Another huge student loan article - "The $555,000 student-loan debt"

Parents Forum
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<p>I agree that allowing loans to be discharged through bankruptcy can end up rewarding bad behavior. But on the other hand, NOT allowing them to be discharged that way encourages banks to make more bad loans i.e. lending $100,000 to an undergraduate with no possible way to pay it back.</p>

<p>Right now, the banks (with the complicity of some schools) are rewarded for acting badly. The school gets its inflated tuition and the bank makes a no-lose loan. Maybe if banks had some “skin in the game” they would make better choices. And then as schools found had a shrinking pool of people who could pay, they too would have to make some better choices.</p>

<p>In the meantime, high school students would have to get their heads out of the clouds and start making rational choices when choosing schools (for example pick a SUNY college ($19K instate) instead of NYU at more than $50K).</p>

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<p>If the student loans were so readily dismissed through bankruptcy many more people would utilize that tool to rid themselves of their financial obligations, the lenders would know this, the loans would tend to dry up, and perhaps many more people wouldn’t be able to attend college in the first place. It’d be counter-productive to the potential students - especially those who respect their financial commitments. There really are hardly any new HS grads who have any reasonable credit history so the fact that the loans can’t be dismissed might be the only reason the money’s available to them in the first place. This is an area where people need to consider the consequences of what they might be wishing for (i.e. if they can dismiss the loan through bankruptcy then they might have no shot at a loan in the first place).</p>

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<p>megmno, you are exactly right.</p>

<p>uscd<em>ucld</em>dad: Student loans existed and were given out for several decades before the non bankruptcy change was put into place. That student loans would vanish without the current restrictions is not true. That this unsustainable spiral of higher and higher costs above inflation rates, buoyed by higher and higher debt, might slow or end, if this artificial protection from normal business procedures and risks that every other business in the country has to deal with was ended also, is probable.</p>

<p>if schools knew that they could no longer continue to pass on these unfathomable and unsustainable yearly increases because they would no longer simply be absorbed by increasing (and undischargable debt load) then they would figure out alternative ways for students to fund their education, or maybe, they would figure out a way to sell their product at the actual and realistic cost that the market can bear. Even the schools who have 100 kids applying for every one spot, have a vested interest in keeping the numbers of kids who apply for spots because they think they can afford them, at the current inflated rates; even schools who turn away most of their applicants like it this way and do not want to see the numbers change. </p>

<p>It would take considerably more effort than just shoving the entire burden onto the shoulders of our undergrads as debt, but surely some of those economics and marketing professors or even some graduates could come up with a few ideas. This one isn’t working.</p>

<p>As far as that old chestnut about all these irresponsible people who deliberately get crappy paying jobs just so they can go through the fun and joy of filing bankruptcy and snicker themselves to sleep every night with glee at having fleeced the system; it was discovered that the big hysteria about students deliberately plotting to use bankruptcy in order to be irresponsible was overblown and exaggerated. Unfortunately the law which was based upon flawed and incorrect information was already in place and it hasn’t been a priority to get it changed over the past couple decades. (this is slowly starting to change as this crisis approaches critical mass.)</p>

<p>It may very well be that you are of the mindset that nobody, nohow, never, for any reason, should ever be allowed to discharge “what they owe” people, in which case it is doubtful I can present anything that will change your mind. I can only say, again, that it has been recognized since Mosaic law, for reasons both pragmatic and merciful, that sometimes the reality is that a person will never actually be able to repay a debt, and it is in the best interest of society in general to accept the reality and make provisions for that event in the law. From time to time we forget that and then have such effective and useful devices as debtor’s prisons.</p>

<p>My other point would be that if you absolutely refuse to bend on the issue and insist that someone who for reasons beyond their control do not have the means to repay a debt which they took out in good faith and intent, should nevertheless be held to that debt until the grave, for a student loan, then I would say we should do away with bankruptcy for every single person, for every single debt, with no exceptions under any circumstances, as it hardly seems fair that people get to do fun stuff like have emergency triple bypass if they aren’t insured (the nerve of them) and then refuse to pay back the hundreds of thousands of dollars they incurred. They should have thought of that BEFORE they sucked down all that fancy schmancy jello in those adjustabeds.</p>

<p>This absolute and total elimination of any discharge of any debt would of course extend to all businesses no matter the size, and to every and any entity, corporation, or organization, regardless of consequences or outcome.</p>

