[TimorousBestie]

What are the second-order effects of a subclass of citizens permanently encumbered by debt that (with rare exceptions) cannot be discharged through bankruptcy?

Perhaps your analysis of second-order effects is not thorough and complete? Have you really considered all of them?

[horsawlarway]

Not really sure why this is getting downvoted.

I don't really think we need to forgive student loans - I think they should absolutely be dischargeable through bankruptcy, though.

Bankruptcy isn't a "get out of jail free" card - it puts a huge burden on a student relatively soon after graduating that makes it harder to start a family or buy a home. So it incentives are still aligned for the students taking the loans.

But the option that a student defaults brings some real light and transparency into a loan system that just feels wildly disconnected from reality right now. If a student can't pay the loan back with the job options in the field and is like to default... don't issue the loan.

I think it's absolutely abusive that student debt can't be discharged, and is pretty heinous as policy.

[rootusrootus]

Yeah it's pretty amazing that we have loans which you can never escape and yet have high interest rates in spite of that. If I cannot declare bankruptcy, then at the least the interest rate should be 0%, appropriately reflecting the risk.

[LorenPechtel]

No.

1) Zero risk does not mean 0% interest. True zero risk should have the same yield as treasuries.

2) No bankruptcy does not equal guaranteed payment. Some will die without having repaid.

[AnimalMuppet]

Only if treasuries are truly zero risk. That may not be a valid assumption anymore.

[TimorousBestie]

> I don't really think we need to forgive student loans.

Neither do I. I was happy with the status quo ante Trump where many classes of public servant could get their student debts forgiven after on the order of ten years of service. (An imperfect program with too many disqualifying loopholes, but it was better than nothing. Now, almost no one qualifies.) The Overton window has foreclosed on that kind of solution to the problem, however. Even military personnel have been disqualified from attending certain schools as part of their meager education benefit.

> Bankruptcy isn't a "get out of jail free" card

Indeed. One’s mid-twenties are arguably the worst period of one’s life to live with damaged credit.

> I think it's absolutely abusive that student debt can't be discharged, and is pretty heinous as policy.

Absolutely, it needs to go.

[BobaFloutist]

The reason that you can't (default) discharge student loan debt in bankruptcy is that your degree can't be seized and sold off, so there's a pretty weak incentive to not declare bankruptcy as soon as you're handed your degree.

[angmarsbane]

What if a degree could be seized? For example, what if bankruptcy courts could require a debtor to stop "representing themselves" as having a degree as a condition for discharging debt. If a court revoked a degree, it would effectively reset the graduate to the status of a dropout removing a significant amount of the degree's value (I know knowledge has its own value, but credentialism is a big part of a degree's value too).Universities already have the infrastructure to flag students. For example, many institutions withhold official transcripts or diplomas for academic fraud, moral infringements etc. Could this create enough of an incentive to pay back loans and not declare bankruptcy?

[BobaFloutist]

I don't think that would fly, since it would provide no benefit to the owner of the debt and would just be enormously punitive and feel pointlessly cruel.

It would be like if instead of a foreclosure they just took a bulldozer to the house, then salted the earth with asbestos and lead so nobody could ever build a house there again. What's the (acute) benefit in just destroying the value? Plus, it turns the four years into a complete waste of time, no matter how hard you worked to get the degree, just because you couldn't find employment after.

I know we're talking about tweaking incentives to make it not worth it to game the system, but this would also screw over people that found themselves in that position through no fault of their own, plus it would waste all the time and work of everyone that taught that person and contributed to their education (even though they got paid, people largely aren't in education for the cash).

I don't know, I think it would be too much of a bummer to work.

[DangitBobby]

When student debt becomes dischargeable, market forces will finally price degrees according to their actual economic value relative to the risk of poor returns. Currently, that price discovery is broken; the cost of a degree bears almost no relationship to its real-world payoff. No need for degree seizure to correct it. Lenders can decide for themselves which degrees lead to returns, which in turn provides degree seekers with actual financial signals instead of vibes-based "go into programming" propaganda from FAANG.

[irishcoffee]

> What are the second-order effects of a subclass of citizens permanently encumbered by debt that (with rare exceptions) cannot be discharged through bankruptcy?

A harsh lesson in personal responsibility. If you went to an out-of-state school to major in criminology hoping to be the next CSI, and you borrowed 180k to do it, you've learned a valuable lesson.

Don't give me "they're only kids, they aren't able to make these decisions!"

[TimorousBestie]

> Don't give me "they're only kids, they aren't able to make these decisions!"

You’re responding to something you imagined I said. We’re talking about economic effects here, not your vengeful little morality play.

[irishcoffee]

Just heading it off, not imagining anything.