Student loan forgiveness has become a popular idea, with both Senators Bernie Sanders and Elizabeth Warren putting forth plans of their own. But these plans are problematic.

How nice that the passive-voice "problematic" has metastisized from the left to the libertarian-right.

At any rate, "student loan debt" shouldn't be put on a plinth and separated from "car loan debt," "child support debt" or "mortgage debt."

It's all the same thing; you wanted something, you pay for it.

Not to mention, student loans actually raise the cost of tuition. The more students borrow, the higher tuition becomes, which results in more students taking out even more student loans to pay for the increase in cost.

Making it easier for individuals to discharge their debts does nothing to fix the underlying problem: surging costs.

This.

Student loan forgiveness, whether blanket or case-by-case, does not solve the problem; it only puts a Band-Aid on the symptom.

There's too much free money floating around in the system. Tuition is being raised to capture a bigger share of it. Any market is naturally constrained by the amount of money the market is able to spend (i.e., the collective income of the potential buyers).

However, the college market is being distorted by government loans that inflate the amount of money to be spent in that market. Schools no longer face the constraint of tight-fisted parents with budgets or working students with low-level jobs.

Neither Sanders nor Warren have any adult-level understanding of economics. They're still in the "money comes from Mommy" stage. As Warren gleefully put it, "...c'mon, there's always money. It's there."

The Devil in me wants student loans to be calculated on the credit hour cost of the lowest priced community college in the state for which the aid is requested,

I didn’t live in a five star resort when I was in college. In my opinion it should be very cheap and very spartan to discourage the unserious.

Agreeing to let borrowers off the hook also perpetuates the broken system we have now. If you know your loans can be easily wiped out, what's going to stop you from borrowing even more money and then filing for bankruptcy once the loans go into repayment?

I'm not really settled on student loan forgiveness on a case-by-case basis, since I'd only just heard of it less than three minutes ago.

But I will comment on this: since when is bankruptcy easy? Filing for bankruptcy is a hardship that will haunt you for years. Unless you come upon a very large sum of money all at once, you can forget about owning a home, for instance. Ditto, a car.

I'm leaning toward not being okay with student loan forgiveness when a judge rules it's appropriate. Yes, I get that the taxpayers will all end up suffering for it. But on the other hand, why should anyone be able to hold a debt over you that can't be discharged by bankruptcy?

But I'm open to having my mind changed on this topic. Discharging loans through bankruptcy is hardly student loan forgiveness. As I mentioned above, bankruptcy does carry consequences.

But on the other hand, why should anyone be able to hold a debt over you that can't be discharged by bankruptcy? ... Discharging loans through bankruptcy is hardly student loan forgiveness. ~ Patrick at January 21, 2020 5:52 AM

Well, for one thing, in a bankruptcy filing, the debt-holder has an opportunity to try and be made whole.

For instance, if you used your credit card to buy a flat panel TV, the credit card company can demand the TV. The car loan company can repossess the car. In each of these cases, the company must eat any decline in value of the collateral.

In addition, in consumer loans, like those, the lending company is able to charge a risk premium to the borrower in the form of higher interest rates for riskier borrowers (low credit scores, derog credit entries, etc.).

In student loans, the taxpayers pay the risk premium in the form of interest rate subsidies, holding the borrower's interest rate artificially low. In addition, the taxpayers actually pay the interest while the borrower is in school and for a grace period after graduation.

Student loans are not simply consumer loans for school and should not be treated as such.

Student loans already have hardship programs built into the program to assist anyone struggling to make the payments.

Go to your credit card company and ask them to suspend your payments for up to two years while you get your life together. You can do that with a student loan.

I come down on the side of permitting bankruptcy. Quite frankly it is inevitable. Easy loans from government means a relatively small group of people have taken out loans that they will never be able to repay. What can't be repaid won't be repaid. Simple as that. Will the taxpayers take a loss on this, sure. But they would have either way.

That said like Conan I also note that bankruptcy isn't a solution. The only real solution is to get the federal government out of the education loan business.

But on the other hand, why should anyone be able to hold a debt over you that can't be discharged by bankruptcy?

Why take on type of debt if you're not reasonably sure you can discharge in your own in less than a decade? Why did I buy the house that I did ~7 years ago? because I was pretty sure I could have it paid off in ~10 years.

Seize the endowments.

If you get a signature loan from the local credit union, and you go bankrupt, the government doesn't make them whole from the taxpayer. Student loans are unsecured loans because the intangible service rendered cannot be repossessed.

The colleges sell a commodity with dubious claims of future income to the gullible and the brainwashed who believe that a portion of a college education in 2020 has anywhere near the economic value of a college degree in 1920 or 1970.

Let them be discharged by bankruptcy, and let the universities be on the hook for it. If the universities whine, this is America in the current year - just call the universities racists.

I'm with both Conan and El Verde. Federal loans have hugely bid up tuition in the 20 years or so we've had them; colleges are selling crappy degrees, and cooperating with the politically-correct takeover and affirmative action, both of which make their degrees even more worthless. Even Harvard, Yale, and MIT have all these problems.

The way things are going, higher education as we used to know it soon won't exist aside from Hillsdale College and maybe one or two others. Perhaps the marketplace will need to recreate the old idea of apprenticeship.

A lot of places do have informal apprenticeship. Key being the informal part. A college degree even in the hard sciences doesn't guarantee you are capable of working. It only guarantees you have a specific knowledge base. On the employer side, why train people up if you can just pick up reasonably trained people already. Which is why apprenticeships are so informal. The economy cycles up and down often enough that most employers don't have the need for a formal training program. So things stay in an ad hock state.