<p>Can you justify why student loans and student loans alone are not dischargable in bankruptcy? If we are to wag our fingers with pursed lips for their “irresponsibility” then why are the same standards not applied across the board to everyone else?</p>

<p>Not being an economics major, I don’t know what would happen in a theoretical economy where there did not exist any form of debt discharge, but I’d be interested to know what might happen.</p>

<p>But as it is now our laws do allow for bankruptcy for almost every situation or debt with the exception of student loans.</p>

<p>By the same token, why should the student loan business be so privileged that it gets to have all the profit part of going into business and none of the risk? (at MY taxpayer’s expense - if we get to be all huffy and offended about where our taxes are going, well there’s mine) Up until the recent mortgage disaster (caused by exactly the same dynamic - lenders being completely free of any repercussions from bad loans - they, not the borrowers, are the de facto gatekeepers, and any system which expects borrowers to perform that duty always fails…as has been proven, yet again…) nobody else got that sweet deal either.</p>

<p>Hey, I want to be able to loan someone some money no matter how ridiculous the odds are that they will pay me back, and when they can’t, I just dial up that good old federal guarantee hotline and get my money right then instead of that whole tedious annoying collecting the money over many years thing.</p>

<p>I’m not advocating that people should be allowed to be irresponsible and bilk the system. (that could be addressed, as I mentioned already, by appropriate changes in bankruptcy law as far as the circumstances under which they are granted - rather than a blanket one size fits all no tolerance policy).</p>

<p>But. </p>

<p>What we are doing now - is. not. working. It permits exploitation of the very people it is supposed to help, and since the provision preventing student loan discharges, paying for college has gotten harder and harder. I believe it is the problem, not the solution, and if colleges knew there would be no 30 thousand dollar loans, they’d figure something else out, because they have a vested interest in avoiding their applications and admissions falling in the toilet. That’s how business works, and we have a warped and unworkable hybrid model going on. Either let it be free market, or if the government is going to be controlling cherry picked elements, let them control it in such a way that the student is not carrying 100% of the risk. </p>

<p>How on EARTH is that just and fair? You may think it is, but I dont’.</p>

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<p>It is a terrible, terrible problem that I believe is going to come to a reckoning just as the subprime mortgage situation did. This is going to be worse because there is really nothing to take. With the mortgage defaults, there is a property that can be returned. With college costs, there is nothing. And people were even defaulting on their family homes with all kinds of personal consequences because they simply could not pay, or it was not worth it.</p>

<p>What prevents most folks from accumulating loads of debts and then just defaulting to the point of bankruptcy are the consequences of doing this. The damage to credit and reputation is a big deterrent. Or was a big deterrent. In the last few years, it has happened so often that it isn’t working as well that way. The point arrived where the payment of the mortgages just wasn’t worth it despite the painful consequences of default, losing a home, bad credit bankruptcy. Also, a number of people really had no choice. They could not pay even if they wanted to do so. No work, no assets, no can do.</p>

<p>I see this point coming with student loans. There may come a point (and I think it is rapidly arriving) that defaulting on them becomes so common that it becomes the thing to do. If so many people do this, the shame of it is not as great. It becomes a common thing. It used to be losing one’s home was a terrible, terrible shame. I never personally knew anyone who did. Now I know a number of people, upscale families that came to the conclusion that paying for their house that they no longer could afford was not worth it. It has even become an advised venue to take under certain financial situations even if you can afford to pay.</p>

<p>The reason that you cannot get discharge student loans through bankruptcy is because they are government backed. You cannot discharge tax liabilities either When you owe Uncle Sam a nickel, he’ll spend millions to get it back because there is no accounting for whether it is worth going after the debt or not. An automatic reaction occurs when you owe the government money. What will probaby happen is that all of those students who owe for student loans will have to add them to their tax liabilities each year until they are repaid. A forced payment plan of sorts. Of course, this assumes that enough students will be gainfully employed so that repayment is even possible. Many of these kids are not getting a paycheck right now. Any % of nothing is still nothing.</p>

