Student loan bankruptcy

[LegendKiller]

And so it begins...


http://www.wsj.com/articles/white-h...options-for-student-loan-borrowers-1426004272

I predicted this over 4 years ago.

 

[Vic]

You can't get blood out of a turnip. At least creditors can get financial disclosure and a chance for court-ordered repayment through the bankruptcy process.
I don't think this is a big surprise either. At least one major bank has already divested the bulk of its student loan holdings.

 

[chucky2]

Maybe this will work out well long term LK? If students who are getting lent money for useless degrees get told No, because the lending institution deems them too high of a BK risk, perhaps less of them will take said useless degree? Also, if lending institutions are more at risk overall, even considering worthwhile degrees, perhaps they will lend out less. Less available quasi-"free" money available to young 18 year olds may mean these colleges/Uni's might have to start charging less.

 

[LegendKiller]

You can't get blood out of a turnip. At least creditors can get financial disclosure and a chance for court-ordered repayment through the bankruptcy process.
I don't think this is a big surprise either. At least one major bank has already divested the bulk of its student loan holdings.

They got rid of them because there's no money in them. The bulk of what has been sold has been FFELP loans. That was the joke about the FFELP program, the evil banksters were supposedly profiting so much. However, they weren't.

Trust me, this is a surprise to a lot of people on Wall St. I have had a lot of conversations in the last 3 years that went like this..."So what happens when the government broadens dischargability" and the response is like this "WHAT? THAT WILL NEVER HAPPEN!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! YOU'RE FUCKING CRAZY!!!!!!!!!!!!!!!!!!!!!!!!" I had one BAML douchenozzle say "Student loans bonds are all money good, senior, mezzanine, sub, last cashflow, residual, FFELP, private, refi, it is *all* money good because non-dischargability". I responded that it'll happen eventually and the guy looked at me like I was fucking nuts. He got so pissed at me he got up from dinner and took a "cool down" since I was the client.

Jackass.

 

[Hugo Drax]

I say treat a college loan like any other loan you would see tuition cost drop to more realistic numbers.

 

[Joepublic2]

Good. It's always delicious schadenfreude to see usurious bastards getting their shit kicked in. Debt that you can't discharge though bankruptcy shouldn't be possible in a supposedly free society.

 

[compuwiz1]

If someone is truly bankrupt, can't pay their bills, they have an opportunity for a fresh start. Can't do that if you can't include IRS and Student loans. Both should be able to be included. Some people suffer for years because of these burdens.

 

[Londo_Jowo]

So what type of bankruptcy? Chapter 7 or 13?

Will the bankruptcy affect the person's ability to secure a good job seeing that quite a few employers look at credit history when hiring.

 

[QuantumPion]

Maybe this will work out well long term LK? If students who are getting lent money for useless degrees get told No, because the lending institution deems them too high of a BK risk, perhaps less of them will take said useless degree? Also, if lending institutions are more at risk overall, even considering worthwhile degrees, perhaps they will lend out less. Less available quasi-"free" money available to young 18 year olds may mean these colleges/Uni's might have to start charging less.

Except the lending institution, i.e. the federal government, will never say no. The universities get all the free money they want, government officials get their kickbacks, and taxpayers are saddled with the debt. This will lead to even higher tuition costs and even higher interest rates for those who can pay them, and a free ride 8 year all-expenses paid party for the rest. If this ever goes through, making student loans easily discharged, it will be a disaster.

 

[QuantumPion]

I say treat a college loan like any other loan you would see tuition cost drop to more realistic numbers.

Probably. A student loan is basically an unsecured personal loan. Though the interest rate would be in the 15-30% range and they would not be granted without co-signers of someone with good credit rating and ability to repay. If the student majored in something dumb and can't get a job after graduating, the co-signer would be responsible for repayment.

This would make it tougher for lower class/first generation college students, they would pretty much have to go community college if they didn't get any scholarships or whatnot. On the other hand, this seems pretty reasonable to me. Higher education should be available for everyone. But that doesn't mean you have the right to go a private university to study art history on the tax payer's dime.

 

[s0me0nesmind1]

Student loan debt has officially passed _ALL_ credit card debt. This is a HUGE issue, and a completely insane move to EVER suggest allowing student loan debt to be discharge-able. The following will occur.

