What if Student Loan Debt Could Be Subject to Bankruptcy?

35 Replies

Hi folks - I wanted the BP community opinion on an off-topic finance related thought.

It seems to me like a ton of millennials, and more of whatever the next generation is called, are graduating college with massive student loan debt, often disproportionate to the expected income they will generate after they receive their degree. For example, a history major will graduate with six-figures in student loan debt. A veterinarian or a dentist will graduate with debt like that of a Doctor, but with far less income potential.

Has there been any discussion or debate about this as a potential solution:

Going forward, allow student loans to be subject to bankruptcy law. 

The way I understand things, most debts, like a home mortgage, credit card debt, medical debt, etc, are subject to a statute of limitations. After a period of years, usually 7, creditors can no longer sue you to collect debt on outstanding balances. This protection does not apply to student loan debt and a few other types of debt.

Well if it did, and individuals COULD file for bankruptcy on student loans, then creditors would no longer support education which was unlikely to result in the student speedily repaying the debt.

I'm not excusing people for making decisions to take on too much student loan debt, and I'm not suggesting that we forgive all student loan debt, or let those who signed up for it already file for bankruptcy to get out of their obligations. I'm suggesting a change to the law that allows future student loan debt to be subject to bankruptcy protection laws in the same way that medical debt is. Perhaps you could argue for a longer statute of limitations - maybe 10, 12, or 15 years. But having any statute of limitations at all, I believe, would dramatically deflate the education and student loan industries in a necessary way, and steer the country towards more STEM education and the types of degrees that the marketplace demands.

I believe that creditors, in the private marketplace, would then eliminate the opportunity for students to take on crazy amounts of debt for uneconomical career choices. 

Would you lend $100,000 to a 17-year-old college kid studying philosophy if they had the option to declare bankruptcy? No way. The only reason that kid gets a loan right now is that the loan follows him or her for LIFE. 

 Would you lend to that same kid if they were to study Computer Science? Maybe. As long as each installment was contingent on appropriate academic performance and the student taking appropriate steps to increase the likelihood of landing a lucrative job.

Anyways - just spitballing here and hoping for some feedback on this thought. 

@Scott Trench it’s definitely interesting. I think bankruptcy protection for student loans could help with cost some but I’m not sure t would help a lot.

Most likely it would just prevent people from going. Which if that happens enough could ease demand and lower cost some. But it would have to be a lot of people.

I think a bigger effect though would be making sallie mae a not for profit institution. It didn’t used to be but now a days it is, hence they lend as much as possible to make more money, which drives tuition up because colleges know they can get away with it since the students or parents will just borrow the difference.

There are options but most likely won’t be happening anytime soon. So I think the first thing to do is be smart about it. Parents need to educate their kids on financial basics like loans. Ideally parents would contribute to the cost but if they can’t they should help the student minimize debt. On top of this students also should work part time or make sacrifices to make it cheaper.

I went to an expensive school, but I studied engineering, and have made twice what the school cost in 2 years since I graduated. Over a normal 30 year career i should easily make 25-30 times that cost (gross).

I’m now doing a masters that will cost me essentially nothing because my employer will pay for most of it at a top 15 school for that program.

So I’ll have two degrees and Zero student debt. Definitely possible. I also worked during undergrad and will also during grad school. Neither is easy when doing a full course load of engineering.

My girlfriend has made similar sacrifices including transferring to a cheaper school, living with family to not pay rent, and working part time so she can pay down loans while in school.

On top of all this she also found student loan programs that have zero percent interest and a 7 year repayment program.

I’ll stop there but you get the idea

@Scott Trench fantastic question.

As someone who owns ~50 student rental units and rents to 140 students, the biggest long term disruptor to my niche seems to be a student loan bubble.

Many of the tenants in my market (via their parents or their student loans) are paying $700/-$1000/month plus utilities for housing. Living in Vegas style apartment complexes with stainless steel everything, rooftop pools, and all of the amenities that you can imagine.

They are then graduating and barely able to afford half of that on their own. And that's if they can afford anything at all. Many of my tenants ask to have their security deposit refund sent to their parents house. Because that's exactly where they are moving back to.

It is the path of least resistance to blame "the system" for the looming student loan debt crisis but a lot of the responsibility needs to be put on the students and/or their parents. You don't have to go to a private liberal arts college that costs 65k year to get a good education. You just don't. Especially if you can't afford it.

