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Because every student with a loan would simply declare bankruptcy immediately after completing college to avoid paying their loans and the taxpayers and private lenders would be left holding the bag. A better solution would be to base student loans on the earning potential of the degree they are studying for and the likelihood of their actually getting a job once they finished.
Because every student with a loan would simply declare bankruptcy immediately after completing college to avoid paying their loans and the taxpayers and private lenders would be left holding the bag. A better solution would be to base student loans on the earning potential of the degree they are studying for and the likelihood of their actually getting a job once they finished.
Can't you say the same thing about a person taking out a line of credit for a home or a business owner taking out credit for their shop? In other words, you say a student would likely do this after graduation. Why doesn't a person do it with their mortgage after they get their home? Are there safeguards in place? Why can't they also be created for student loans?
What I'm trying to figure out is what makes the two seemingly similar scenarios different. However, your latter point is also interesting as well. That's something to be considered for future students, but not people already graduated from college.
Can't you say the same thing about a person taking out a line of credit for a home or a business owner taking out credit for their shop? In other words, you say a student would likely do this after graduation. Why doesn't a person do it with their mortgage after they get their home? Are there safeguards in place? Why can't they also be created for student loans?
What I'm trying to figure out is what makes the two seemingly similar scenarios different. However, your latter point is also interesting as well. That's something to be considered for future students, but not people already graduated from college.
Because those loans are secured by an asset of some kind. You lose your home, or you lose your business. Same thing with a car loan. This has 2 effects. IT lowers the likelihood of someone filing bankruptcy as they have "skin in the game" and an asset they don't want to lose. It also allows the bank to offer lower interest rates because they have easily accessible collateral if the borrower defaults.
Consumer loans that are not secured by an asset that are dischargeable (credit cards) feature absurdly high interest rates. That is what will happen to student loans if they are allowed to be discharged in bankruptcy. Most private lenders will just get out of the business altogether, and the ones that are left will charge ridiculous interest rates. The government will probably become the only lender available.
Can't you say the same thing about a person taking out a line of credit for a home or a business owner taking out credit for their shop? In other words, you say a student would likely do this after graduation. Why doesn't a person do it with their mortgage after they get their home? Are there safeguards in place? Why can't they also be created for student loans?
What I'm trying to figure out is what makes the two seemingly similar scenarios different. However, your latter point is also interesting as well. That's something to be considered for future students, but not people already graduated from college.
Because the bank would simply liquidate your home or business. Graduates of school have no assets to liquidate. If you declare bankruptcy with a home or a business they will simply liquidate that to help pay off your remaining loans.
If you allowed for bankruptcy of student loans it would be a lot harder to qualify for them. Think about a 17 year old qualifying for a car loan. How often do you think that happens without a parent or someone like a parent co-signing the loan?
Bottom line the first person does not have assets, so there is nothing that can be taken from them for declaring bankruptcy. The second person has a good amount of assets which would deter that person from declaring bankruptcy.
And if so, do you believe that bankruptcy is right in any matter (business debt, personal debt, etc.)? If so, why that and not student loans?
I have not heard many arguments for this and am interested in hearing some.
Because they are issued by the government (mostly) with none of the requirements that are usually attached to the issuance of credit (income, pre existing debt, etc).
However, I agree that bankruptcy should be extremely difficult to have approved... Then again, banks and other lenders choose who to loan to, and what risk they are taking.
Because every student with a loan would simply declare bankruptcy immediately after completing college to avoid paying their loans and the taxpayers and private lenders would be left holding the bag. A better solution would be to base student loans on the earning potential of the degree they are studying for and the likelihood of their actually getting a job once they finished.
quit inserting common sense into the equation...........
Because those loans are secured by an asset of some kind. You lose your home, or you lose your business. Same thing with a car loan. This has 2 effects. IT lowers the likelihood of someone filing bankruptcy as they have "skin in the game" and an asset they don't want to lose. It also allows the bank to offer lower interest rates because they have easily accessible collateral if the borrower defaults.
Consumer loans that are not secured by an asset that are dischargeable (credit cards) feature absurdly high interest rates. That is what will happen to student loans if they are allowed to be discharged in bankruptcy. Most private lenders will just get out of the business altogether, and the ones that are left will charge ridiculous interest rates. The government will probably become the only lender available.
Ok, that makes sense.
But your second point could still apply to student loans. It might help to discourage some of the reckless borrowing/loaning as well. Honestly, I think it'd be better if there were fewer hands in the proverbial student loan cookie jar as it is. I know it'd probably tighten up the ability to get access to money to pay for your college. But what's better? Delaying your ability to procure a degree or getting it quickly but being in inescapable debt for the next 10, 15, 20 years of your life? The problem is that people are taking out loans that in no way can secure a promising future for them despite what you major in. It's extremely risky for the borrower, but extremely safe for the lender. I think the risk needs to be allocated more evenly to prevent predatory lending practices.
Or even as Chaofan said: A better solution would be to base student loans on the earning potential of the degree they are studying for and the likelihood of their actually getting a job once they finished.
But your second point could still apply to student loans. It might help to discourage some of the reckless borrowing/loaning as well. Honestly, I think it'd be better if there were fewer hands in the proverbial student loan cookie jar as it is. People are taking out loans that in no way can secure a promising future for them despite what you major in. It's extremely risky for the borrower, but extremely safe for the lender. I think the risk needs to be allocated more evenly to prevent predatory lending practices.
Or even as Chaofan said: A better solution would be to base student loans on the earning potential of the degree they are studying for and the likelihood of their actually getting a job once they finished.
It's not perfect, but it's better than nothing.
Well now you get politics and entrenched interests, the elephant in the room of American policy. Let's say students loans were like credit cards and charged 20% interest. A lot of students will not be able to afford that, so IF tuition stays where it is, then a lot of students won't be able to go to college. So you will have poor people and probably a lot of minorities angry about lack of access to higher education. That's politics.
Let's say tuition dropped to accommodate the higher interest rates. This will mean universities (which have basically become a massive industry) will need to lay off scores of staff, professors, etc. These are the entrenched interests.
Ideally, my opinion is a combination of all these things need to happen. Student loan interest SHOULD rise to "market" rates, a part of the underwriting process should incorporate a student's major and earning potential, and these loans should be allowed to be discharged in bankruptcy. This will favor the student, the country at large, and really only hurt the bloated administration of universities.
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