The way things are going, higher education as we used to know it soon won't exist aside from Hillsdale College and maybe one or two others. Perhaps the marketplace will need to recreate the old idea of apprenticeship.

Why can't the marketplace recreate the old idea of four-year colleges at reasonable rates?

Thanks, Conan. You made a good point about how those who dispense student loans can do nothing to mitigate their loss, since they are not giving loans for anything tangible that they can claim.

"Why can't the marketplace recreate the old idea of four-year colleges at reasonable rates?"

Political pull of the democrats.
Which led to accreditation? Only can call yourself a college if other colleges agree. Just like any licensing practice it is there to keep out competition.
Without accreditation, no tax advantages, no grants, no loans to students.
Press will smear you as trying to rip off students.

So it's possible but it's far from a free market.
Then is the problem of why would a new place not reap in the crazy money and charge whatever they can.

"At any rate, "student loan debt" shouldn't be put on a plinth and separated from "car loan debt," "child support debt" or "mortgage debt."

It is different in that it's the only consumer debt that isn't secured by the product purchased. Knowledge can't be foreclosed or repossessed.

"Filing for bankruptcy is a hardship that will haunt you for years. Unless you come upon a very large sum of money all at once, you can forget about owning a home, for instance. Ditto, a car."

I have a coworker who declared bankruptcy 3.5 years ago. He and his wife have two nice late model cars, both financed new from the dealer, and this past summer, they bought a nice house on a full acre in a tony fourth ring suburb. They made the offer on the house informally and got a handshake agreement to wait until 1 July, the third anniversary of their bankruptcy, at which point they were able to formally apply for the mortgage for which they had been informally prequalified. So I call bullshit, Patrick.

"But on the other hand, why should anyone be able to hold a debt over you that can't be discharged by bankruptcy?"

Because you were clearly told that it couldn't be discharged by bankruptcy and decided to take the loan anyway. Or don't you believe choices should have consequences?

"Let them be discharged by bankruptcy, and let the universities be on the hook for it."

So, if I sell my house to a deadbeat, should the bank be able to come after me for recovery?

I have a coworker.... They made the offer on the house informally and got a handshake agreement to wait until 1 July, the third anniversary of their bankruptcy, at which point they were able to formally apply for the mortgage for which they had been informally prequalified. ~ bw1 at January 21, 2020 5:17 PM

From my foray in consumer lending (mortgage operations for a large bank) and my mortgage underwriting wife, I've learned that you can purchase a house with a bankruptcy on your record. Normally, you would have to re-establish credit or provide a reason for the bankruptcy that merits an exception (e.g., one woman got an exception because her husband shot her five times, putting her in the hospital for two years). The reasons that merit an exception must be non-recurring and must not demonstrate an indifferent attitude toward making payments.

Generally, one must wait three years after the conclusion of a Chapter 13 bankruptcy to purchase a house. Chapter 7, which is a complete discharge of debts is usually treated much more stringently.

However, there are investors who may not place as much penalty on bankruptcy; so one need not necessarily wait three or more years. The interest rate for those C-paper investors will likely be brutal, so be forewarned.

There are plenty of schools that aren't accredited, Conan, if you want to go to one and just learn for learning's sake. They haven't shut down.

"It is different in that it's the only consumer debt that isn't secured by the product purchased." ~Bw1

Not true. There are unsecured credit cards. There are also other forms of unsecured debt consumers regularly make use of.

https://www.investopedia.com/terms/u/unsecureddebt.asp

The difference is most unsecured debt has a much higher interest rate due to the unsecured nature of the debt. If you want the lender to take a higher risk they reasonably demand a higher reward in exchange. In this case the federal government doesn't really care about turning a profit. They flat aren't a profitable enterprise. They are charging less than market rates for higher risk debt. Which is why they are the student loan business pretty much in it's entirety. They've driven everyone else out of business.

Basic question if it was your hard earned money being loaned out, what guarantee or possible penalty to the borrower would you need from a student to give him/ her a loan?

Bankruptcy ruining credit history for a few years when 21 doesn’t sound like much of a penalty vs $100,000.

The problem with trying to secure a student loan is that there is very little you can do that is enforceable. Maybe you can make the borrower post a bond, but if they had the means to do that, they probably wouldn't need the loan in the first place.

If I was the lender, I'd include provisions that call for the borrower to account for how the money is to be spent. Specify the borrower's major, and make it a contract provision that the major cannot be changed. Monitor progress: grades, class schedules, credit hours earned. Issue a check for living allowance monthly, instead of paying it in a lump sum. Require the borrower to live off-campus, if it's cheaper and the school allows.
Maybe make a condition that the borrower has to co-op for a semester (if you can find any employer who still does that). This way, although you can't secure the loan, you can improve the odds that the borrower will be able to pay it back.

It wasn't uncommon to force the borrower to find someone else to cosign the loan. I.e. have your parents cosign it. They usually had a job and credit cards and such and were much less willing to take a hit to their credit scores. They were also less likely to qualify for bankruptcy.

The provisions you listed Cousin Dave also weren't uncommon. You still see things like that on home improvement loans and elsewhere.

One part of the story that seems to be missing from the comments here, student loans are not evenly distributed. The majority of the money that is not being paid back comes from a relatively small group of people. That small group of people also went to fairly expensive colleges and have parents with high income. It is quite valid to classify forgiving student debt as a give away to the rich.

Ben, granting those student loans for the children of high-income parents to go to expensive schools, either on a major that does not lead to good jobs, or without a demonstration of ability to complete a better major, was a giveaway to the (somewhat) rich.

Unless the parents are not only high-income, but truly rich like Bushes or Kennedys, forgiving those loans is just recognizing reality...