So, to answer your question, I don't think that bankruptcy should be an option. Especially telling a 17 year old that.

I agree that the cost is way out of control, but there are plenty of students out there who work in college and come out with low or no debt.

@Scott Trench I really like the idea of disincentivizing creditors for making such insane loans to people that literally may never be able to repay, but that is not what the market is demanding or we wouldn't be here. Similar but different, Dodd Frank considerably changing the lending space, which ultimately made it more expensive for the borrower. Similar theme being, if the people can't figure out simple economics, the government will need to protect us from endangering ourselves. 

I can never get behind allowing student loans to be bankrupt-able - for one reason. Other than purchases made with a credit card/LOC, when you file BK you lose the house, car, boat and other assets (if any). If you BK on your education loans, you still have the education and ability to make an income with the education received.

It all starts at home with parents teaching their children how the real world works before allowing them to go out of state at a great football school to study philosophy while racking up $100k in debt. There is also no onus on the universities that continue to increase costs year over year, again showing the market doesn't seem to care...until they are $100k in debt explaining why they can no longer provide straws for cold drinks in the drive thru. 

Agree 100% the system is not right and that degrees from colleges will continue to mean less and less. I also don't know what the answer is other than what I can control - saving for my kids education and teaching them economics.

Fantastic subject to discuss. 

@Scott Trench , the idea of making student loan debt subject to bankruptcy HAS been raised in the political sphere many times in the past (generally on the Left), but it has exactly the problem you describe: Nobody would issue student loans anymore.

Even if the student was studying something worthwhile, there would be little reason not to file for bankruptcy the day after graduation. New graduates have few assets to lose, and that's in a world where they don't have reason to try to hide assets from bankruptcy. The credit score impact isn't nearly enough of a deterrent.

There is plenty of agreement that the current loan structure encourages irresponsible borrowing, but this comes out of a long history of positing post-secondary education as a "right" that "everyone" must have (Mike Rowe being a notable voice to the contrary). There would be political resistance to overtly making it harder for students to borrow money, even if people like us realize that making student loans subject to bankruptcy would do the same thing indirectly.

If student loan debt were to become discharchable in bankruptcy, then student loan lending rates would skyrocket. Student loans I believe are the highest default rate already, so then lenders would likely need absurd rates on it to compensate for the risk..think like 25% or so. 

This is great feedback! 

Interesting point from @Travis Sperr about how the degree stays with you for life and presumably impacts earnings power for life. I understand that rationale, but I wonder if that's as true today as it was a generation ago. How often do you look at someone's degree when assessing them for a job? Maybe in the first 4-5 years out of college? When we recruit here at BiggerPockets, I usually make no more than a minor mental note of folks - where they went to school and what they studied is far less important to me than whether they have relevant job experience and convince me of their ability to rapidly develop the related new skills they'll need to work here. So, I wonder if colleges degrees truly have an impact in most fields beyond that first 1-3 (maybe five) years after graduation. 

In that case, economics would suggest a moderate loan of perhaps tens of thousands of dollars in a field in which a college graduate can expect to earn a median income following graduation, and maybe a small six-figure balance in a highly lucrative field. 

@Will Gaston - One challenge I'd pose to your logic here (which is excellent and clearly rooted in experience with many college kids over many years!) is that if bankruptcy were an option, then the lender would be far more careful in the first place. A lender is not going to create a situation at a favorable interest rate and with an increasingly large balance in which a student can study history and live in a swanky apartment complex. Instead, they would grant loans in installments, as the student performed each academic semester, and require internships or other job related searches. The private market would quickly weed out the type of student who would be likely to take a loan, live it up big time in college, and go on to declare bankruptcy to avoid liability. Instead, loans would only be made to people with truly excellent economic prospects, and with harsh, strict, academic and workplace-related terms.

I'd argue that all of this would be better for the students. Think about how they will be paying for their "right" to your $1,000 per month housing at a great football school (I know one or two folks who I suspect went to USC from out of state so they could study an easy major, drink too much, and yell "Go Cocks!") for the rest of their lives. If businesses lost money on this type of bet, you can bet that a couple of things would happen:

1) The number of kids doing the above on borrowed money would dramatically decline - they simply wouldn't be able to get financing for it. 

2) Demand would drop at major institutions around the country, resulting in a price war. It's easy to raise tuition astronomically every year when the market is set by folks paying for school with other people's money and those lenders are guaranteed repayment. Won't be if those lenders had a legitimate reason to fear that they might not be able to legally recoup their principal. 

