Student loans to gain bankruptcy protection?

[Pelado]

Yes, it seems that Obama is going to make this a big issue...

[YOUTUBE]wfG3fAWhFxY[/YOUTUBE]

He may not get the votes he is hoping for...

So it's an ad focusing in on Romney's fiscal responsibility? Real smart for an Obama SuperPAC.

[Lost Student]

So it's an ad focusing in on Romney's fiscal responsibility? Real smart for an Obama SuperPAC.

There's not really anything in that ad that makes me not want to vote for Romney. It will probably resonate with a lot of people broke recent graduates, though.

[Joe Public]

It's got electrolytes!

[Jacob]

There's not really anything in that ad that makes me not want to vote for Romney. It will probably resonate with a lot of people broke recent graduates, though.

Every Romney statement in that video makes me MORE likely to vote for him.

[Surfah]

He's making gobs of money working on a cruise ship and banging hot chicks all over the world.

Probably not. But maybe.

[frankR]

Bankruptcy protection for student loans??? That might be great!! This possibly answers the latest released survey (Student loans becoming a major contributing factor to bankruptcy) that is quite alarming. This would be of big help to those who really want to pursue their studies but don't have financial capability to do so, thus, fully rely on financial supports in any form.

[Color Me Badd Fan]

http://www.nypost.com/p/news/opinion...lPkpAWOllC7MPI

I think this is a good article.

[Paperback Writer]

http://www.nypost.com/p/news/opinion...lPkpAWOllC7MPI

I think this is a good article.

Interesting premise. Force the colleges to have some "skin in game" with student loan defaults. But I'm not sure I agree - but still contemplating. Who's responsible for a bad loan? The lender or borrower? It could get interesting if colleges shared the risk of loan default. For instance, a college could approve a student loan if a student declares an Engineering major but not an English major. Ties into the liberal arts thread.

[Color Me Badd Fan]

Interesting premise. Force the colleges to have some "skin in game" with student loan defaults. But I'm not sure I agree - but still contemplating. Who's responsible for a bad loan? The lender or borrower? It could get interesting if colleges shared the risk of loan default. For instance, a college could approve a student loan if a student declares an Engineering major but not an English major. Ties into the liberal arts thread.

They should both be responsible for the bad loan. In order to make loans cheap, they made them non-dischargeable in bankruptcy. In response, colleges have hiked up tuition to astronomical levels. Students save on the interest, but any savings is more than taken away by increased principal.

Then you hear stories about some of the UC schools either axing or consolidating engineering programs while the "diversity" administrators bureaucracy remains sacrosanct. This is the kind of stuff that happens when something is completely removed from market forces.

[Pheidippides]

Interesting premise. Force the colleges to have some "skin in game" with student loan defaults. But I'm not sure I agree - but still contemplating. Who's responsible for a bad loan? The lender or borrower? It could get interesting if colleges shared the risk of loan default. For instance, a college could approve a student loan if a student declares an Engineering major but not an English major. Ties into the liberal arts thread.

I will confess I'm not totally familiar with the precise mechanics of student loans, but generally my understanding is that the majority of them are really private loans with what is in effect a federal government guarantee with special interest rate conditions (the rate being set as low as possible and getting enough banks to meet demand).

Almost certainly the cost of a private unsecured loan to finance education would be much higher. I know my private loans are higher rate loans, although still far lower than they should be.

If you are a company with no credit rating (not bad - just no rating) but with the ability to show cash flow you can get financed typically. But you are going to pay north of 10% interest right now, and be subject to a lot of restrictions. Why is it, then, that a grad student can, with no assets and no cash flow, get a private loan at prime +3% or so?

The answer is bankruptcy protection for the lender. The only real way to discharge a student loan is to die. So lenders are confident they will get theirs over the lifetime of a borrower because that obligation doesn't go away.

If you remove that, I guaran-damn-tee you you're going to see a couple of things happen. First, you're going to see scrutiny on expected salary out of school in your program. So you French Poetry Phd wannabes are screwed. Second, and related to this, you're going to see scrutiny on school. A kid going to Harvard law is going to get better rates than a kid going to Fordham law, for example. Speaking of non-federally guaranteed loans here.

The other thing you will see is huge downward pressure on grad school tuition in at least some fields. Law schools are run as a profit center at most schools. Everybody knows this. When I graduated, my tuition only was 35k a year. It's now over 50. I haven't done the math, but that's silly. Now, given what salaries did over that time its not surprising; as long as you have the ability to float your earnings for three years with loans schools are going to charge as much as you can service in debt afterwards. Or more in very many cases. But if easy cheap financing drys up, tuition dries up too. And that in turn hurts other area of the school.