<p>Now, as I asked before, what about the private and college issued loans? Can those be discharged by bankruptcy? As incredible as it sounds, some kids did get non secured, non co signed loans for college. The ones I’ve seen have higher interest rates and more difficult repayment plans. Some of them have been sold to other companies and a settlement can be made which makes me believe that these can be discharged by bankruptcy. The other source of student loans are those cosigned by the parents, and if the kids can’t pay in those cases, the lenders will go after those parents. If the parent declares bankruptcy as well as the kid, then the owners of those loans are out of luck. That may be the best recourse for some. </p>

<p>But where a lot of the loans sit is with PLUS. Being government backed, the parent HAS to repay them unless he dies. We joke (yeah, I know, we’re a sick family) that we have reverse insurance in this house since if my husband should die, we would benefit from discharge of the PLUS loans we are repaying from our first son’s incredibly expensive college costs. In some cases, when push came to shove, parents got those loans with the understanding that the kids would repay them once they were finished with college. Ha, ha, with some amounts. It just isn’t going to happen and the interest rates are not so hot with these loans. The accumulated interest alone can stretch out the payments as long as a mortgage and in some cases the payments can be as high. Also, parents who applied for PLUS expecting to be turned down and their kids get the $5K additional in Staffords are often surprised to qualify for the loan despite dire financial staits. The credit requirements for these loans is far more lenient than any other loans on the market. So it is possible for a parent who cannot possibly afford such loans to take them, defer the payments which increases the loan amounts drastically, until the kid is supposed to get a great job and repay these things. Well, we all know how likely this scenario is in the current situation. The default and late rate of repayment of these loans has skyrocketed. The government is offering repayment adjustment terms to these loans to get many of them out of default and is extending them for 30 years in some cases. I predict an end to that cash flow in the near future as fewer folks can repay these things. We are suffering from a 10 year payback of $500 a month right now and it does hurt big time. And if you start with freshman year with those loans, it’s not 10 years, but 14 that you will be paying some amount on the danged things. We won’t be done with our first kids loans until after our youngest is in college.</p>

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<p>cpt, no student loans are dischargable. Not private ones; changes in 2005 made those non dischargable also. And I agree it’s all going to go BOOM.</p>

<p>Of course, the thing is that making them non dischargable in bankruptcy isn’t doing anything at all to slow the default rate. They just default and then get hounded the rest of their life. If you don’t have the money you can’t pay, no matter how dire the repercussions. So the govt isn’t getting their money back anyway, except for little dribbles and drabbles of offset tax returns or a 10 to 15 percent garnishment, not applicable to income under a certain level anyway.</p>

<p>One reason that there have always been laws providing for discharge of debt is that we recognize that sometimes, collection efforts are so futile that everyone, even the lender, is better in the short and long run if it’s just written off in a controlled legal manner and the debtor can start clean, and everyone can expend their efforts on more profitable activities rather than beating a dead horse forever. You know a lender can look past seven years and not give another loan to a likely repeat bankruptcy if they don’t want to. Nobody is holding a gun to their heads to make them give a loan. That’s how you stop serial bankruptcies from those few jokers who go around doing that so that people innocent of such shenanigans get painted with the same brush…let the lenders be smart for a change. It is entirely possible to asses a person’s situation and tell if they genuinely had insurmountable tragedy or if they are just gaming the system. </p>

<p>Right now the government is spending a LOT of money trying to collect these defaulted loans: frequently, way more than they collect. So they offset someone’s refund and get 234 bucks in a year. They’ve spent far more than that collecting. And many of these people will simply never win the lottery and get caught up; the collections process after a default makes it really really hard to get out of default because of high fees and the interest accruing.</p>

<p>Between those costs and the money they are out from the guarantee payments to the lenders that they don’t collect, I think they could do away with that whole loan program COMPLETELY and have mountains of money freed up that could then go into the grant programs. Grants are great. (Even better would be schools that are priced at what the market will truly bear so that the government doesn’t have to give us all money so we can go - which makes me wonder, why the government doesn’t just give the schools that money up front in the first place, with the condition that tuition be kept affordable?) </p>

<p>Private lenders could still give out loans even without the government guarantee program and with bankruptcies allowed. If they want to. Nobody would be stopping them. But if a student loan is such a BAD investment and so high risk, that no business in their right mind would do it unless they have this artificial government created goodie bag of guarantees, then why on earth should the government be making the same bad business decisions? If it’s such poor business model and such horrible investments, risk wise, to bet that a student can pay back this money, then WHY ON EARTH have we let the system become so dependent on this very program? Isn’t there something immoral about continuing to support student loans when there is overwhelming evidence that way too many cannot pay them back?</p>