@James Free - I disagree though - I think that people WOULD still offer student loans, they'd just be much more selective about it. Think about this - suppose that the statute of limitations on delinquent student loan debt was 15 years (I'm not wording this correctly, but my intent is to argue that bankruptcy protection would not apply to student loan debt until 15 years from the date of graduation - until then, declaring bankruptcy would not remove your obligation to repay student loan debt. After 15 years, personal bankruptcy could.). Wouldn't you still be willing to bet on a student with great grades going to a good school to study Computer Science? If you lent on the condition that they maintain a 3.5 GPA and get at least one paid internship related to their major every year, chances are good that this student will land a $60,000+ per year job after graduation, and chances are good that they'd go on to have potential to earn a $100,000 per year job after that. 

This student has a great chance of paying down $100,000 in 5 years out of college, and has every incentive to do so rather than live with ruined credit for 15 years so that he can declare bankruptcy. This is still a reasonable bet for the creditor at a reasonable interest rate, and it's still a win for the student. 

Of course the marketplace for lending in some majors would dry up almost completely. As they should.

Originally posted by :

This is great feedback! 

Interesting point from  about how the degree stays with you for life and presumably impacts earnings power for life. I understand that rationale, but I wonder if that's as true today as it was a generation ago. How often do you look at someone's degree when assessing them for a job? Maybe in the first 4-5 years out of college? When we recruit here at BiggerPockets, I usually make no more than a minor mental note of folks - where they went to school and what they studied is far less important to me than whether they have relevant job experience and convince me of their ability to rapidly develop the related new skills they'll need to work here. So, I wonder if colleges degrees truly have an impact in most fields beyond that first 1-3 (maybe five) years after graduation. 

In that case, economics would suggest a moderate loan of perhaps tens of thousands of dollars in a field in which a college graduate can expect to earn a median income following graduation, and maybe a small six-figure balance in a highly lucrative field. 

Fair point that degrees are not important at all after x number years in the industries you and I operate in but, that same degree that may be over looked when experience is strong, was required to get the job that provided the experience that you are seeking. In some cases the degree is the cost of entry being a requirement for law school, nursing school, medical school, masters programs and now to become an appraiser! Of course discussing specific scenarios is getting into the weeds on the subject, but a doctor fresh out of residency who borrowed their way through is as bankrupt-able as they come $300k+ in student loan debt, before they buy the Beemer and get the doc loan on a $750k home all before making a dime as a doctor. With the debt wiped clean, they can continue on to make $300k+ a year for 30 years. Maybe an extreme example, but you get it. 

As insane as the entire education system has become, we both know there are still very real possibilities to get a great education with little student loan debt and the prospects of a lucrative career.  

Fun discussion and view points. 

The interest rates on some of those loans are ridiculous, especially with rising school costs, more and more students are graduating with more debt. From an investment perspective, loaning 50k+ to a person straight out of high school is completely out of the question, imagine a bank giving out mortgages to 18-20 year olds with no credit, no assets (or barely any), no experience, or anything.

But on the other hand, if a person cant borrow, how are they going to get an education and move up in the world(assuming they get a somewhat useful degree)? If not, education will be a middle class and up thing. 

@James Free is somewhat right, in that, if they are dis-chargeable, many lenders will not lend anymore, especially to people with degrees in art, history or philosophy and will lend only to people majoring in STEM or business, something they know will end up making money. I have read Many stories of people with "useless" degrees working at starbucks or target making 10 an hour with 50k, 100k and some with 150k debt. These people will NEVER be able to pay off the loan. the interest alone is more than what they make. 

Maybe their could be some middle ground, like partial bankruptcy (if that makes sense) and 25% or 50% of the debt will be discharged or free, Mandatory student debt (or finance classes in high school for example) classes for every single student going to college.

Otherwise, thier will be serious ramifications 10, 20, 30 years down the road.

@Scott Trench Excellent summary of the possible micro impacts of allowing BK for student loans. 

At a macro level its worth asking "why can't you discharge student loans in BK?" This Time article explains the rational, but in short, since the Fed gov makes student loans backed by tax payer dollars, those students should have to pay back their neighbors, no matter what. To entice more capital to the space the same privilege was extended to private lenders. More capital= more people getting an education=increase in human capital, which is inherently good for our nation. That was the main idea of the federal gov getting into the student loan game in the first place. 

