"3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it."
No, no, no, no. This penalizes the people who pay back their loans far too much. Who wouldn't just go into bankruptcy if they couldn't pay back the loan? Unlike other loans, the bank can't take your degree back. Interest rates will go up for everyone as it becomes a riskier loan. Suddenly people who had fully intended to pay the loan back will be crushed under higher interest rates.
Exactly the opposite is true. People who make their payments get low interest rates. People who don't, get higher rates. That's the way it works.
Think about cars. Car dealerships know almost anyone coming in the door can get approved, but only if they hold prices down at a reasonable level. Beyond that level, the banks won't loan the money because the loan isn't guaranteed to be paid back. There's no such mechanism in education, because loans can't be discharged and they're guaranteed by the government, so there's no reason for schools to sell their education for a reasonable price.
You misunderstand. If the rules are changed so that fewer people will have to repay, then people will take advantage of that -- and fewer loans will be repayed. This means that the banks lose money. For them to stay in business (or at least to be able to maintain their capitalization -- investors will flee if they can't make profits), they've got to pass those default costs on to the customers. Thus, all of us will pay a higher interest rate to make up the shortfall.
Aren't the rates set by the government? At the very least, there should be ways for some of it to be forgiven for specific reasons, health reason would be on top.
Also, there are some programs where people who work for the government can get loans forgiven after a set amount a years. Maybe a similar thing (through tax breaks) could be implemented to help employers pay student loans with the student.
But the best solution is by far reduction of tuition. I'm glad I went to school in Florida, tuition was very low for a state that isn't very egalitarian usually. Education is something I feel they are doing much better than others. I now live in Canada and I see American students come here because the out of country rates are cheaper than their in state rates. And I'm all for free markets and all but the reality is, education is far from a free market. Highly subsidized and yet they still charge crazy rates for tuition. Harvard is now cheaper than some states schools, that's ridiculous.
Aren't the rates set by the government? At the very least, there should be ways for some of it to be forgiven for specific reasons, health reason would be on top.
There are for at least some reasons. There are both student loan forbearance, deferrment, and forgiveness programs available. Deferrments seem relatively easy to get (I have one currently while I attend grad school).
Forgiveness programs seem very stringent and limited, but they do exist for certain forms of public service and for extreme hardship. There are deferrment and forbearance programs for temporary hardship though and income based repayment plans.
Well I was really referring to students who's parents are making less then 120k if I remember correctly, tuition is now waved. Effectively making it cheaper. I do not know how many percent of their student body fits this but those who's parent make more than this should in effect be able to afford the tuition rate.
Tuition may be waved, but cost of living expenses might actually be higher than tuition + living at a state university. Private universities charge a ton for housing + food.
Well, maybe they should make it so that degree can be legally reposessed by the bank - even if they can't resell it, that would still be a deterrent. Stating that you have a degree while you don't should be then treated like criminal fraud, and any future employer, seeing lack of degree would know to inquire about the details.
Now that I look at my plan, it looks rather evil. But I will publish it anyway, for the sake of discussion.
"Maybe they should make it so that degree can be legally reposessed by the bank ... and any future employer, seeing lack of degree would know to inquire about the details."
This wouldn't work. They can't repossess the knowledge in your head, or the fact that you did EARN a degree, even if you don't HAVE one. Employers are mainly interested in what people know and can do, not how their finances have been in the past (though that may come into play for questions of trust).
most employers don't go checking with your university, as it stands. i don't see why they'd be more interested in doing so under these circumstances. the piece of paper itself is rarely what matters; only what you learned getting it. and an employer that doesn't recognize that probably isn't worth working for.
Exactly. The ONLY plan worth taking would be graduate high school with no assets, take out a big student loan and live off that, graduate college, and file for bankruptcy. Tada, 4 years of your life absolutely free, and a degree they can't take away to boot.
I doubt the banks would give a loan to someone with no assets who could discharge the loan with little trouble 4 years later. In all likelihood, banks would require co-signing of loans with parents.
While this would definitely limit access to post secondary education, it might also have the benefit of causing people to a more honest evaluation of their education options.
This is not how bankruptcy works. When you declare bankruptcy, you have to propose a plan for repaying your creditors to the best of your ability, and that has to be approved by a court. You don't just fill out a form and file it at the local ATM; there are judges that exist to stop exactly this sort of mischief.
If your theory is true, it should apply to all unsecured creditors---especially credit cards. Why isn't it common practice to incur tens of thousands of dollars in credit card debt during college and then declare bankruptcy the day after graduation? Credit cards aren't secured debt---Chase has no legal right to repossess your Xbox. The answer is because this is the real world and that's not how the bankruptcy code works.
Comments
"3. College Loan Repayment Reform: If anyone files for bankruptcy, the student loan should go along with it."
No, no, no, no. This penalizes the people who pay back their loans far too much. Who wouldn't just go into bankruptcy if they couldn't pay back the loan? Unlike other loans, the bank can't take your degree back. Interest rates will go up for everyone as it becomes a riskier loan. Suddenly people who had fully intended to pay the loan back will be crushed under higher interest rates.
