NY Times Editorial: Let Students Discharge Private Loans in Bankruptcy

[bobbyw24]

Legislation is pending in both houses of Congress that would make private school loans dischargeable through bankruptcy, as most of them were before Congress changed the law in 2005. It had long been the case that federally backed student loans were protected during bankruptcy proceedings. That is reasonable, since those loans were backed by taxpayer dollars and flexibly structured so that borrowers could receive deferment in tough times and resume payments when their finances improved.

The country has a compelling interest in making it as difficult as possible for student borrowers to elude payment for federal loans. There was no reason for extending that protection to private lenders of student loans.

http://www.nytimes.com/2011/08/27/o...btors.html?_r=2&nl=todaysheadlines&emc=tha211

 

[angelatc]

Hey Bobby, I'm not arguing because obviously you're much more familiar with the law than I am....but I remember thinking that student loans weren't dischargeable in bankruptcy much earlier than 2005, the logic being that the "provate" loans were federally insured.

Where did I get that impression?

And by the way, this statement is bred of pure evil:

"The country has a compelling interest in making it as difficult as possible for student borrowers to elude payment for federal loans. There was no reason for extending that protection to private lenders of student loans. "

 

[bobbyw24]

Hey Bobby, I'm not arguing because obviously you're much more familiar with the law than I am....but I remember thinking that student loans weren't dischargeable in bankruptcy much earlier than 2005, the logic being that the "provate" loans were federally insured.

Where did I get that impression?

And by the way, this statement is bred of pure evil:

Right not since Oct. 1 1998

and yes that quote is B.S.

 

[Gumba of Liberty]

God this would save a lot of people. I hope it passes.

 

[specsaregood]

God this would save a lot of people. I hope it passes.

And it screws over the taxpayers, many of whom are people that paid their way through school on their own dime.
If they are gonna allow this, then lets get rid of the federal subsidized loans completely. We can't have both.

 

[Gumba of Liberty]

And it screws over the taxpayers, many of whom are people that paid their way through school on their own dime.
If they are gonna allow this, then lets get rid of the federal subsidized loans completely. We can't have both.

How does bankruptcy of PRIVATE students loans screw over the taxpayer? If you go bankrupt and cannot pay your bills in the United States, under the Constitution, you file for bankruptcy. Why does this apply to any loan but student loans? You think it is better to make these people indentured servants of the State who have to pay back fractional reserve banks that had neither the funds or the the lending standards that the free market would provide?

 

[angelatc]

How does bankruptcy of PRIVATE students loans screw over the taxpayer? If you go bankrupt and cannot pay your bills in the United States, under the Constitution, you file for bankruptcy. Why does this apply to any loan but student loans? You think it is better to make these people indentured servants of the State who have to pay back fractional reserve banks that had neither the funds or the the lending standards that the free market would provide?

I'm guessing you have a student loan, and you want a bailout?

Servants? Screw that. They weren't forced to take out loans, and if they hadn't been so eager to accept the easy money tuition rates wouldn't have skyrocketed. Those of us that worked our way through school and graduated without a dime in student loan debt have absolutely no sympathy for them.

The banks made those loans with a government that told them the loans would be excluded from bankruptcy. (Might I point out that they were also loaned to people who were fully aware that they would not be dischargeable in bankruptcy.)

In the meantime, the government has seized control of the student loan market. If I understand it correctly, banks aren't even allowed to write private student loans any more.

This is the government changing the terms after the fact, and using their power to drive even more banks into bankruptcy, therefore giving them the opportunity to seize even more control of the nations financial and educational system.

Note that not all student loans would be dis-chargeable - just those that aren't "enslaving" the debtor to the government.

 

[heavenlyboy34]

I'm guessing you have a student loan, and you want a bailout?

Servants? Screw that. They weren't forced to take out loans, and if they hadn't been so eager to accept the easy money tuition rates wouldn't have skyrocketed. Those of us that worked our way through school and graduated without a dime in student loan debt have absolutely no sympathy for them.

The banks made those loans with a government that told them the loans would be excluded from bankruptcy. (Might I point out that they were also loaned to people who were fully aware that they would not be dischargeable in bankruptcy.)