Now allowing student loans to be discharged in BK now has a few flavors:

-Only Discharge private loans: it happened for over a decade, but will most likely lead to higher rates/loss of capital= less students

-Only discharge public: adds the wrinkle that I can now borrow your tax dollars and never pay them back, meets the gov goal but is hard to sell to the voters.

-Discharge both public+private: More "fair" if you will, but still doesn't solve the rate issue on the private side and I can still take your $ to get a degree in underwater basket weaving that I will never pay back. Now the voters don't like one half and the capital has left the building.

-Keep the status quo: the devil we know... but tweak the definitions; Its in the the works. Dept of Education is looking it at making it easier to get a hardship discharge. 

Some unintended consequences of trying to improve human capital is that the cost has soared;

however, the policy has done a fairly good job of meeting its goal. The US has one of the highest human capital bases in the world and its only getting bigger. 

Equating someone's major with their earning potential, especially having the private sector as the mechanism,  will almost certainly lead to a decrease in overall human capital. Having people in STEM because its the only degree they can get a loan for does lead to more STEM graduates, it also leads to more STEM drop outs. What is worse than getting a useless degree with a ton of student debt? Not getting a degree and still having debt. It also blurs the line between education and training while missing the "point" of a undergraduate degree, which is to teach people how to learn, think, and communicate in an organized and coherent fashion. 

The real question for me is "What has lead to the drastic increase in education costs and are we as a society getting more marginal benefit than we were 35 years ago?"

Originally posted by @Bill F.:

@Scott Trench Excellent summary of the possible micro impacts of allowing BK for student loans. 

At a macro level its worth asking "why can't you discharge student loans in BK?" This Time article explains the rational, but in short, since the Fed gov makes student loans backed by tax payer dollars, those students should have to pay back their neighbors, no matter what. To entice more capital to the space the same privilege was extended to private lenders. More capital= more people getting an education=increase in human capital, which is inherently good for our nation. That was the main idea of the federal gov getting into the student loan game in the first place. 

Now allowing student loans to be discharged in BK now has a few flavors:

-Only Discharge private loans: it happened for over a decade, but will most likely lead to higher rates/loss of capital= less students

-Only discharge public: adds the wrinkle that I can now borrow your tax dollars and never pay them back, meets the gov goal but is hard to sell to the voters.

-Discharge both public+private: More "fair" if you will, but still doesn't solve the rate issue on the private side and I can still take your $ to get a degree in underwater basket weaving that I will never pay back. Now the voters don't like one half and the capital has left the building.

-Keep the status quo: the devil we know... but tweak the definitions; Its in the the works. Dept of Education is looking it at making it easier to get a hardship discharge. 

Some unintended consequences of trying to improve human capital is that the cost has soared;

however, the policy has done a fairly good job of meeting its goal. The US has one of the highest human capital bases in the world and its only getting bigger. 

Equating someone's major with their earning potential, especially having the private sector as the mechanism,  will almost certainly lead to a decrease in overall human capital. Having people in STEM because its the only degree they can get a loan for does lead to more STEM graduates, it also leads to more STEM drop outs. What is worse than getting a useless degree with a ton of student debt? Not getting a degree and still having debt. This concept blurs the line between education and training while missing the "point" of a undergraduate degree. 

The real question for me is "What has lead to the drastic increase in education costs and are we as a society getting more marginal benefit than we were 35 years ago?"

Same reason SBA loans are not dischargable in BK.....  and other govmit loans have security so you can BK but cant wipe them out. 

Originally posted by @Russell Brazil :

If student loan debt were to become discharchable in bankruptcy, then student loan lending rates would skyrocket. Student loans I believe are the highest default rate already, so then lenders would likely need absurd rates on it to compensate for the risk..think like 25% or so. 

 That would apply to private education lending.  If in some crazy scenario allowing student loans to be discharged through BK were to be enacted I think it would simply mean that private education lending would go away. The government would then continue providing low interest education loans and take massive losses.

I don't see even the political left as being likely to pursue this option.  I think they like the sound of 'universal free education' a lot better, and are more likely to pursue that.

Originally posted by @Scott Trench :

Hi folks - I wanted the BP community opinion on an off-topic finance related thought.

It seems to me like a ton of millennials, and more of whatever the next generation is called, are graduating college with massive student loan debt, often disproportionate to the expected income they will generate after they receive their degree. For example, a history major will graduate with six-figures in student loan debt. A veterinarian or a dentist will graduate with debt like that of a Doctor, but with far less income potential.

