Cancel student loan debt?

[Emily's Cat]

Guy goes to the bank to get a small business loan. He's got an idea for a do-it-yourself bakery, where he supplies the ingredients, the bowls, the ovens, and the instructions, and people can come bake their own cookies and whatnot. He manages to sell the bank on that idea, so they loan him $100K to start it up.

Guy spends that money to get up and running... but the idea just doesn't take off. People don't seem all that interested in traveling to his shop to do something they can do in their own homes just as easily. Guy's business goes bust.

He goes back to the bank and says "That didn't work out, and I can't pay the loan back".

Is it reasonable for the bank to say "Oh, it didn't turn out the way you thought it would, so you don't have to pay back the money you borrowed. It's okay, we forgive the loan"?

 

[Emily's Cat]

If they cannot demonstrate the value of their degrees, how do colleges justify the prices they charge for them?

They don't justify it. I suspect it's a form of moral hazard at play. Because student loans are so ubiquitous and easy to get, there's no need for colleges to keep their prices down. They can raise their prices so that they make more, because it (theoretically) doesn't harm the direct consumer of their service, since that person (the student) isn't the one footing the bill (much of the time).

FWIW, the same thing happens in health care. Because health insurance exists, there's a disconnect between the supplier of the good (the health provider) and the consumer of the good (the patient). The existence of a middleman, especially when the real cost of the service is pooled and transformed for the consumer, creates a moral hazard for the supplier to increase their costs. The consumer is sheltered from the real cost of the good.

 

[Emily's Cat]

I know it is. Just paying my in state public tuition was a struggle for me. Who am I kidding. Paying my rent while I was in college was a struggle. I was always working at least 30 hours a week and going to school at the same time.

Really was the hardest time of my life.

Yep. State school, student loans, working nearly full time while going to school, and still living off of ramen and spaghetti. Left school with $65K in debt, which took me 20 years to pay off.

 

[Dr. Keith]

Guy goes to the bank to get a small business loan. He's got an idea for a do-it-yourself bakery, where he supplies the ingredients, the bowls, the ovens, and the instructions, and people can come bake their own cookies and whatnot. He manages to sell the bank on that idea, so they loan him $100K to start it up.

Guy spends that money to get up and running... but the idea just doesn't take off. People don't seem all that interested in traveling to his shop to do something they can do in their own homes just as easily. Guy's business goes bust.

He goes back to the bank and says "That didn't work out, and I can't pay the loan back".

Is it reasonable for the bank to say "Oh, it didn't turn out the way you thought it would, so you don't have to pay back the money you borrowed. It's okay, we forgive the loan"?

Guy can pretty easily sell the assets he acquired for the business to pay an attorney to take him through bankruptcy and get rid of the loan. His credit takes a hit.

It is less easy for a student with no assets or income to do the same. Lightly used degrees don't catch nearly as many bids at auction as lightly used ovens.

 

[Emily's Cat]

And that holds true for some degree tracks at some Universities and Colleges.

Some colleges/Unis are not elite overall but have specific programs and degree tracks that are. Students in those tracks tend to have high dropout rates - but those who make it through are recognized for having the right degree from the right place for that field of study. The dropout rate can actually be part of the allure, as it signals difficulty.

The matriculation rate for am actuarial fellow is something like 36% of those who begin taking exams. I think it's around 50% for an associate.

 

[Emily's Cat]

Stop putting the blame for this on the students seeking an education, instead of the financial institutions preying on them. Just as broke students defaulting was a problem that needed a solution beyond the typical rules, so too does runaway cost inflation buoyed by debts that can't be wiped through bankruptcy.

The solution's simple: wipe existing debt, and going forward allow for bankruptcy to default on student loans after 10 years or another reasonable time limit.

Maybe the kids should have known better than to let things get this out of control, but the banks definitely should have. If their parasitic asses fold, they fold. **** 'em. Let a more responsible company pick through their corpse.

You know that in this case, the "parasitic bank" is the federal government, right?

 

[Emily's Cat]

If the atmosphere of 2020 has any correlation, that would depend on their socioeconomic position. The poor should not be denied the opportunity to drown in debt for any educational or artistic endeavor, no matter it's value to their future earnings or society.

Can't tell if serious...

 

[Emily's Cat]

Sounds like something that could be done as an experiment, on a segment of the population. Outright forgive the debts for one group, do nothing for another, and try different amelioration programs on the others. Then tote up the data, analyze the results, and see what worked best.

