[AnthonyMouse]

If a non-negligible proportion of people would discharge their student loans in bankruptcy then the rates would have to increase by a non-negligible amount to make up for it.

If a negligible proportion of people would discharge the loans as you suggest then the need to do it is the "eating the dogs and cats" in this case, since it doesn't matter a whole lot if nobody can do something nobody would have done anyway.

So which one is it?

[sethammons]

Which is it? Greed by banks. They were functionally fine up through the late nineties. The rules changed because banks wanted all their money instead of nearly all their money.

This is not market economics. This is regulatory capture. Market economics suggests they were more market based when there was risks to banks. The risks are removed and they can print out debt.

[Aurornis]

> Which is it? Greed by banks. They were functionally fine up through the late nineties.

Except the regulations for student loan discharge started with government loans, not private loans.

Congress restricted discharge of government loans first, because they were trying to protect the continued existence of the program and the low interest rates.

You've had incorrect facts all throughout this thread and you're refusing to acknowledge all of the people trying to bring real facts into the discussion.

> The rules changed because banks wanted all their money instead of nearly all their money.

You're not understanding how interest rates work.

Banks aren't charities. They don't give people money and hope that it gets paid back. They set the interest rate in accordance with the risk.

There are two ways this can work:

1. The debts are easy to discharge in bankruptcy. Banks do their analyses, estimate how many will be lost ot bankruptcy, and increase interest rates until the net result makes lending justifiable.

2. The debts are hard to discharge. The analysis shows a higher recovery rate. They can lower interest rates because the risk of default is down.

There is not a 3rd scenario where banks keep interest rates low and eat the losses from bankruptcy.

If you think that a business wanting "all of their money" is greed then you don't understand how business works. If loans became a money-losing proposition, they just wouldn't loan the money! Though honestly there are some good arguments that we shouldn't be lending money to people who might not pay it back, but there are a lot of people who dislike this idea that we should only give loans to people pursuing careers that pay well.

[sethammons]

In all the cases you mentioned, the banks have risk. Normal lending falls into normal economic rules. We've (effectively) removed the risk for banks with education loan. Wanting "all their money" is a translation of "accept no risk." The risk is required for economic rules to apply.

Why should banks not accept risk at all? Why was 7 years protection not effective? I have seen no evidence that the previous protections banks had were insufficient.

[AnthonyMouse]

"No risk" is not a thing. For example, someone could borrow $250,000 from the bank and then get hit by a bus the day after graduation.

Moreover, interest isn't just about risk, it's the time value of money. If you put money in a CD at a major bank which is FDIC insured, the risk of you losing that money is as close to zero as anything reasonably gets, but you still get paid interest.

The risk premium is on top of that. And the higher the risk, the more interest people have to pay.