Has there been any discussion or debate about this as a potential solution:

Going forward, allow student loans to be subject to bankruptcy law. 

The way I understand things, most debts, like a home mortgage, credit card debt, medical debt, etc, are subject to a statute of limitations. After a period of years, usually 7, creditors can no longer sue you to collect debt on outstanding balances. This protection does not apply to student loan debt and a few other types of debt.

Well if it did, and individuals COULD file for bankruptcy on student loans, then creditors would no longer support education which was unlikely to result in the student speedily repaying the debt.

I'm not excusing people for making decisions to take on too much student loan debt, and I'm not suggesting that we forgive all student loan debt, or let those who signed up for it already file for bankruptcy to get out of their obligations. I'm suggesting a change to the law that allows future student loan debt to be subject to bankruptcy protection laws in the same way that medical debt is. Perhaps you could argue for a longer statute of limitations - maybe 10, 12, or 15 years. But having any statute of limitations at all, I believe, would dramatically deflate the education and student loan industries in a necessary way, and steer the country towards more STEM education and the types of degrees that the marketplace demands.

I believe that creditors, in the private marketplace, would then eliminate the opportunity for students to take on crazy amounts of debt for uneconomical career choices. 

Would you lend $100,000 to a 17-year-old college kid studying philosophy if they had the option to declare bankruptcy? No way. The only reason that kid gets a loan right now is that the loan follows him or her for LIFE. 

 Would you lend to that same kid if they were to study Computer Science? Maybe. As long as each installment was contingent on appropriate academic performance and the student taking appropriate steps to increase the likelihood of landing a lucrative job.

Anyways - just spitballing here and hoping for some feedback on this thought. 

Nobody would loan an 18 -22 year old $100,000 if the debt could be forgiven with bankruptcy. All that would happen is filing bankruptcy would become standard practice and would just become part of a "financial strategy". Bankruptcy is amazingly easy to recover from. One of two things would happen:

A. Government would need to back all loans and as a result the tax payers would pay the bill for defaults. I don't like this because it rewards irresponsible behavior with my tax payer dollars. 

B. Lending institutions would have to factor risk into their interest rate. Look at the premium that unsecured debt (credit cards) has right now on fees and interest rates. The reason houses and car loans have lower rates is because they are secured by an asset. You can't take an education back from someone, so making it permanent debt was the solution to facilitate lending at reasonable rates.

I see your point about some degrees being more practical than others, but I can only imagine the outcry if banks were allowed to pick "winners and losers" among career choices.

The bigger factor here is something you address almost weekly in your podcast. It is a personal choice on how you choose to spend your money. Most people with heavy student loan debt could get out of debt in 5-10 years after graduating college if they followed a disciplined plan. The problem is they chose to treat themselves to a new car, vacation, a fancy apartment, going out with friends to the bar, wasting your life watching Netflix and the list goes on. The bad decision making that lead to heavy student debt, leads to even worse consumer debt. Staying in debt is a choice. 

There is a wealth of free information out there on how to avoid debt and how to get out of debt. Free podcasts like the BP Money podcast and blogs are everywhere. The Dave Ramsey program is free at most churches or the book is at every library. It is not that people don't know, they just chose a different path. People want instant gratification and they deal with the consequences later. 

In some ways it is almost necessary to make money mistakes when you are young. People can be warned, but until they see consequences from their own mistakes, they often will not change. That is the danger in protecting people too much. If you are never allowed to fail, you can't learn how to succeed. 

It's ridiculous that you can't get rid of student loans in bankruptcy. I get that there was this scam that students would declare bankruptcy right after graduating, but all that was needed was some sort of lag period (i.e. you can't get rid of student loans for X number of years). But you should still be able to remove them in bankruptcy, at least eventually.

Originally posted by :

This is great feedback! 

Interesting point from  about how the degree stays with you for life and presumably impacts earnings power for life. I understand that rationale, but I wonder if that's as true today as it was a generation ago. How often do you look at someone's degree when assessing them for a job? Maybe in the first 4-5 years out of college? When we recruit here at BiggerPockets, I usually make no more than a minor mental note of folks - where they went to school and what they studied is far less important to me than whether they have relevant job experience and convince me of their ability to rapidly develop the related new skills they'll need to work here. So, I wonder if colleges degrees truly have an impact in most fields beyond that first 1-3 (maybe five) years after graduation. 