In the meantime, the government has seized control of the student loan market. If I understand it correctly, banks aren't even allowed to write private student loans any more.

This is the government changing the terms after the fact, and using their power to drive even more banks into bankruptcy, therefore giving them the opportunity to seize even more control of the nations financial and educational system.

Note that not all student loans would be dis-chargeable - just those that aren't "enslaving" the debtor to the government.

Fair points, but why should this sort of debt be different than other debt that can be discharged in bankruptcy? No one goes into debt without knowing the possible consequences. The lenders made foolish decisions by lending money without collateral (or any other indication that the borrower could repay)which is called predatory lending in other industries. Actions have consequences.

 

[TheBlackPeterSchiff]

I'm guessing you have a student loan, and you want a bailout?
.

I do

Banks got one, why cant I.

 

[newbitech]

The problem with student loans is the same problem with all loans. The "lender" gets to keep the collateral, while also compelling the "borrower" to continue to pay. If the collateral is repossessed, then the loan should be discharged. In the case of student loans, the collateral is the degree and the promise that the degree will help land a job, and good paying ones at that.

So if the person owing the money does not have a good paying job and a degree, then the persons student loan debt should not exist either.

 

[angelatc]

Fair points, but why should this sort of debt be different than other debt that can be discharged in bankruptcy? No one goes into debt without knowing the possible consequences. The lenders made foolish decisions by lending money without collateral (or any other indication that the borrower could repay). Actions have consequences.

If we view the bankruptcy protection as a form of a subsidy, I think that we can agree that nobody in these parts ever thought that federally subsidized student loans were a good idea precisely because they create exactly the situation that the original article condemns - a bubble.

But if we view laws as a type of social contract, this is a government changing the terms of a contract after the deal is already in effect. If they were proposing that newly written student loans would be dis-chargeable in bankruptcy, I wouldn't care.

This is part of the movement to kill off private education, and also example of people willing to throw their principles out the window when it benefits them personally.

 

[angelatc]

The problem with student loans is the same problem with all loans. The "lender" gets to keep the collateral, while also compelling the "borrower" to continue to pay. If the collateral is repossessed, then the loan should be discharged. In the case of student loans, the collateral is the degree and the promise that the degree will help land a job, and good paying ones at that.

So if the person owing the money does not have a good paying job and a degree, then the persons student loan debt should not exist either.

Who gets to define "good paying?" What if the person racks up huge debts pursuing a law degree, clerks for 5 months then decides to quit and become a writer? Or somebody who graduates with a masters in finance, but then refuses to accept an entry level position because he feels its beneath him? (That's my uncle, who decided to work as an exterminator rather than to accept a 50k starting salary on Wall Street.)

What about people who pursue their passions by seeking out degrees in liberal arts, when the whole world knows those degrees don't translate into high salaries in the real world?

Seriously, maybe we ought to just make a 4 year college degree an entitlement. Heck, we can just make it mandatory for American business to pay a minimum salary of $75,000 to anybody with a college degree. That will fix everything.

 

[Gumba of Liberty]

I'm guessing you have a student loan, and you want a bailout?

I have students loans but I also have a career in my profession. What happens to the millions of students who cannot find work? They went to college because they were instructed to since kindergarten.

Servants? Screw that. They weren't forced to take out loans, and if they hadn't been so eager to accept the easy money tuition rates wouldn't have skyrocketed. Those of us that worked our way through school and graduated without a dime in student loan debt have absolutely no sympathy for them.

So it's the students fault that tuition prices skyrocketed, just like we should blame the housing bubble on homeowners. By the way, it's impossible to work your way through school these days. What year did you graduate, 1992?

The banks made those loans with a government that told them the loans would be excluded from bankruptcy. (Might I point out that they were also loaned to people who were fully aware that they would not be dischargeable in bankruptcy.)

Taking out loans and going to college vs. not going to college is not a choice for most people especially in our culture and in this economy. Yeah, some students made bad decisions (and chose worthless majors) but the facts were not laid out for them the way they should have been. Parents, grand parents, guidance councilors, and teachers made college an end all be all salvation that could save them from a life of poverty. In our cruel and twisted world it did just the opposite.

