, no one has ever been forced to take a student loan at gunpoint. Since they voluntarily applied for the loans they are responsible for paying them back.
Yes, make all new student loans dischargeable and none insured. This would force lenders to make responsible loans. It would also make the cost of higher education come down. The higher education business is overpriced because of the loans and no liability. Make it more of a free market entity and the whole system would work better.
If I recall, by the late 80’s or early 90’s, it became a routine practice for recent college grads to default on their school loans, and simply file for personal bankruptcy instead. They were young, had no assets, so they didn't care. The problem eventually became so widespread and epidemic that the government had to pass new laws stating that student loans could not be discharged via bankruptcy. Hence the situation we find ourselves in today.
If this law is repealed, look for the loan default problem to return - except young people's sense of entitlement today seems to be even higher that it was back then (if such a thing is possible). Hence, the problem will be much worse this time around.
I am not sure what the solution might be, but knowing human nature nowadays, I am certain that if the bankruptcy law is put back to the way it was before, that college students will once more begin taking advantage of the situation - and student loan defaults will explode all over again.
It doesn't appear that they got their money's worth.
Oh HELL no!
Of all the outstanding debt from student loans, how much is in default? How much of that default has occurred in the past four years, and how much of that would start getting paid, if the economy turns around? It seems like those are questions that need to be answered before taxpayers are forced to foot the whole student loan bill.
I went thru a bankruptcy (medical) in 90 and they were NOT dischargeable. However, by going thru BK, I had them paid off by 92.
That’s what I remember but I thought it was the seventies and early 80s when this became an epidemic.
It seems like it would make the private lenders less likely to loan 50K to someone they knew had no reasonable chance of paying it back...
The share of federal student loan defaults rose sharply last year, especially at for-profit colleges and universities, where 15 percent of borrowers defaulted in the first two years of repayment, up from 11.6 percent the previous year.
According to Department of Education data released Monday, 8.8 percent of borrowers over all defaulted in the fiscal year that ended last Sept. 30, the latest figures available, up from 7 percent the previous year.
At public institutions, the rate was 7.2 percent, up from 6 percent, and at not-for-profit private institutions, it was 4.6 percent, up from 4 percent.
Lots of misinformation on this subject. It is a dischargeable debt via an adversary proceeding as part of an overall bankruptcy plan.
However, Congress made the new rules for discharge very difficult to prove up in court and the courts have since interpreted the rules in a draconian manner.
You must prove you made a good faith effort. You have no assets. You have some sort of problem which will prevent you from obtaining an income sufficient to pay off the loads and the problem will last for virtually the lifetime of the student.
Because of these rules and draconian precedents in some cases, most attorneys won’t take a student loan case because it is a loser 99.9% of the time; therefore a student almost has to proceed pro se as a pauper against attorneys for the lenders who are experts in the ins and outs of the legal proceedings. So it is almost impossible to get a student loan discharged.
The problem with the old rules for bankruptcy discharge was that too many students had an entitlement mentality and were taking the easy way out, reneging on their obligations via bankruptcy. So Congress acted.
Whether you like it or not, bankruptcy is allowable in this country. But then the legislative bodies passed a law stating Federal student loans could not be discharged in bankruptcy and then later (october 2004) the law came into effect that NO guaranteed student loans, including those of private entities (chase, boa, wells-fargo, etc.) could be discharged.
What is the purpose of bankruptcy if the most disruptive loans in a person's life (student loans) cannot be discharged in bankruptcy?
It’s easy to see how a lot of students would go bk right after college (when they typically have minimal assets) and figure they beat the system.
Personally I think the whole deal is a liberal funding mechanism.
Make unlimited loans available to students.
Colleges raise prices early and often
Colleges use revenue to pay liberal profs and admins outrageous salaries
Profs and admins contribute to liberals.
I agree with you. In fact, I think that there may be a Constitutional issue with the law. The Constitution gives Congress power over bankruptcy law across the US, but there must be some sort of limitation on that power. If a large segment of the population can’t discharge in BK their most significant debt, then it seems to me that defeats the who Constitutionally-enshrined concept of “fresh start” bankruptcy.
(Some claim if the government didn't fund schools, we'd have none at all.)
I read part of a testimony before congress, or an article on the subject, and this occurrence was actually very rare. It was an urban legend--fomented by the blood-sucking banks who could easily take advantage of students who didn't know their a$$ from a hole in the ground enough to make financial decisions.
There WERE some highly educated professionals (doctors) who did this, but it was rare, too. Turns out most people don't like to have a bankruptcy on their record and did what they could to avoid it. Unfortunately, as evidenced by comments on this thread, college costs have become so high, that it is nearly impossible for a student to work part time or full time to cover the cost. Gone are the days when many of us paid no more than $300-$400 for tuition, school fees, and books. Students are now lucky to purchase a single book for that amount of money.