In that case, economics would suggest a moderate loan of perhaps tens of thousands of dollars in a field in which a college graduate can expect to earn a median income following graduation, and maybe a small six-figure balance in a highly lucrative field. 

 As far as the importance of degrees. I have been in the work force over 20 years and I can say the importance of degrees is increasing, especially for large companies. I work for a fortune 500 company that will not even consider hiring someone for a customer service job without a 4 year degree. More advanced positions require MBA to be considered. Factory jobs are the only ones that don't require degrees at my company, unless you are a supervisor. It is sad to see this trend, because I have seen good people passed up simply because they don't have a degree. HR won't even pass the applicants to the hiring manager without a degree. This is probably tied more to processes. Big companies have a tendency to wrap a process around everything, smaller companies are more agile and there are less rules / processes. Having worked for small and large companies, I can say there is good and bad with both approaches. 

@Scott Trench  is absolutely right to attribute rising college costs to too-easy credit and too-easy credit to the fact that loans can't be discharged in bankruptcy. The problem is the politics around this. As others have alluded to, it would be very politically incorrect to have banks offering different terms depending on major. More than that, though, what happens when a student wants to change majors? We'd see articles lamenting the poor students who are "trapped in a major they don't like anymore" because the evil banks won't let them switch without losing their loans. From the lender's perspective, enforcing a degree path is all but impossible, especially if you have to do so in a publicly-acceptable way.

Policy can't lead the public; the public has to lead policy. Movements like BiggerPockets and FI need to lead the charge in changing public opinion so that fewer people choose to take on huge debts for diplomas with little market value. People must learn that in the internet age, true knowledge and value comes less and less from formal education, classrooms, and pieces of paper. When that knowledge sinks in, the college bubble will deflate, with or without policy changes.

But again, I think this was a great topic. Don't let the discouraging feedback suggest otherwise.

Nice topic @Scott Trench ,

I am against the idea of forgiving a student loan in bankruptcy. The real problem is with the cost of an education. Colleges are focused on bigger, prettier buildings over the value of the education they provide. Allowing new individuals with no financial experience access to these country clubs at premium prices is the real issue. Worse is then letting them walk away from the bill at the end. 

@Scott Trench this idea is great in theory. The only issue I have the concept of bankruptcy is in my opinion it is an easy way out of paying the debts that we all have accumulated throughout the years. I have seen many people take advantage of this and honestly in my opinion I think the requirements should be a lot more stringent than they are today. 

I believe that if we learn about debt/credit and how it will apply to all of us in the future, during grade school or highschool years. Majority of people would never need to use bankruptcy as a means of exit strategy to the predicament they have gotten them selves into.

As far as student loan debt, we should have a better process and more funding should be readily available to students from the government that will help to offset some of these costs.  Ie: Grants and other programs that will allow students to work in the field during their studies to help them learn more about the field and really decide whether or not they want to actually work in the field they are studying in. Public and Private school is in my opinion just a business. what we learn in these text books are not always applied in real life. 

I am speaking as a triple major and someone who also holds a masters degree. Again in my opinion education = a waste of time. 

I would love too see if some one would further dissect the student loan programs such as Nelnet, and Edfinancial, i would love to understand who are biggest stakeholders in these privately/publically held companies. And furthermore who are backing them, I am sure they are subsidized by the government and have some political hands that allow them to be the servicers of majority of the government loans. Again this leads back to my thought that education in my opinion is nothing but a business. Unless you have a Grant or scholarship, as an 18 year coming out of highschool you fall pra\ey to debt collectors right out of college because again we are not taught about this in highschool to better prepare our students we need to educate them. I also feel sorry for the parents who have to cosign for these loans too. 

Is there not the possibility of a debt ceiling for student loans?  The main issue is the ability to run up astronomical unsecured debt in the first place.  I haven't thought about it deeply, but I could see a rationale for private loans being subject to bankruptcy (they're not unlike credit cards), but not government ones.  At least there's some sort of limit to government loan totals.

 I have two kids in college, with some savings but nowhere near tuition for two. One is in private school with fantastic financial aid, the other is at a 2nd-tier state school living (house-hacking, with roommates) in a house that I bought near campus.  My out-of-pocket costs are roughly equal for each kid (less now for the house-hacker now that he is out of the dorm).