<p>Why aren’t we finding a more intelligent way to do this? It really makes no fiscal sense and it certainly isn’t very benevolent. I think the government needs to find a way to help students fund college that doesn’t necessitate it getting into the kneecapping collection thug business, especially for those who are already having enough trouble as it is.</p>

<p>I think when even large amounts of elite Ivy League graduates, who have every reason to think their impressive diplomas and influential connections they made at those schools would ensure that the cost was worth it and would bring a return, start not being able to get their careers started and having six figures of debt, - the ones from middle class families who had to take loans - it might be the tipping point that brings actual reform. I hope so, anyway.</p>

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No one’s holding a gun to the student’s head to accept the loans and IMO it’s immoral to accept the loan and then not pay it back and attempt to place it on the backs of the taxpayers and/or lender. </p>

<p>And regardless of how predatory one thinks the lenders are, the majority of borrowers do manage to pay them back and thanks to the loans the students were enabled to pursue their interests. There will, of course, be some people who’ll simply shirk their commitments and some who apparently simply can’t/won’t read and understand simple fiscal terms but that doesn’t warrant changing an entire system, to the potential detriment of the majority of students as well as the taxpayers and lenders, to attempt to accommodate this small segment.</p>

<p>For reform I think we need to let supply and demand take its course. If enough people wouldn’t pay the rates (preferably not through shackling them by refusing to give them loans or making it easy for them to discharge the loans, which wouldn’t affect the income of the colleges anyway for the guaranteed loans) the colleges wouldn’t be able to charge what they do. There are often alternatives but as long as people purposely forego the $100K college for the $200K one or the free ride for the $50K one, I don’t see why the more popular colleges would drop their rates.</p>

<p>What we need is for people to take some personal responsibility in their actions and to give it some basic thought and consider what they’re committing to.</p>

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<p>Immoral? :confused:</p>

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<p>So, apparently, you think that everyone who files bankruptcy or defaults on loans is doing it on purpose even though they have great jobs with enough pay. Or maybe they are just turning down work so they can enjoy being unemployed. </p>

<p>I don’t know if you have ever experienced living in a turndown where merely having the qualifications and will to find a job and expending every minute of the day looking for one, nevertheless, doesn’t yield one, or yield’s one that does not even cover living expenses, much less big loans. Either you haven’t, or you came through it okay due to a great deal of luck and now attribute a lack of a lucky break in others to moral failings.</p>

<p>Must be nice to be so omnipotent that you can overcome the odds that thousands of other people are failing to do even though they are desperately struggling to do so, and must feel great to be that morally superior to those degenerates who display their lack of moral character by having catastrophes in their lives.</p>

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<p>The next “bubble” will be education. The idea that higher education at any cost has a good return on investment is no longer true. That idea has allowed for the growth in cost greater than the growth in return. Somewhere 20 years ago a high school diploma lost all of its value, so many jobs that need reasonable math and English skills are demanding a college degree when strictly not necessary. </p>

<p>With the lost of manufacturing jobs overseas, a large segment of the population lost the possibility of good paying manual jobs. College became the de facto only option. The college system was not geared for the influx, and the small supply (colleges) could and did increase cost to the demand (students). </p>

<p>The low cost student loans did not increase with the cost of school, and the banks filled the unmet need. The banks, like other corporations are not moral entities. A dollar is not moral. If you buy milk with it, the dollar is good. If you buy crack with it it is bad. Banks successfully protected their share holder’s interest by guaranteeing student loans through the government. It then became a profitable no risk business. OF COURSE they would issue as many of these loans as possible. </p>

<p>The results of the (inevitable?) crash? There will be some rich schools that will be able to provide need based help, and not allow their students to be overwhelmed by debt. These schools will have the absolute pick of the litter, and their star will rise. The second layer will be split into expensive schools for the slightly less academically gifted but with rich parents and the good state schools that will become more and more competitive. The third layer should be technical schools that direct the students to specific careers, e.g. electricians and plumbing, (the guilds will have to agree), and community colleges that will help the student get to the basic level once attained in high school. One hopes the expensive so-so schools whose students will owe a ton without great prospects will be driven out of business. If the US can recreate a manufacturing base, the idea that one has to have a college education to do anything will recede and we might get some sanity.</p>