Just some back of the napkin thoughts. I have to think through the financing aspect more to really have a sense.

[Katy Lied]

(Student loans becoming a major contributing factor to bankruptcy) that is quite alarming.

This article doesn't make sense. If you can't discharge a student loan through bankruptcy, then why declare bankruptcy?

Unless... students are wracking up huge amounts of easy credit card debt after graduating, and then defaulting on their loans for their Ikea furniture and their Rush albums.

It doesn't sound so sympathetic when you mention the consumer debt.

[Pheidippides]

This article doesn't make sense. If you can't discharge a student loan through bankruptcy, then why declare bankruptcy?

Unless... students are wracking up huge amounts of easy credit card debt after graduating, and then defaulting on their loans for their Ikea furniture and their Rush albums.

It doesn't sound so sympathetic when you mention the consumer debt.

Indeed.

I would like to know how many people actually do the math before they incur the debt. I know I did. I know a lot of people who did not.

[doctorcoug]

Indeed.

I would like to know how many people actually do the math before they incur the debt. I know I did. I know a lot of people who did not.

I went in with my eyes wide open. This IBR was mana from heaven, truly a gift from the distribution of wealth gods. Funny that it came from the Bush era.

One of my napkin predictions is that if we do this, lots of doctors will declare bankruptcy after school because the costs of 7 years of bad credit are far outweighed by the benefits, especially when you aren't totally dying for credit to stay alive because you make 6 figures. Similar to what you stated, medicine becomes a field that only the rich can enter.

[Color Me Badd Fan]

I will confess I'm not totally familiar with the precise mechanics of student loans, but generally my understanding is that the majority of them are really private loans with what is in effect a federal government guarantee with special interest rate conditions (the rate being set as low as possible and getting enough banks to meet demand).

Almost certainly the cost of a private unsecured loan to finance education would be much higher. I know my private loans are higher rate loans, although still far lower than they should be.

If you are a company with no credit rating (not bad - just no rating) but with the ability to show cash flow you can get financed typically. But you are going to pay north of 10% interest right now, and be subject to a lot of restrictions. Why is it, then, that a grad student can, with no assets and no cash flow, get a private loan at prime +3% or so?

The answer is bankruptcy protection for the lender. The only real way to discharge a student loan is to die. So lenders are confident they will get theirs over the lifetime of a borrower because that obligation doesn't go away.

If you remove that, I guaran-damn-tee you you're going to see a couple of things happen. First, you're going to see scrutiny on expected salary out of school in your program. So you French Poetry Phd wannabes are screwed. Second, and related to this, you're going to see scrutiny on school. A kid going to Harvard law is going to get better rates than a kid going to Fordham law, for example. Speaking of non-federally guaranteed loans here.

The other thing you will see is huge downward pressure on grad school tuition in at least some fields. Law schools are run as a profit center at most schools. Everybody knows this. When I graduated, my tuition only was 35k a year. It's now over 50. I haven't done the math, but that's silly. Now, given what salaries did over that time its not surprising; as long as you have the ability to float your earnings for three years with loans schools are going to charge as much as you can service in debt afterwards. Or more in very many cases. But if easy cheap financing drys up, tuition dries up too. And that in turn hurts other area of the school.

Just some back of the napkin thoughts. I have to think through the financing aspect more to really have a sense.

And there are areas of schools that need to hurt. There are majors, programs and administrators at schools that are the equivalent of spec home neighborhoods in Victorville, California. When the bubble pops, they need to be razed.

The alternative is what we currently have, which are people being shackled with, sometimes, hundreds of thousands of dollars of non-dischargeable debt and a degree that doesn't help them pay off that debt. It destroys their ability to buy a home, participate in the economy or to financially provide for children -- so they put off having children.

[old_gregg]

I went in with my eyes wide open. This IBR was mana from heaven, truly a gift from the distribution of wealth gods. Funny that it came from the Bush era.

One of my napkin predictions is that if we do this, lots of doctors will declare bankruptcy after school because the costs of 7 years of bad credit are far outweighed by the benefits, especially when you aren't totally dying for credit to stay alive because you make 6 figures. Similar to what you stated, medicine becomes a field that only the rich can enter.

i don't think that someone making 6 figures will pass the means test required for a ch 7