This would immediately reduce the cost of college. It would also restructure every university immediately (closing many) - ending “ethnic studies” and “gender studies” programs. Liberal Arts degrees at second and third tier schools would evaporate as customers disappear.
But, you’d also get a disproportionate minority impact - as tuition (and tuition is increasingly paid for by loans) subsidizes “scholarships” for favored minorities.
Stupid people who borrowed lots of money for nonsense degrees would able to shed their debt - but they weren’t going to pay anyway.
The courts could decide whether Chap 7 (eliminate unsecured debt) or Chap 13 (reduce and/or reorganize payments).
Something like this is going to happen. It beats having a mega-gaggle of 20-somethings placed in defacto indentured servitude because of student loan debt.
Lots of “studies” professors on food stamps......
This most disruptive loan is also the most easily avoided.
How many parents co-sign these student loans ,but won’t do so for a Visa card or car?
(which is how this got me thinking: a co-worker whining about collections on her paycheck due to her daughter’s default.)
“Its a simple matter of personal responsibility. To the best of my knowledge, no one has ever been forced to take a student loan at gunpoint. Since they voluntarily applied for the loans they are responsible for paying them back. “
The Loans should not have been possible, and wouldn’t have been made without government interference.
Stupid kids should not be placed in lifetime indentured servitude. they aren’t going to pay. This is exactly why bankruptcy was created.....
No, partly because I’m not saying the schools would go away, just the student loans. It’s a simple function of math, would YOU lend a fast food worker 20,000 with no collateral at all under the assumption that if he passed his classes and got a job in some better field he’d be able to pay you back starting 5 years from now at the earliest? Of course not, that’s a stupid loan to make. Until the government comes in and says “we guarantee you’ll get paid back one way or the other”. The non-government guaranteed loans that do exist have high interest rates and are specifically targeted for expenses higher than the government loans will pay, and they like to sue. Where student loans exist there’s generally a high level of government involvement for this very reason, the people you’re lending to are at the time of the loan a very poor credit risk, they lack a job and job skills, in fact it’s known at the time of the loan that they cannot pay unless something (what the loan is trying to accomplish) changes in their life. Really when you think it through it’s lending people money to go to the casino.
Then post 15 by Vigilanteman makes a lot of sense. Tie the loan to the type of degree.
Yes, but it is not just an unlimited “line of credit” that the parent takes on by co-signing. The parent/s is informed of the amounts of the loan/s, and should consider at each step whether to continue the risk. And if the parent does continue the risk or the child does default, the parent should be held responsible if they co-signed. No different than if they co-signed for a car loan.
It’s still a dumb loan to make without some “higher power” guaranteeing payment. The degree they’re seeking doesn’t really matter if they don’t get it and more importantly the job on the other side. That’s the big risk problem with the student loans, it’s not what degree they’re seeking it’s the failure rate. And of course outside of a handful of jobs the degree you get means nothing to the job you’re gonna get. In my software company we have people with degrees ranging from Russian Lit to geology and everything in between, there’s even a couple of guys with computer related degrees.
Really it’s a question of if student loans should exist or not. If you think they should then they need to be guaranteed, in order for that guarantee to mean anything then discharging them in bankruptcy must be at least very difficult. If the government is to step out entirely then student loans basically end.
No doubt quite a few of these are defacto loans on beer, cars, cycles,etc any way.
Spring break trips, the “in” style jeans, etc. I am sure it varies a great deal, but yes, I expect a good percentage of the “student loans” finance the lifestyle, not the education.
Do we really need more earth sciences or social justice majors?
Student debt is money given on the promise of future earnings, based on the value of the education received. I could only see it as dischargeable if the person were disbarred from ever working in the field they studied.
Otherwise, student loans would become pell grants for the unscrupulous.
Perhaps a minimum waiting period (say 8 years) before they became dischargeable would be a compromise.
It used to be getting pregnant before marriage was shameful as was sitting on welfare for years,too.
Maybe rather than to continue to play the game, feed the beast and incur more pointless debt, the yutes should find alternative ways of learning a marketable skill? (And yes, maybe I'm old fashioned and naive.)
IIRC, I think 0bama has recently proposed that all student loan debt be written off after 20 years or something like that.
in 1998 Congress changed the law so that government backed student loan could not be discharged at all and in 2005 this was extended to private student loans.
I would make a point to never hire anyone who had their student loans discharged.
Who knows what job they’ll get. A lot of companies that want employees with degrees don’t care what the actual degree is in, they want the proof that you can complete a long term task with no immediate or intermediate rewards.
A lot of student loans were bad loans to start.
Take away the greater powers to recover and they’re horrendous loans: people would simply go through bankruptcy instead of paying them off, then wait a few years before buying houses and going ahead with life as if nothing happened.
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