Should student loans be dischargeable in bankruptcy? (dollars, financial, education)

[mattywo85]

Should student loans, specifically private loans, be dischargeable...partially or fully? Why or why not? How does it differ from credit cards, mortgages, medical bills, etc? Lets hear some opinions.

[dude1984]

Should they be...yes.
Will they be...no.

At a minimum, I think that interest should be stopped if a person is having a problem paying off their loans.

[tablemtn]

Non-dischargeability has been a dumb policy. It only came into effect for private student loans in 2005, and because of that, an increasingly enormous debt bubble has developed, and now surpasses a trillion dollars.

When you remove all risk from lenders, lenders tend to take irrational risks. Colleges cooperate in this scam by raising tuition far beyond what a normal debt market would bear.

[WyoNewk]

That makes sense, tablemtn. On the other hand, many new grads would have little to lose by filing bankruptcy. There should probably be some compromise so they can't just walk away from $100K in loans.

[TKramar]

What the bank making the loan needs to do is guarantee the borrower that the education will get them a job that will allow them to repay the loan.

Going to college for four years just to work at McDonald's isn't a good outcome for the bank lending the money.

Did we ever have debtor's prisons here in the U.S.? I know some other countries had tried that.

Also, if they simply provided the education for free, loans wouldn't be an issue.

[tablemtn]

On the other hand, many new grads would have little to lose by filing bankruptcy. There should probably be some compromise so they can't just walk away from $100K in loans.

Certainly. There were several protections under the old system having to do with waiting period requirements and "balloon" provisions (eg, if you suddenly stumble across a large sum of money within a few years, part of it goes to debt payment).

The problem with creating "zombie" debt that never dies is that it also never stops accumulating interest, which means it isn't necessarily designed to even be payable at all. Instead, it serves as more of a long-term revenue stream for whoever has the garnishment rights (and those rights can be sold and traded like financial instruments).

[texdav]

No because otherwsise there wil be no student loans avialable.Because no one would make the loans without that provision. The risk wouod not justify the loan.

[tablemtn]

There were plenty of private loans available before 2005.

[Mathguy]

If they were dischargeable then people age 22 with 150k in debt would declare bankruptcy and once they were 29 it would all be cleared off and it would have barely impacted them.

I'd like to see a hybrid system where people actually have to sit down with a financial analyst and be told that graduating with 200k in debt and a degree paying 50k a year will mean working a 2nd job for 15 years.

I think that some sort of mandatory education should be involved before getting a federally backed loan like that....but since all that info is already out there and people don't do basic homework for huge life altering decisions (like with home mortgages) the morons would likely sit there texting through the whole class. Like OMG!!!! sigh.

[StarryEyedSurprise]

Originally Posted by Mathguy

If they were dischargeable then people age 22 with 150k in debt would declare bankruptcy and once they were 29 it would all be cleared off and it would have barely impacted them.

I'd like to see a hybrid system where people actually have to sit down with a financial analyst and be told that graduating with 200k in debt and a degree paying 50k a year will mean working a 2nd job for 15 years.

I think that some sort of mandatory education should be involved before getting a federally backed loan like that....but since all that info is already out there and people don't do basic homework for huge life altering decisions (like with home mortgages) the morons would likely sit there texting through the whole class. Like OMG!!!! sigh.

Great post.

I do think that some sort of reality check would be welcomed. My mother handled most of my loan paperwork, and I concentrated more on college than how I would pay for it. I now pay $1000 per month for at least the next ten years (and have been paying for a while as well), and I'm not even done with my master's. This is AFTER paying my private loans in entirety. Interest adds up, especially when you need to defer when you are out of work.