Conceptually, yes. Ethically, however, it presents some significant problems.

 

[Emily's Cat]

I think most people go to college for financial reasons. They want a good job to get ahead. I went to college thinking I would become a lawyer and perhaps enter politics. But I also wanted money so I could buy things. You don't think that is high on the list why people attend college? People get a degree to separate themselves from the riff raff. To prosper.

Or do you think this isn't true?

Honestly, I went to college because that's what you do after high school. I got a BS in Applied Mathematics, because I was good at math. I got a Masters in Applied Mathematics, because graduate school is what you do after your Bachelor's for hard sciences. I had a vague idea of going into cryptanalysis because it sounded cool... but mostly just accidentally wandered my way into a class taught by an actuary who thought I had potential.

I know a LOT of people who went to college for the same reason. Some of them came out of it with jobs and careers, some came out of it with spouses. Some came out of it with debt and a basic 9-to-5er.

 

[TragicMonkey]

Conceptually, yes. Ethically, however, it presents some significant problems.

Really? How so? Are any of those involved worse off than if the experiment were not conducted? No. I appreciate that everyone would prefer to be in the group that gets its entire debt entirely forgiven, but that's not possible. The ones who make it into the "worst" group of the experiment are still no worse off than they were before, so they will simply have to conquer their jealousy. Or refuse to participate, which is of course their right. Nobody has lost anything from this.

 

[TragicMonkey]

Honestly, I went to college because that's what you do after high school. I got a BS in Applied Mathematics, because I was good at math. I got a Masters in Applied Mathematics, because graduate school is what you do after your Bachelor's for hard sciences. I had a vague idea of going into cryptanalysis because it sounded cool... but mostly just accidentally wandered my way into a class taught by an actuary who thought I had potential.

I know a LOT of people who went to college for the same reason. Some of them came out of it with jobs and careers, some came out of it with spouses. Some came out of it with debt and a basic 9-to-5er.

It's amazing how much human tragedy results from people doing things they assume they're supposed to, without examining it critically. You're supposed to buy a house, get married, have kids. And that's why we have so many bankruptcies, bad mortgages, a sky high divorce rate, and class after class of ugly, ugly children.

 

[Beelzebuddy]

You know that in this case, the "parasitic bank" is the federal government, right?

You know that if you have a federal student loan, you don't actually pay the government directly, right?

 

[acbytesla]

Honestly, I went to college because that's what you do after high school. I got a BS in Applied Mathematics, because I was good at math. I got a Masters in Applied Mathematics, because graduate school is what you do after your Bachelor's for hard sciences. I had a vague idea of going into cryptanalysis because it sounded cool... but mostly just accidentally wandered my way into a class taught by an actuary who thought I had potential.

I know a LOT of people who went to college for the same reason. Some of them came out of it with jobs and careers, some came out of it with spouses. Some came out of it with debt and a basic 9-to-5er.

You were smarter than me then. My degree in PoliSci qualifies me to vote and teach.

But I don't buy that was your motive. It might be that college was an expectation but that is because you wanted a career.

 

[Silly Green Monkey]

Reading this really made me miss LossLeader. Divorce lawyer, sure, but still a lawyer.

If a case study will help, I can present mine. Similar timeframe to JoeMorgue and TragicMonkey, I graduated high school and went to college. Small state school, apparently famed for producing teachers for at least a century, I had great grades from high school being as I never needed to study and had scholarships covering tuition. College is harder than high school. My grades dropped steadily, scholarships fell away, but in just a couple years I'd have a Bachelor of Science in Cellular and Molecular Biology and I'd be able to take the not-quite-perfect for what I wanted degree to another state university to get a Masters in Forensic Anthropology and eventually make money, right? So I took out a few small loans, totalling less than 10k for undergraduate.

With my shiny new diploma pronouncing me a graduate, I got into the other state university, applying as a graduate student because, well, I'm a graduate. I had to take undergraduate courses because the university didn't think too much of my degree, but now I was paying graduate prices for those undergraduate courses. The few higher-level courses I took I didn't do well at all in---because I still don't know how to study beyond eventually figuring out 'cramming'. I abandoned that venture after two semesters with 20k more loan debt, the HepB vaccine series, and training in blood-borne pathogens.