<p>There will have to be limits on the amount of debt one can let a student take. The banks need to have consequences for their loans. The same way they look at the property before a mortgage, they may need to look at what school the child is interested in. Further many scholarships require a minimum GPA, why don’t the banks protect their investment and do the same. Our society cannot survive allowing the continual mortgaging of the future. We have started to figure this out with housing and schooling has to be next. How many parents will be on the street in retirement because of school loans for the kids? Yes a part of the $550,000 owed by the doc at the start of the post was mostly her fault. The banks were complicit. If partially bankruptable, the banks would be willing to negotiate, and that would change the playing field for the better.</p>

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<p>A bit off topic but IMHO greyhaired is wrong that a HS diploma has lost its value. What lost its value is the level of instruction at HS, not the diploma.</p>

<p>I hire hundreds of people a year for a living. My company would love to go back to the days when jobs required a HS diploma. But if we want basic numeracy and literacy, it seems that either a college degree or at least some college credits is the only way to save ourselves from plowing through thousands of poorly written, non-grammatical, error-ridden applications and cover letters.</p>

<p>Not that we don’t get those too from college educated folk- I needed to hire a PhD in English for an entry level editing job which a generation ago could have gone to someone who had passed Mrs. Reilly’s 5th grade grammar and sentence structure class at any decent elementary school.</p>

<p>So the arms race-- exploding levels of debt, credential-creep, ever-escalating expenses for a college education-- seems to me that getting back to basics in K-12 education is one place to start.</p>

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<p>snapdragon:</p>

<p>You’re attributing student loan defaults to some catastrophic consequence that was inflicted on the borrower that they had no choice in. You seem to see the borrower as always the victim and the lenders, the colleges, the taxpayers, and society in general as somehow responsible for the borrower ending up in the mess some of them end up in. </p>

<p>We all make choices and those who make poor choices will sometimes suffer some consequences (or ‘not’ if some people had their way). I think there’s plenty of evidence of students taking out loans they’ll have a difficult time paying off unless they work extra hard at it (which some refuse to do), of the borrowers not prioritizing getting the loan commitments paid which can result in a negative spiral such as happened to the person in the article, and sometimes of borrowers simply feeling entitled to have the money without any real need to pay it back. And no, I don’t attribute most of the student loan defaults as simply a bout of bad luck as opposed to a lack of commitment in getting them paid back. Fortunately, most people do take the responsibility seriously and do get the loans paid back.</p>

<p>This is a similar discussion to those who blame credit card companies for individuals spending more than they should, or who blame McDonalds for individuals who eat poorly while some others of us believe in personal responsibility. </p>

<p>We obviously have two different outlooks on this personal responsibility point. </p>

<p>btw - I’ve been around over 50 years so I’ve been around for an economic downturn or two.</p>

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<p>Great–once again I’ve bought something at the height of the bubble…</p>

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<p>snapdragon: i couldn’t agree with u more!!!</p>

<p>ellemenope: LOL</p>

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<p>I don’t know what the default numbers have been on student loans historically, but I don’t think it is relevant in this situation because we now have unprecedented $ amounts being borrowed by KIDS that are just cannot be paid by projected incomes. It is outrageous that kids ages 17-22 are taking out loans of $50-100K for undergraduate educations. Pair that with tough economic times and bad job outlooks with the meter running on interest accruing, and I don’t see how these kids can possibly pay back the money.</p>

<p>With so many people in trouble with housing defaults, credit problems un/der employment, the parents are not going to be much better. The only out for them is that they might just die early from this stress, thereby discharging the loans. </p>

<p>I don’t know anywhere else or anyone else crazy enough to lend that kind of money to kids that age who haven’t even shown what they can get in a job situation. </p>

<p>When a critical mass of the population cannot do or does something, the effect is quite different from that when some outliers are in that situation.</p>

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<p>Ellemenope, ha, ha. Am laughing with you. So did I. The two things where we invested our money are our home and our kids’ educations.</p>

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<p>Now add buying tech stocks at the height of their bubble in 2000, cptofthehouse, and you’ve hit the tri-fecta!</p>

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<p>Frontline on pbs has a program that deals partly with college loans: “College, Inc.” It can be seen on the Frontline website and on Netflix instant watch. It is very well done. So far it has garnered over a thousand comments on the Frontline website.</p>