Posted on 06/25/2014 6:45:30 AM PDT by SeekAndFind
[SNIP]
We allow people to declare bankruptcy in acknowledgment that letting people escape from debt they cannot repay is a beneficial policy for both society and the economy. To exempt a particular type of debt—for an activity society should very much like to encourage—belies the very reason for a bankruptcy law in the first place.
Lending a student $60,000 to attend a private school he may have little chance of graduating from is not terribly different than the mortgage lenders who gave imprudent loans to people buying homes they could not really afford.
[SNIP]
If we are concerned that allowing students to escape student debt via bankruptcy might open up the college loan market to the same moral hazard problems that befell the mortgage market and will leave the government on the hook, we could make the institution of higher learning assume their loan payments after a bankruptcy. That might make schools think twice before they admit a marginal prospect and charge them thousands of dollars for an education that might not do them much good, and it might make students think twice about disdaining lower-price options, such as the junior college near their home.
One thing is certain: The Obama administration’s recently announced plan to limit loan payments to 10 percent of income for 20 years (or, for people who work in a “public service” job, 10 years), to punish schools with high default rates, and to allow students with high student debt to refinance at low rates, is a costly palliative that ignores the fundamental economic issue at hand. Namely, most of the billions of dollars loaned to college students each year goes to the schools in the form of higher tuition.
(Excerpt) Read more at weeklystandard.com ...
oh... now maybe I see the incentive for excluding student loans from bankruptcy discharge.
It’s right there in the article - if the lenders have a chance of NOT being paid back, they very well might not offer the loans in the first place,
and the goal is to give these loans out to as many people, regardless of college aptitude, as possible.
“letting people escape from debt they cannot repay is a beneficial policy for both society and the economy”
So how is that society and economy doing lately?
This system needs MAJOR reform. The Constitution permits bankruptcy. Congress should not limit it for student loans.
Obozo can just wipe it out with his EO’s......................
The taxpayers can pick it up.
“and the goal is to give these loans out to as many people, regardless of college aptitude, as possible.”
Apparently you missed the part about having the school pick up payment of the loan which would make them reluctant to admit as many people, regardless of college aptitude, as possible.
Have the school co-sign the loan. If the student cannot get a job with the education given, the school eats the loan.
With this one change, schools will be more selective about letting in students who are unlikely to graduate, and will drop majors and courses that do not have a good track record of preparing students for the real world.
No need for due-diligence if the taxpayers are going to pick up any defaults.
And how quickly would that policy last if it results in different races, sexes or majors getting different financial aid? "I'm sorry, but you maximum student loan for Afro-lesbian studies is 12¢."
we could make the institution of higher learning assume their loan payments after a bankruptcy..
Sounds like a good idea, but as most colleges are public schools, wouldn’t it shift their default costs to State taxpayers?
Cheap money in the form of easy loans has flooded our universities. The natural result is that prices have sky-rocketed. The student loan bubble parallels the housing bubble of a few years ago... and it’s going to pop.
Eliminate federal student loans and prices will come down drastically. Universities will have to lay off the thousands of extra administrators that they’ve hired, but I think we can survive without a “Dean of Diversity” or two.
Another solution would be on-line education. You could watch streamed lectures from Harvard or Yale, and take tests on-line, no need for expensive infrastructure or overhead. The price could be relatively cheap.
You have to consider the incentives.
Whoever is stuck holding the bag must be the ones that decide whether the person gets the loan or not, or you get skewing of the process and people paying for the stupid decisions of others.
The criteria would be stricter if the ultimate underwriter set them.
But, of course, you’d see “disparate impact” if this were to be the standard practice.
The bankruptcy code in this instance should be rolled back to pre-1998 law. 11 U.S.C. 523(a)(8) provided that student loans could be discharged after 7 years of repayment.
If you are concerned about non-dischargeability, don’t take the loan.
The faux grandeur building boom on even mid to lower tier state college campuses has been breathtaking. Too much money sloshing around entirely. I barely even recognize my former college campus, the student housing is verging upon luxury accommodations. When I was there it was two to a room that was at best 20’ x 20’ with painted cinderblock walls, no A/C and boiler heat that took forever to kick in, freezing you with the first cold snap, and baking you with periodic warm spells to the point of throwing all the windows open. The whole thing has gotten ridiculously gold-plated and I don’t see it as being sustainable given the employment prospects of students graduating since 2008. The cycle of easy money is going to be broken one way or the other. People with college age kids in my acquaintance are refusing to turn them into indentured servants to a six figure loan, that’s no way to start out in life. They’re sending them to community college for two years then transferring credits to an in-state university to finish out a four year degree for half the cost. No loans.
I call BS on this. Unless something has changed in the past decade, there are countless ways to either set up periods of waived or lowering payments due to hardship. I did this several times while paying my loans back. If those options have been removed, it should be reinstated, but letting people rack up whatever debt they want in student loans no matter what they study or how much they borrow, and then allowing them to simply screw the lender is just not a good idea. The interest rates are typically the lowest of any loan out there (unsecured), and the options for hardship are better than any other loan it there.
If anything needs to happen to reform, loans should be limited to majors with actual earning power....business, education, engineering, etc. Limit to ‘manufactured’ major that have little to no earning power.
I had a rather interesting conversation with a medical student a few weeks ago. He took two years at a local community college before transferring to the University of Iowa, only to find that his credits would not transfer. This was for prerequisites, not core classes when he was getting his BS in engineering.
So it took him two extra years, even though the community college and Iowa had told him that the credits would transfer. Heard the same from a few friends with college age kids. Don’t know how wide spread it is, but I do know that the schools have a vested interest in no accepting transfer credits.
There are no lenders. The Federal Government originates and handles all Student Loans now. There are no private lenders anymore.
The feral government is basically running a loan-sharking operation to snare know-nothing 18-years olds.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.