In the meantime, the government has seized control of the student loan market. If I understand it correctly, banks aren't even allowed to write private student ans any more.

Agreed.


This is the government changing the terms after the fact, and using their power to drive even more banks into bankruptcy, therefore giving them the opportunity to seize even more control of the nations financial and educational system.

Possibly but I am less concerned with banks than young people who were suckered into loans they can never pay back. When people, even young people, lose everything they become a danger to society, especially educated ones. Remeber the impact these loans can have on parents as well.

Note that not all student loans would be dis-chargeable - just those that aren't "enslaving" the debtor to the government.

Federal Students loans can be payed through income based repayment plans over the course of 25 years. Private loans cannot. People with private student loans that they cannot pay back are screwed for life.

 

[newbitech]

Who gets to define "good paying?" What if the person racks up huge debts pursuing a law degree, clerks for 5 months then decides to quit and become a writer? Or somebody who graduates with a masters in finance, but then refuses to accept an entry level position because he feels its beneath him? (That's my uncle, who decided to work as an exterminator rather than to accept a 50k starting salary on Wall Street.)

What about people who pursue their passions by seeking out degrees in liberal arts, when the whole world knows those degrees don't translate into high salaries in the real world?

Seriously, maybe we ought to just make a 4 year college degree an entitlement. Heck, we can just make it mandatory for American business to pay a minimum salary of $75,000 to anybody with a college degree. That will fix everything.

I know, it's a pain in the ass to try and figure out, I watched the standards for loaning huge amounts of money collapse in the mortgage market from a first person perspective.

I guess, what I am saying is that if someone takes out a "loan" for say 20k for 4 years of school with the collateral being a degree, and the promise of a good paying job, then those 2 things should be worth $20k. If those two things are not worth 20k, then the loan should not have been made.

So the person doesn't or can't pay for whatever reason. Take away their degree. This also has the effect of taking away their prospects for good paying job, however you want to define. There problem solved.

Of course, now, we have to ask, where did that money come from to pay the professor, the facility, etc etc... Well, the teacher kept the money, not the student. So the collector should go after the person who kept the money. See schools, like banks are apparently not doing their jobs very well and still getting paid for it.

Not blaming the schools or those people for someone who failed to earn their degree or use it properly. But, how are you going to get your money back from a bad investment? How are you going to make that person pay something for nothing?

It could be said that the person made the professor and the school work for free, but if you work your ass off and at the end of the day, have a pile of crap, why should you be paid?

 

[Endgame]

There is going to have to be some sort of bailout or mass default on student loans at some point. College is an incredible bubble that has ripped off an entire generation.

 

[angelatc]

There is going to have to be some sort of bailout or mass default on student loans at some point. College is an incredible bubble that has ripped off an entire generation.

But I'm not convinced you're reading the article right. They're not talking about forgiving the loans that are insured by the government, which is what most students have anyway. They're basically using their unique power to rewrite lontracts to screw their former competition.

 

[jack555]

My story is this. I went through undergrad without any debt. However to get my doctor of pharmacy degree after interst during school my debt will be 200,000 dollars in government loans. There is not really a way for people in most states to go to pharmacy school cheaper then that. If you can live with your parents and get accepted into a public school the debt might be half that but there are only maybe 250 spots a year in California public schools and it probably would have taken me an extra 3 years to get into a public school. While it was my choice to go into this insane debt I felt I really didn't have a choice. That was the cost of getting a good job. If I live off about 25000 a year for five years I can probably pay off my debt but if anything goes wrong I will be a government slave for the rest of my life. I think the answer is to get rid of federal loans so an education doesn't cost 200,000 and possibly outlaw private student loans as predatory. ?

 

[angelatc]

I'm guessing you have a student loan, and you want a bailout?

I have students loans but I also have a career in my profession. What happens to the millions of students who cannot find work? They went to college because they were instructed to since kindergarten.

Today's entitlement mentality. Newsflash - the market doesn't owe anybody a job.

Servants? Screw that. They weren't forced to take out loans, and if they hadn't been so eager to accept the easy money tuition rates wouldn't have skyrocketed. Those of us that worked our way through school and graduated without a dime in student loan debt have absolutely no sympathy for them.