I then threw the newspaper for seven years, and another five after cancer ended the newspaper 'career' in call centers. I'd still love to get into something *remotely* relating to my degree, but (I think I read it here?) even if I spent YET MORE money on getting certified as a medical laboratory technician, no employer---while they will demand that I have that certification---will accept it as knowledge in the field. They all will pay me absolute peanuts while they 'train' me in what I need to know to be a medical laboratory technician.

I am on an income-driven repayment, which results in a payment of $0/month, but I'm also watching my total student loans rise steadily while this happens. If I do get a job that pays me something, I'm going to have a LOT more to repay than I took out, because I couldn't start paying it immediately. In 25 years, when I'm supposed to be thinking about retirement, the loan could be forgiven. I'm never going to get anywhere. I have no future. This loan will sit here, growing, for my entire working life. I'd love to have a job that pays more that immediate expenses, but they're going to want a recent graduate over someone with fifteen years of rust.

 

[gnome]

I think there's a bit of a difference in this one though. Forgiving those loans means that the government loses income... which means they need to make it up some other way... which means that everyone else gets taxed.

Additionally, this isn't introducing a new accommodation where none existed before. There are all kinds of loans out there, for all kinds of reasons. Many people have taken on loans for very good reasons (I once took on a loan so I could pay my dad's back property taxes so he didn't lose his house). Part of taking a loan is agreeing to pay it back. For those people who have been responsible individuals and have made good fiscal decisions, this is a bit of a slap in the face. It's a perverse incentive.

There was a similar situation back on 2008 o so, when the housing market crashed. There were all kinds of things available to provide relief for people who could no longer afford to pay their mortgages. But for those of us who did not overspend on our houses, who didn't buy much more than we could afford... we were screwed. We made responsible, good financial decisions, and we were left with the value of our house upside down and still having to pay our mortgage. Those people who went way overboard with their houses and got into more than they could handle, well, they walked out of it better off.

There's a point where rewarding people for having made bad decisions is really just not a good idea.

I get that education is a bit more complicated, but still. Nee to make sure we're not introducing a negative incentive for good decisions here.

I hear you. I'm one of those who made mostly good decisions and wound up upside down and still having to pay.

Though if we're going to talk about moral hazard and avoiding rewarding people for bad decisions, I'd prefer to start at the top. The very financial crisis causing people to need relief was caused by bad decisions that created multiple times more harm than someone who got into a loan that couldn't withstand a bad turn. And yet the people and institutions that made those decisions got rewarded with bailouts that similarly dwarfed mortgage relief.

Perhaps you're with me on that one, I won't accuse you of being inconsistent. I just don't want to be pennywise and poundfoolish.

 

[rdwight]

Thanks for sharing SGM. It's good to get some other perspectives because I am sure we all tend to lean more weight towards the few we personally know. Just going to add some thoughts/questions since it would help me understand more.

I had to take undergraduate courses because the university didn't think too much of my degree, but now I was paying graduate prices for those undergraduate courses.

Was this caused by certain credits not transferring so you were required to retake basically matching courses? Or due to counselor error in your last school that courses you took were more or less useless for pursuing that specific degree?

I'd still love to get into something *remotely* relating to my degree, but (I think I read it here?) even if I spent YET MORE money on getting certified as a medical laboratory technician, no employer---while they will demand that I have that certification---will accept it as knowledge in the field. They all will pay me absolute peanuts while they 'train' me in what I need to know to be a medical laboratory technician.

I noticed throughout my school life that each level had a common theme. Forget everything you learned in X, we're going to teach you how we do it the right way here. Elementary -> Middle School -> High School -> College -> Job. It was never a throw everything out the window type of thing but it does seem like a very inefficient way to go about things.

I am on an income-driven repayment, which results in a payment of $0/month, but I'm also watching my total student loans rise steadily while this happens. If I do get a job that pays me something, I'm going to have a LOT more to repay than I took out, because I couldn't start paying it immediately. In 25 years, when I'm supposed to be thinking about retirement, the loan could be forgiven. I'm never going to get anywhere. I have no future. This loan will sit here, growing, for my entire working life. I'd love to have a job that pays more that immediate expenses, but they're going to want a recent graduate over someone with fifteen years of rust.

Do you think if you had gotten into the income-driven repayment plan much earlier you would have a better outlook? Are there any specific things that are/were unattainable due to the loan balance(not payment amounts) like the opportunity for home ownership, car loans etc that you otherwise would have been able to afford?

