[eru]

Btw, my suggestion for the US would be to remove that special bankruptcy exception for new student loans.

That's because once you do that, the supply of new student loans would most likely dry up. Thus shutting off the money fountain for the education industry.

[rayiner]

Your suggestion wouldn’t work because nearly all student loans (over 90%) are issued by the federal government, which does not (and for political reasons, never will) evaluate credit risk.

[filoleg]

> nearly all student loans (over 90%) are issued by the federal government

Not claiming you are wrong, because I genuinely don’t know, but how does it gel with the fact that the federal student loans for undergrads cap out at the max of around $9.5-12k for independent students and $5.5-7.5k for dependent students per year[0]?

Given all the outrage I see online, where people claim paying upwards of $20-40k/yr for attendance, wouldn’t they need to supplement it with private loans?

I dont doubt that there are more federal loans out there than private ones (because it always makes sense to get the federal ones first, and only go for private ones later if needed, so pretty much everyone who has private loans also has federal ones). But what about in terms of the actual loan dollar amount?

0. https://financialaid.umbc.edu/types-of-aid/federal-loans/dir... (this is an UMBC page, but it breaks down the federal student aid limits that apply everywhere)

[rayiner]

https://www.usatoday.com/money/blueprint/student-loans/avera... (“As of the first quarter of 2023, student loan debt in the U.S. stands at a total of over $1.77 trillion. More than 92% of this is federal student loan debt while the remaining amount is owed on private student loans, according to Federal Student Aid (an office of the Department of Education).”).

That 92% figure is in terms of debt amount, not number of loans.

The limits you mention are per student. Parent PLUS loans are limited only by the school’s official cost of attendance: https://studentaid.gov/understand-aid/types/loans/plus/paren... (“The maximum PLUS loan amount you can borrow is the cost of attendance at the school your child will attend minus any other financial assistance your child receives. The cost of attendance is determined by the school.”). Schools are extremely aggressive about ensuring parents are on the hook for the loans so students can take out the maximum.

[filoleg]

That’s a good point, thanks for bringing it up. It pretty much resolves the conundrum I was having in my original comment.

Small caveat (that ultimately doesn’t negate your point): PLUS loans have credit check requirements for determing eligibility[0] (with exceptions available in certain cases if you can satisfy additional requirements, like bringing an eligible cosigner who can pass the credit check).

0. https://studentaid.gov/understand-aid/types/loans/plus/paren...

[bumby]

An alternative is to tie the federal student loan program to a regulation in school cost. If the school exceeds some threshold, their students are no longer qualify for federally-backed loans. Granted, it creates administrative burden but it’s the only proposal I’ve heard that seems to address the root problem of tuition costs and almost unfettered access to collateral-free loans.

[Repulsion9513]

That's unlikely to be accepted for other reasons. Putting a limit means most will approach that limit, and those that exceed the limit will be even more unaffordable. Plus no one will agree on what the limit should be. Which makes them extremely unpopular (except for benefits to individuals which of course should have the lowest limit possible nationwide)

[bumby]

>Plus no one will agree on what the limit should be.

We do this with drug reimbursement costs and construction already and I’m pretty sure those for-profit companies would also disagree on what the limit should be. I also don’t think it needs to be a one-size-fits all threshold; it could be adjusted to COL and/or job prospects that are tied to graduate statistics. IMO that goes a long way to aligning the incentives of the student and the institution.

I’m curious if you have an alternative solution

[Repulsion9513]

Yeah, I intentionally didn't say it wouldn't happen, just unlikely :)

Personally I think limits (and significantly higher grants to make student loans unnecessary for a basic post-secondary education) are needed. But I think it's worth recognizing that limits will make what's already a very divisive issue, even more divisive...

[bumby]

I think more thoughtful limits would be a good idea. I also think the reduction of aid money has been part of the problem. I just don't know where the money comes from to shore up that problem.

I have seen other pilot programs. I think it was Purdue who was considering "buying stock" in students, where the student would pay a portion of their income for a certain number of years in exchange for a scholarship.

[rayiner]

That would be a good idea.

[eru]

> [...] and almost unfettered access to collateral-free loans.

If people voluntarily want to pay high costs, and other people voluntarily want to make loans, who are we to judge?

We just need to get tax payer money out of the game. Afterwards, people can go nuts with their own money.

[bumby]

We are to judge because we are the taxpayers who guarantee the vast majority of those loans. That’s the mail reason I said “collateral-free.” Most of those loans would not happen in a private market because teenagers, in general, do not have collateral to secure the loan, meaning they have little to lose by defaulting.

[BobaFloutist]

Their degree and future earning potential is supposed to be the collateral.