Exactly the opposite is true. People who make their payments get low interest rates. People who don't, get higher rates. That's the way it works.
Think about cars. Car dealerships know almost anyone coming in the door can get approved, but only if they hold prices down at a reasonable level. Beyond that level, the banks won't loan the money because the loan isn't guaranteed to be paid back. There's no such mechanism in education, because loans can't be discharged and they're guaranteed by the government, so there's no reason for schools to sell their education for a reasonable price.
You misunderstand. If the rules are changed so that fewer people will have to repay, then people will take advantage of that -- and fewer loans will be repayed. This means that the banks lose money. For them to stay in business (or at least to be able to maintain their capitalization -- investors will flee if they can't make profits), they've got to pass those default costs on to the customers. Thus, all of us will pay a higher interest rate to make up the shortfall.
That's not how it works.
My brother had a credit card number stolen 3 times, so he cancelled the card. BANG! 750 to 690.
So he said, well, if I reopen the card, will that fix things?
"Oh, god, don't do that! That'll be an even bigger hit!"
Aren't the rates set by the government? At the very least, there should be ways for some of it to be forgiven for specific reasons, health reason would be on top.
Also, there are some programs where people who work for the government can get loans forgiven after a set amount a years. Maybe a similar thing (through tax breaks) could be implemented to help employers pay student loans with the student.
But the best solution is by far reduction of tuition. I'm glad I went to school in Florida, tuition was very low for a state that isn't very egalitarian usually. Education is something I feel they are doing much better than others. I now live in Canada and I see American students come here because the out of country rates are cheaper than their in state rates. And I'm all for free markets and all but the reality is, education is far from a free market. Highly subsidized and yet they still charge crazy rates for tuition. Harvard is now cheaper than some states schools, that's ridiculous.
Aren't the rates set by the government? At the very least, there should be ways for some of it to be forgiven for specific reasons, health reason would be on top.
There are for at least some reasons. There are both student loan forbearance, deferrment, and forgiveness programs available. Deferrments seem relatively easy to get (I have one currently while I attend grad school).
Forgiveness programs seem very stringent and limited, but they do exist for certain forms of public service and for extreme hardship. There are deferrment and forbearance programs for temporary hardship though and income based repayment plans.
http://www.finaid.org/loans/ has more details.
> Harvard is now cheaper than some states schools, that's ridiculous.
Which schools would those be? And are you using out-of-state numbers?
Well I was really referring to students who's parents are making less then 120k if I remember correctly, tuition is now waved. Effectively making it cheaper. I do not know how many percent of their student body fits this but those who's parent make more than this should in effect be able to afford the tuition rate.
I meant it a tongue-in-cheek.
Tuition may be waved, but cost of living expenses might actually be higher than tuition + living at a state university. Private universities charge a ton for housing + food.
Well, maybe they should make it so that degree can be legally reposessed by the bank - even if they can't resell it, that would still be a deterrent. Stating that you have a degree while you don't should be then treated like criminal fraud, and any future employer, seeing lack of degree would know to inquire about the details.
Now that I look at my plan, it looks rather evil. But I will publish it anyway, for the sake of discussion.
"Maybe they should make it so that degree can be legally reposessed by the bank ... and any future employer, seeing lack of degree would know to inquire about the details."
This wouldn't work. They can't repossess the knowledge in your head, or the fact that you did EARN a degree, even if you don't HAVE one. Employers are mainly interested in what people know and can do, not how their finances have been in the past (though that may come into play for questions of trust).
most employers don't go checking with your university, as it stands. i don't see why they'd be more interested in doing so under these circumstances. the piece of paper itself is rarely what matters; only what you learned getting it. and an employer that doesn't recognize that probably isn't worth working for.
Exactly. The ONLY plan worth taking would be graduate high school with no assets, take out a big student loan and live off that, graduate college, and file for bankruptcy. Tada, 4 years of your life absolutely free, and a degree they can't take away to boot.
I doubt the banks would give a loan to someone with no assets who could discharge the loan with little trouble 4 years later. In all likelihood, banks would require co-signing of loans with parents.
While this would definitely limit access to post secondary education, it might also have the benefit of causing people to a more honest evaluation of their education options.
This is not how bankruptcy works. When you declare bankruptcy, you have to propose a plan for repaying your creditors to the best of your ability, and that has to be approved by a court. You don't just fill out a form and file it at the local ATM; there are judges that exist to stop exactly this sort of mischief.
If your theory is true, it should apply to all unsecured creditors---especially credit cards. Why isn't it common practice to incur tens of thousands of dollars in credit card debt during college and then declare bankruptcy the day after graduation? Credit cards aren't secured debt---Chase has no legal right to repossess your Xbox. The answer is because this is the real world and that's not how the bankruptcy code works.
Bankruptcy isn't exactly fun. You won't be living the high life afterwards.
You're in your early 20's fresh out of college. You wouldn't have been living the high life anyway.
And 7 years later all evidence of this is gone from your credit history.