 In our situation, subsidized student loans are definitely in the picture -- it's "free money" until school ends, and I figure this is their "skin in the game" for the college education. If I can assist with repayment when they're done, I will, but no guarantees.  No unsubsidized loans if I can help it, and for sure no private ones.

The total for 4 years is around $20,000, which is roughly equivalent to the cost of a new car, and my own mom-imposed ceiling for the kids' loan debt.  If the college education isn't as valuable as a new car, then they need to quit now and enter the real grown-up world!

Interesting thought.  I think if it was subject to bankruptcy rules, the fantastic deals these kids are getting in terms of payment start dates / interest rates / etc. would change substancially.  Also, I believe many kids would no longer qualify for loans because the lending standards would increase.  

At the end of the day, I think it's all about how we value "education" in general as a society vs. specific types of eduction (e.g., computer science vs english).  People tend to espouse the criticality of education in general, but not go into detail about what those benefits mean from one degree to another.  

I would like for us to take on a European philosphy where we value "trade" degrees as a path to a successful career.

Nonetheless, in its current state, I do believe that underwriting for these types of loans should account for earning potential, similar to how loaning against a property requires an evaulation of ARV and DTI.

it’s complicated, the payments should match ones income; however.

IF i had student debt, and wanted to BK it. I would cash advance on credit cards, get some peer to peer loans and pay off the student loans,  then BK the other new debt. Am really surprised more people don't do this.

@Scott Trench ,  Student loans can already be discharged in bankruptcy court, just the standard is higher/harder to achieve.

Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)

I was debating how to answer the broader questions you bring up in this thread. Cost of education, debt taken on with 'bad' degrees, public interest in education etc.

If I where dictator for life, I would have every STEM degree 100% paid for by the government, or if that is too much Bernie for you 100% qualified for low interest student loans. As a country we need highly educated and trained individuals to remain competitive and to have a robust economy. 

I would then allow the Education Secretary to dictate specific degree programs that qualify for federal student loans. This would allow a re-certification process every 4 years, and every Right-Left swing, to decide the new direction the administration (hence population as a whole) wish to take the education system. Trump might have wanted to concentrate on Business so he appoints someone that would focus on that. Hillary might have gone the direction of a more Liberal arts field. But in 4-8 years a NEW direction would be dictated by the president and they wouldn't have to carry on the policies of the last. Or if a shortage popped up that can be address by dictating that degree or program would qualify for the benefits.  

This would also have a 'free' market aspect to it since at any one time certain degrees would have to be paid for out of pocket, or with higher interest loans, schools would have to keep prices down to compete. MIT, CalTech etc would most likely be expensive since they focus on STEM. But Colorado State and University of Colorado, who vast majority of graduates are not in the STEM field, will need to keep prices down in order to be competitive.

Originally posted by @Michael Randle :

@Scott Trench ,  Student loans can already be discharged in bankruptcy court, just the standard is higher/harder to achieve.

Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)

I was debating how to answer the broader questions you bring up in this thread. Cost of education, debt taken on with 'bad' degrees, public interest in education etc.

If I where dictator for life, I would have every STEM degree 100% paid for by the government, or if that is too much Bernie for you 100% qualified for low interest student loans. As a country we need highly educated and trained individuals to remain competitive and to have a robust economy. 

I would then allow the Education Secretary to dictate specific degree programs that qualify for federal student loans. This would allow a re-certification process every 4 years, and every Right-Left swing, to decide the new direction the administration (hence population as a whole) wish to take the education system. Trump might have wanted to concentrate on Business so he appoints someone that would focus on that. Hillary might have gone the direction of a more Liberal arts field. But in 4-8 years a NEW direction would be dictated by the president and they wouldn't have to carry on the policies of the last. Or if a shortage popped up that can be address by dictating that degree or program would qualify for the benefits.  

This would also have a 'free' market aspect to it since at any one time certain degrees would have to be paid for out of pocket, or with higher interest loans, schools would have to keep prices down to compete. MIT, CalTech etc would most likely be expensive since they focus on STEM. But Colorado State and University of Colorado, who vast majority of graduates are not in the STEM field, will need to keep prices down in order to be competitive.

 Brunner is what makes it nearly impossible to discharge student loan debt, not what makes it possible.

Bad wording above on my part. I meant to point out how Brunner set the standard to discharge the student loans. Since everyone (or at least most of the people) where stating that student loans cannot be discharged due to Bankruptcy.

Just to be clear, student loans can be discharged in Bankruptcy, it is almost impossible.

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