Unfortunately, the earning potential of a generic bachelor's degree seems to have mysteriously fallen at roughly the same time a flood of students were offered huge loans to achieve them. Maybe some day we'll be able to find the connection.

[bumby]

I don’t think that’s correct. You can’t put up “future earning potential” as collateral while simultaneously allowing for discharge of debt in bankruptcy. That results in an incentive to incur as much debt as possible and then declare bankruptcy shortly after graduation when the impact is negligible. That’s the whole reason why student loans aren’t generally dischargable in bankruptcy.

[eru]

> We are to judge because we are the taxpayers who guarantee the vast majority of those loans.

Yes, get the taxpayer out of the loan guarantee business. Sorry, I thought that was a given.

[bumby]

I’m not against that, but I do think just getting rid of federally backed loans previously causes more problems. (Ie it’s one of those simple cures that may ignore blowback) Do you think there is an opportunity gap to be closed? If so, how do you think that would work?

[eru]

Lots of bankruptcies just after people finish their education would still ring some political alarm bells.

[trashtester]

Just make the college a guarantor for the student loan. That would solve a lot of the issues with higher ed in the US today....

[bumby]

I think that's a potential part, but to play devil's advocate: don't you think this may exacerbate the opportunity gap? I.e., those who are the best bets (in terms of not defaulting) are also those who come from well-off backgrounds?

[trashtester]

Unless someone else (like parents) stand as guarantors, I think the greatest predictor for a default will be how competent the candidate is after finishing the education.

Also, instead of allowing a bankruptcy at any time, student loan down payment could be limited to max 25% of income after tax OR 10% of net worth, whichever is greater, with any balance after 30 years transferred to the college.

Objectives: 1) Reduce the incentive for colleges to offer education tracks that they KNOW (or should have known) will never lead to much beyond a minimum pay job. 2) Prevent unlucky or unsuccessful students to get stuck with an impossibly large loan that just keeps growing, absorbing all they earn or own. 3) Ensure that students still do feel some pain when this happens, but not so much that they lose all incentive to build themselves up. They still keep 75% of their income after tax AND they're guaranteed that the loan will end within 30 years. 4) Incentivize pricing of of the student loans in ways that reflect the risks involved. If students that study "lesbian dance theory" have to pay a 10% interest rate while Physics students pay only 5%, that's a pretty strong indication that the "credit score" for the former is pretty bad. 5) Also incentivize minimizing cost while maximize the useful learning for the college, to minimize the risk that they'll be stuck with too much of the debt.

If this leads to some (presumed worthy) students having fewer opportunities than they otherwise would have, it's still possible for the collages, government or others to provide stipends or other similar forms of support.

[eru]

That's why we shouldn't subsidise education in the first place.

The net benefits of education accrue to more than 100% to the customer. And, people from well-off backgrounds can and do take more advantage of education.

We should just give poor people money, and let them decide for themselves how they want to spend it. If they want to spend it on (unsubsidised) education, that would be fine choice for them to make.

[bumby]

I do agree that when you subsidize something you get more of it. So there’s a case that in some instances like education, it’s a good thing. Most people probably agree that a more educated society is better than a less educated one (although I agree there’s still room for debate on what that education should entail). The issue with an open-ended handout is that you don’t know what you’ll be getting more of.

[eru]

> So there’s a case that in some instances like education, it’s a good thing.

That's where we disagree, I guess.

I don't mind education in the sense of people learning something. That's harmless enough (but doesn't need special subsidies. Just give money to the needy, and let them decide whether they want to invest it in a library membership.)

What I'm against specifically is education in the sense of getting a certificate at the end. A degree etc.

That sort of education has negative externalities and should be highly taxed, not subsidised. It leads to an arms race of credentialism, and is a big reason why eg a high school graduate can't get a decent job these days.

(There are plenty of jobs that used to be done by high school dropouts, that haven't changed all that much. But now require a degree, if you want to be considered for an interview.)

[bumby]

I think we actually agree largely on the education piece, that’s why I gave the parenthetical. I don't get the impression you really think a more educated populace is worse, but we may disagree on how one gets educated. There are many routes to education, and I think it’s wrong to think all people need the same route. But I think you’re committing the same error by assuming the library route works for everybody.

I do also think over-credentialism is a problem, but that is largely up to the employer. All they have to do is start hiring people without credentials if they aren’t warranted and the problem is solved (for non regulated industries). But I wouldn’t go so far to say credentialism as a whole is worthless. I’m glad the food I buy is credentialed by the FDA, and the doctor I e see is credentialed as is the engineer who designed the bridge I drove across to get to work.

What I do see on HN is that the crowd generally biases towards libertarian autodidacts and that colors much of their worldview.

[eleveriven]

Actually it sounds really good