Here's a revolutionary idea: let's make bankruptcy easier.
I've paid more than I borrowed, and I still owe more than I've paid. I have dozens of thousands of dollars in student loan debt, and I'm on the doorstep of defaulting on some of it.
Mark Cuban's right. The money is insanely easy for everyone to get. Sallie Mae, AES, and the rest are happy to give students money. Colleges are happy to take money from students, and pass or fail (I failed), bad situation or not, the guarantors will get their money from the student. Legally, you can't escape that loan via bankruptcy. The guarantor can even garnish your wages.
I don't WANT to support bankruptcy. I certainly didn't think I'd be in the situation to have looked into it when I took that first loan out in 2002. But a funny thing happened on October 17, 2005. On that date, all federal student loans, even private ones, became effectively immune to dismissal via bankruptcy.
Now, the law still says "excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents", but call a lawyer. They will tell you, flatly, "you can't dismiss any federal student loan debt through bankruptcy." Not "it's hard", but "you can't". (Seriously, call one up for free and ask if they handle bankruptcy cases with large amounts of student loan debt.)
As it is, currently the only loser in the system is the borrower. The school gets their money up front, the lender gets theirs from the guarantor, and the guarantor gets theirs from the borrower, even when it's blood from a stone.
1/5th of students default on their debt. That's not even counting those that make payments, but are barely getting by. Let people get out from their student loan debt, and, well, I'm not talking about dumping a trillion dollars into the economy. But many people who can barely make rent (or those like me who can't), are suddenly covered. I'm off couches and renting an apartment. People in apartments are buying homes. People scraping buy are making leisure purchases.
So when this debt is dismissed from your balance sheet who repay's the lender?
Apart of the reason of the low cost to borrow for student loans is baked in the non-dismissal of the debt. It lowers counter-party risk for the lender therefore they will give a lower rate to the borrower.
If you allow student loan debt to be dismissed with bankruptcy then you increase counter-party risk and increase the cost of those loans originally.
No one? (Or the guarantor, who then isn't paid back.) That's what I meant by "bankruptcy." Maybe, if they had "skin in the game", they'd be more inclined to be more responsible in their lending.
Or maybe the answer comes in capping the amount that can be paid back on amounts given, so that after paying for $x for $y borrowed, or paying for Z years, it doesn't matter how much you have left (thanks to compound interest), the debt is considered "paid".
Either way, loans will be harder to get, yes. Fewer people will be able to afford school at its current prices. Schools will have to make a choice of cutting back significantly, or trying to cater to those students who can't afford loans that would have paid for Ivy league schools. Community colleges will have to be community colleges again, vocational schools vocational.
I do know that currently, schools don't care where the money comes from, and lenders (and guarantors) don't really care where it goes to, and each loan that is too much for the borrower to pay back essentially becomes a money printing press. We keep paying, and many keep going further in debt to them.
Our system now can not last forever. A quick Google tells me that in the past 35 years, tuition has risen >900%. That number will continue to balloon as large as possible, until there is reason for it to stop. Maybe those alternative education models Cuban mentions vaguely (we probably know well what we means), but maybe this is what changes it. Allowing bankruptcy.
As long as possible, schools will continue to take as much money as they can get, to offer more, and bigger. And so far, lenders/guarantors seem content to let every person take that loan, and put a noose around their necks, as we've been told since we were children "go to school, do well, go to college, do well, you will do well in life". And as much as people here may value independent drive and self-teaching, I think we can agree that "the system" very much encourages people to attempt a college degree.
At least when the multi-billion dollar banks got into trouble, they had two options: go bankrupt and strike a deal with those they owed, or get bailed out. People only have one, "keep paying." And at some point, that just becomes indentured servitude.
I've paid more than I borrowed, and I still owe more than I've paid. I have dozens of thousands of dollars in student loan debt, and I'm on the doorstep of defaulting on some of it.
Mark Cuban's right. The money is insanely easy for everyone to get. Sallie Mae, AES, and the rest are happy to give students money. Colleges are happy to take money from students, and pass or fail (I failed), bad situation or not, the guarantors will get their money from the student. Legally, you can't escape that loan via bankruptcy. The guarantor can even garnish your wages.
I don't WANT to support bankruptcy. I certainly didn't think I'd be in the situation to have looked into it when I took that first loan out in 2002. But a funny thing happened on October 17, 2005. On that date, all federal student loans, even private ones, became effectively immune to dismissal via bankruptcy.
Now, the law still says "excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents", but call a lawyer. They will tell you, flatly, "you can't dismiss any federal student loan debt through bankruptcy." Not "it's hard", but "you can't". (Seriously, call one up for free and ask if they handle bankruptcy cases with large amounts of student loan debt.)
As it is, currently the only loser in the system is the borrower. The school gets their money up front, the lender gets theirs from the guarantor, and the guarantor gets theirs from the borrower, even when it's blood from a stone.
1/5th of students default on their debt. That's not even counting those that make payments, but are barely getting by. Let people get out from their student loan debt, and, well, I'm not talking about dumping a trillion dollars into the economy. But many people who can barely make rent (or those like me who can't), are suddenly covered. I'm off couches and renting an apartment. People in apartments are buying homes. People scraping buy are making leisure purchases.