1) Think college is costly now? Think again. Tuition costs will be 10x the current price now to account for all of the people that will be manipulating the system to get rid of their $50k Art History / Psychology degrees.

2) Want to get extra student loans because you can't get any through the federal government? Too bad, you think banks are going to take that kind of risk? BWAHAHA

3) Think interest rates are high now? BOO HOO! They will need to skyrocket them to account for people discharging.

 

[halik]

And so it begins...


http://www.wsj.com/articles/white-h...options-for-student-loan-borrowers-1426004272

I predicted this over 4 years ago.

Obama buying votes, news at 6pm. Never gonna happen (on retroactive basis) because:
1) 2016
2) Congress
3) Strategic default as students have no assets

With my grad school loans at 6.8% I've already subsidized a score of humanities majors with absolutely no discernible skills. What we need is underwriting based on ability-to-repay, rather giving out money (bankruptcy) like it's candy.

 

[Greenman]

This will be the end of collage education for the poor. Those loans are what make a degree possible for many people, and the only reason they get them is that they can't be discharged in bankruptcy.

 

[PricklyPete]

Obama buying votes, news at 6pm. Never gonna happen because:
1) 2016
2) Congress
3) Strategic default as students have no assets

With my grad school loans at 6.8% I've already subsidized a score of humanities majors with absolutely no discernible skills. What we need is underwriting based on ability-to-repay, rather giving out money (bankruptcy) like it's candy.

Yikes... 6.8% seems like usury these days. I can't imagine the hole people are digging themselves into with useless degrees. Heck, even with useful degrees, people are still digging a hole.

My younger sister finished CRNA school a little over 2 years ago with 133k in debt. She felt overwhelmed. I advised her to buckle down and amazingly she will be paying off her loan this month (while she has been bankrolling her husband to go back to school and bought a car for cash). Very proud of her...but most people don't have her means or fortitude.

On the opposite side of the spectrum is her friends (who are married). They both went to CRNA school with my sister. Lived it up while in school. Came out with over $300k combined debt from CRNA school plus lingering debt from their nursing degree. Nearly $400k in student loan debt. They have barely made a dent in their loans since leaving school even though both make good salaries. They are roughly 10 years older than my sister, but that age certainly does not bring wisdom.

 

[Blackjack200]

My younger sister finished CRNA school a little over 2 years ago with 133k in debt. She felt overwhelmed. I advised her to buckle down and amazingly she will be paying off her loan this month (while she has been bankrolling her husband to go back to school and bought a car for cash). Very proud of her...but most people don't have her means or fortitude.

Just looke up what CRNA is, and now that makes sense. Not to minimize her accomplishment, but there's just no way you can ever pay a debt like that down so fast unless you're making some serious money.

 

[s0me0nesmind1]

Just looke up what CRNA is, and now that makes sense. Not to minimize her accomplishment, but there's just no way you can ever pay a debt like that down so fast unless you're making some serious money.

uhhhh that was the entire point of taking the debt in the first place. Getting paid a decent wage is a given if you invested your loan properly (IE: Chose the right major, worked hard to find a job, etc).

derp de derp.

 

[PricklyPete]

Just looke up what CRNA is, and now that makes sense. Not to minimize her accomplishment, but there's just no way you can ever pay a debt like that down so fast unless you're making some serious money.

Agreed, but my second anecdote was meant to show that even people with great degrees often make poor financial decisions and just live with this high financial burden. It also sets a precedent for just living life in debt.

 

[DrPizza]

With my grad school loans at 6.8% I've already subsidized a score of humanities majors with absolutely no discernible skills.

Then again, if you're in a certain variety of fields, equipment like scanning electron microscopes, linear accelerators, etc., - that equipment doesn't come cheap. I think it can be argued the other way as well - those history majors - they pay for heating in a room and for some history buff to stand in front of them and lecture them for a few hours. There's no equipment. Their tuitions are subsidizing the tuitions of the engineers, physicists, etc.

 

[fskimospy]

Yikes... 6.8% seems like usury these days. I can't imagine the hole people are digging themselves into with useless degrees. Heck, even with useful degrees, people are still digging a hole.

