> people who either have made bad decisions, had less fortunate circumstances than others, or a combination of both deserve to live under a mountain of debt for the rest of their life? - No
Why does this logic only apply to people who made bad decisions and had less fortunate circumstances or a combination of both only apply to people who did so in the context of taking out student loans? If making bad decisions and having less fortunate circumstances is grounds for student loan forgiveness, why isn't it grounds for credit card debt forgiveness? Or home or auto loan forgiveness?
Because our public school system is a propaganda machine for getting students to go to college.
They tell high school students...people who are legally still children that the most important thing is to go to college. They tell them if they can't afford it, they can just get loans.
And now people are surprised and blame the kids when they do as their teachers told them and rack up 5 or sometimes even 6 figures of student loan debt before they're even old enough to drink.
Fucking stop and pause for a moment and really consider that. Counselors, teachers, and all other high school staff pushing kids to go to college, and then when they do, people come along and tell them it was a bad decision? What?
I don't think it's as malicious as you're implying. Educators went to school at a time when people who went to college earned dramatically more than those who didn't and they were pretty much guaranteed job placements. That's still true today in aggregate, although probably to a lesser extent. They also didn't anticipate that universities would become predatory with respect to ballooning costs and stagnating or declining educational quality. Moreover, they didn't realize that the kids they were referring to college were part of a flood of students who would saturate the job market with degree-holders (lowering the value of a degree with respect to job placement). Further still, they didn't know that the subprime mortgage bubble existed much less that it would burst in '07-'08.
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.
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?
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.
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.
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.
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> 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.
> 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.
> 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.
Student loans should be discharged on personal bankruptcy. All of the other examples you give can be written off like that. Student loans, however, are rarely discharged by judges on those processes.
I'm strongly against student loan forgiveness, but I support this measure. Society offers a life vest in the form of bankruptcy to people who are financially drowning. That's as it should be. No need for new, ad hoc solutions to this problem.
Because student loans are one of the few types of debt that cannot be discharged in bankruptcy. There is an avenue, through our current legal system, to get out from under credit card debt or a mortgage one cannot afford. That avenue is unavailable to student loan borrowers.
The problem is that the people it benefits the most are disproportionately in the upper classes (they took out the most debt). Student loan forgiveness doesn't do what most people think it will do. https://knowledge.wharton.upenn.edu/article/how-student-loan...
I'm not inherently opposed to allowing for bankruptcy on student loans, but it will probably have a similar effect--banks won't want to lend to people with no credit or income and college will mostly only be affordable for the kids whose parents can pay for it. It's probably not much worse than the status quo, but my instinct is that we need to account for employability in the financing equation. A teenager shouldn't be able to take out $100K in debt to finance a Master's of Theater. If that's by allowing bankruptcy such that banks have skin in the game to avoid these kinds of debts, then that's probably fine with me (although banks had this same kind of skin in the game leading up to the subprime mortgage crisis and they still fucked over the whole country, so careful regulation is probably needed if we go this route).
bankruptcy has regulation already. you have to actually show an inability to pay, etc.
i'm not suggesting terminating the federal loan program either. just make it possible to default to get out of these situations to ensure they are not predatory.
Why does this logic only apply to people who made bad decisions and had less fortunate circumstances or a combination of both only apply to people who did so in the context of taking out student loans? If making bad decisions and having less fortunate circumstances is grounds for student loan forgiveness, why isn't it grounds for credit card debt forgiveness? Or home or auto loan forgiveness?