The HILITE is one of those things that I feel makes a lot of financial help services a problem that discourages people. I know someone this year who actively earned less on purpose because he didn't want to lose his insurance subsidy. It was striking to me because it wasn't a fringe case where he would straddle the line and lose more than gain, but HEAVILY in favor of pushing for the earnings vs keeping the benefits. He was actively holding himself back due to just his mindset. Have to wonder how much of that is also in play for college loan debt.

 

[TomB]

Do you think if you had gotten into the income-driven repayment plan much earlier you would have a better outlook? Are there any specific things that are/were unattainable due to the loan balance(not payment amounts) like the opportunity for home ownership, car loans etc that you otherwise would have been able to afford?

I know this is directed at SGM, but I feel that a clarification about income driven repayment plans is in order.

My daughter is on the income driven repayment plan. It does not freeze your loan balances, it just reduces or eliminates the requirement of payments. Interest is still charged. So the principal balance will increase each month.

Now, if you are on such a plan you can still make payments if you are able. That might at least prevent the balance from increasing. (Might help your credit score too.)

 

[cosmicaug]

Here's a Cory Doctorow Twitter thread on the subject:

https://threadreaderapp.com/thread/1329869100508581888.html

 

[rdwight]

My daughter is on the income driven repayment plan. It does not freeze your loan balances, it just reduces or eliminates the requirement of payments. Interest is still charged. So the principal balance will increase each month.

Now, if you are on such a plan you can still make payments if you are able. That might at least prevent the balance from increasing. (Might help your credit score too.)

That is one of those things where I like a portion of the Sanders plan in the way it lowers interest to something competitive. But I wasn't under any assumption the interest wasn't building during the lower payments. I just wanted some added experience as to how it held back certain life advancements due to the debt amount.

I am not aware of any other loan terms outside college that allow an up to 0$ loan payment that over 20 years is erased. Sure bankruptcy allows for such an instance at a short timeframe but would lack the ability to build up such a balance to begin with in general.

For example i know someone that had a balance over 6 figures that halved it to 5 figures with on time payments and stopped making payments. They now owe over 3x their original amount for non payment over 10+ years and are being sued. They are not poor but their options are bankruptcy or settlement. They have no 0$ payment until a clock runs out option. Is your daughter hindered in the same way? Would the actual amount owed hurt her prospects of advancing in life beyond a scaled increase in payments if her income rose?

 

[Silly Green Monkey]

Thanks for sharing SGM. It's good to get some other perspectives because I am sure we all tend to lean more weight towards the few we personally know. Just going to add some thoughts/questions since it would help me understand more.





Was this caused by certain credits not transferring so you were required to retake basically matching courses? Or due to counselor error in your last school that courses you took were more or less useless for pursuing that specific degree?




I noticed throughout my school life that each level had a common theme. Forget everything you learned in X, we're going to teach you how we do it the right way here. Elementary -> Middle School -> High School -> College -> Job. It was never a throw everything out the window type of thing but it does seem like a very inefficient way to go about things.





Do you think if you had gotten into the income-driven repayment plan much earlier you would have a better outlook? Are there any specific things that are/were unattainable due to the loan balance(not payment amounts) like the opportunity for home ownership, car loans etc that you otherwise would have been able to afford?

The HILITE is one of those things that I feel makes a lot of financial help services a problem that discourages people. I know someone this year who actively earned less on purpose because he didn't want to lose his insurance subsidy. It was striking to me because it wasn't a fringe case where he would straddle the line and lose more than gain, but HEAVILY in favor of pushing for the earnings vs keeping the benefits. He was actively holding himself back due to just his mindset. Have to wonder how much of that is also in play for college loan debt.

My counselors felt that biology, though I'm not sure exactly why cellular and molecular with a minor in chemistry was going to be closer to forensic anthropology, than, say, anatomy and physiology would be. The next university did not agree and insisted I take the intro courses.

I've not actually seemed to have much issue getting things like credit cards and car loans, it's mainly the mindset that I have this looming presence always lurking above me. I'm also not sure the income-based repayment plan is really helping with the overall debt, because while it leaves me the money to at least mostly pay paycheck to paycheck, I can feel that looming presence getting larger. It also means although I remind myself frequently in the first few months of reapplying, I will still forget for next year and only be reminded when the late notices roll in.

Without student loans my only debt is my car, and that's less than 10k. My credit took a hit when a boyfriend helped me max out the card and not be able to make any payments, but that's all paid off now.