My younger sister finished CRNA school a little over 2 years ago with 133k in debt. She felt overwhelmed. I advised her to buckle down and amazingly she will be paying off her loan this month (while she has been bankrolling her husband to go back to school and bought a car for cash). Very proud of her...but most people don't have her means or fortitude.

On the opposite side of the spectrum is her friends (who are married). They both went to CRNA school with my sister. Lived it up while in school. Came out with over $300k combined debt from CRNA school plus lingering debt from their nursing degree. Nearly $400k in student loan debt. They have barely made a dent in their loans since leaving school even though both make good salaries. They are roughly 10 years older than my sister, but that age certainly does not bring wisdom.

People tend to grossly exaggerate the amount of loans people generally take out. Median student debt is about $30k and those with $100k or more are overwhelmingly concentrated in professional degrees.

Making loans dischargeable under certain circumstances is just common sense. Debt in large amounts that can never be discharged is ridiculous as a concept. That being said, student loans are simply unsecured loans, which aren't going to be offered at reasonable rates in those amounts.

This is why we should probably restore funding to public education, by the way.

 

[realibrad]

With a home loan, the house is the collateral for the loan. If you end up not able to pay the loan, the bank takes the house. That means the bank has an incentive not to give out loans that are worth more than the house. Banks may take a risk, if they think that the asset will eventually increase in value, or other factors, but the incentive is to make sure the asset is worth the loan.

Student loans work differently. You can get a loan for a degree that is BS, and will never give you a return. So much of what students pay for do not give them a greater ability to earn money. The reason a degree requires so many classes, is because its not the students money. If the bank giving the loan had the incentives like a home mortgage has, you would see far fewer loans, and the price of classes go down.

 

[QuantumPion]

People tend to grossly exaggerate the amount of loans people generally take out. Median student debt is about $30k and those with $100k or more are overwhelmingly concentrated in professional degrees.

Making loans dischargeable under certain circumstances is just common sense. Debt in large amounts that can never be discharged is ridiculous as a concept. That being said, student loans are simply unsecured loans, which aren't going to be offered at reasonable rates in those amounts.

This is why we should probably restore funding to public education, by the way.

It is not a rediculous concept at all. Without policies making student loans non-dischargeable, student loan interest rate would have to me much higher and large loans might be completely unavailable. This would prevent people from being able to get large loans for high-paying degrees like doctors, which are a highly desired and needed profession in society.

 

[K1052]

Then again, if you're in a certain variety of fields, equipment like scanning electron microscopes, linear accelerators, etc., - that equipment doesn't come cheap. I think it can be argued the other way as well - those history majors - they pay for heating in a room and for some history buff to stand in front of them and lecture them for a few hours. There's no equipment. Their tuitions are subsidizing the tuitions of the engineers, physicists, etc.

The arms race many colleges are engaged in with building ever more extravagant student amenities, athletic facilities, and other major capital projects of questionable need in the face of declining public funding has to stop.

 

[K1052]

This would prevent people from being able to get large loans for high-paying degrees like doctors, which are a highly desired and needed profession in society.

Or we could reform how medical education, training, and licensing works instead of forcing those people into ever larger piles of debt for no reason whatsoever. Just an idea.

 

[fskimospy]

It is not a rediculous concept at all. Without policies making student loans non-dischargeable, student loan interest rate would have to me much higher and large loans might be completely unavailable. This would prevent people from being able to get large loans for high-paying degrees like doctors, which are a highly desired and needed profession in society.

Of course it's a ridiculous concept. Allowing 18 year olds to go several hundred thousands of dollars into non-dischargeable debt is a pretty obviously silly idea. If we need more people to become doctors there are many ways to do that other than by this mechanism, so of course it wouldn't prevent people from doing that.

I personally think that high amount, undischargeable, unsecured loans to 18 year olds is generally a bad policy idea. Your mileage may vary.

 

[fskimospy]

The arms race many colleges are engaged in with building ever more extravagant student amenities, athletic facilities, and other major capital projects of questionable need in the face of declining public funding has to stop.

It really depends on the type of university. This is a pretty fantastic breakdown:

http://www.washingtonpost.com/blogs...part-iii-the-three-reasons-tuition-is-rising/

Basically, community college and non-research public universities have mostly increased tuition because of plummeting state funding. Their actual spending has stayed about the same.

The prestigious public research universities and private universities are going nuts on vanity projects like you mentioned though.