[ncallaway]

Credit card debt, home loans, and auto loans are all far more dischargeable through bankruptcy than student loans.

Bad credit card debt won’t be an anchor around your neck financially until you die. Neither will a bad home loan. Neither will a bad auto loan.

But bad student will likely be with you until death.

[Damogran6]

The lenders would be more choosy as to who they give money to. (Kinda like the mortgage crisis)

There should be a situation where a lender refuses to give a prospective student $125k towards an education that would never result in repayment due to the available jobs from that type of education.

[throwaway894345]

If people could default on these loans, what incentive is there for lenders to agree to the loans in the first place? If you're a lender, why would you agree to a $50K loan to a teenager with no credit who can just default?

[lesuorac]

The same reason a bank offers a home mortgage? They expect to get a return on their investment.

Sure some student loans are going to get discharged and the lender will take a loss (just like with mortgages). But lenders with good enough actuaries are going to price their loans so that they make more than they lose and ideally the worse lenders will go out of business.

[kapp_in_life]

>They expect to get a return on their investment

They only give it to you if you have a downpayment, proof of income, and they can reclaim the asset if you default on payments.

None of those aspects apply to student loans. What's going to happen is loans will require cosigners and poorer students will be cut off from access to higher education unless they can get scholarships.

[lesuorac]

You can get mortgages without a downpayment. You'll often end up with higher interest payments though (IIRC PIM goes away once you have ~20% equity). That said you could ask students to take a gap year to have money for a downpayment (not everybody in my class was in my generation).

Proof of income would require them to have a job which I think a lot of students do (albeit work-study pays less than tuition costs). But is it really too much to ask a loan issuer to do the math on if a student can reliable pay the loan back?

Reclaiming an asset is harder though but its an unsecured loan so by definition there isn't any asset to reclaim.

-- > What's going to happen is loans will require cosigners and poorer students will be cut off from access to higher education unless they can get scholarships.

If the goal is for everybody (or more people) to get an education then it should just be subsidized in a normal fashion. No need to trap people in decades+ of debt. That said, I would suspect you'd see more people getting bachelor degrees subsidized by their jobs instead of just the masters. Which is what the article is really about, a bunch of government employees are having their DOE loans forgiven as the former students have met their end of the agreement.

[amf12]

> poorer students will be cut off from access to higher education unless they can get scholarships.

(trying to understand) How is it any different right now? Students likely to default right now are poor, and may not even be in a position to pay the debt. But the debt still stays active.

[amf12]

> If people could default on these loans, what incentive is there for lenders to agree to the loans in the first place?

One thing I can think of is that the schools should be the lenders themselves. The interest rate should be capped off and the debt should be dischargeable in bankruptcies. This will lead them to deny loans for unemployable degrees.