So it's the students fault that tuition prices skyrocketed, just like we should blame the housing bubble on homeowners. By the way, it's impossible to work your way through school these days. What year did you graduate, 1992?

Exactly. It's like blaming an alcoholic for drinking. While it's true that the sale on PBR at the corner store was the temptation, the decision to pop the cap and be sober later is a personal choice and the drinker bears the sole responsibility for it.

It is certainly not impossible to pay your way through school these days. There are a couple of kids here on the forums who are doing just that. The kicker is that they will probably take longer than 4 years to graduate.

The banks made those loans with a government that told them the loans would be excluded from bankruptcy. (Might I point out that they were also loaned to people who were fully aware that they would not be dischargeable in bankruptcy.)

Taking out loans and going to college vs. not going to college is not a choice for most people especially in our culture and in this economy. Yeah, some students made bad decisions (and chose worthless majors) but the facts were not laid out for them the way they should have been. Parents, grand parents, guidance councilors, and teachers made college an end all be all salvation that could save them from a life of poverty. In our cruel and twisted world it did just the opposite.

That's the most ridiculous statement in this thread. HOw anybody can believe in personal responsibility and spew "It's their fault - they didnt do their homework!" is an opinion, and one that I sternly disagree with on several levels. What lesson are we teaching society here - if you cry long enough you'll get your way?

]quote] This is the government changing the terms after the fact, and using their power to drive even more banks into bankruptcy, therefore giving them the opportunity to seize even more control of the nations financial and educational system.

Possibly but I am less concerned with banks than young people who were suckered into loans they can never pay back. When people, even young people, lose everything they become a danger to society, especially educated ones. Remeber the impact these loans can have on parents as well.

How very liberal of you. We have to give them money, or else they're going to hurt somebody. That's a form of terrorism, and I for one refuse to cater to it. THey made bad decisions - the only value in that decision is destroyed by forgiving the loan

But you'd don't care that the government is going to seize control of the nations secondary educational system, as long as they're screwing the banks to do it?

Students loans can be payed through income based repayment plans over the course of 25 years. Private loans cannot. People with private student loans that they cannot pay back are screwed for life.

No, they're only screwed until they pay back their debt. Even if we ignore the trend of earnings to rise over the life of any worker, inflation alone almost guarantees that they'll be able to pay them back eventually.

I have no tolerance for the concept that we should "help" people who are stupid. These people are greedy - they went to college specifically because they wanted to make more money than they would have otherwise. THere's alot of them who went for advanced degrees specifically because they wouldn't settle for less than they thought they should be making 4 years ago. Now we're going to give them big hugs and tell them that it's not their fault they graduated college without the ability to reason and use simple simple math when looking at their finances.

This is how to keep the sheep stupid.

 

[beerista]

The problem with student loans is the same problem with all loans. The "lender" gets to keep the collateral, while also compelling the "borrower" to continue to pay. If the collateral is repossessed, then the loan should be discharged. In the case of student loans, the collateral is the degree and the promise that the degree will help land a job, and good paying ones at that.

So if the person owing the money does not have a good paying job and a degree, then the persons student loan debt should not exist either.

Now you've got me thinking how I can arrange a "strategic default" of my degree. I'll gladly let them repossess that useless POS. I promise never to mention on a job application or a resume that I have one if they promise to write off what I owe. Fair?

 

[angelatc]

My story is this. I went through undergrad without any debt. However to get my doctor of pharmacy degree after interst during school my debt will be 200,000 dollars in government loans. There is not really a way for people in most states to go to pharmacy school cheaper then that. If you can live with your parents and get accepted into a public school the debt might be half that but there are only maybe 250 spots a year in California public schools and it probably would have taken me an extra 3 years to get into a public school. While it was my choice to go into this insane debt I felt I really didn't have a choice. That was the cost of getting a good job. If I live off about 25000 a year for five years I can probably pay off my debt but if anything goes wrong I will be a government slave for the rest of my life. I think the answer is to get rid of federal loans so an education doesn't cost 200,000 and possibly outlaw private student loans as predatory. ?

So you opted for immediate gratification in lieu of personal responsibility. That's fine, but you did indeed have a choice. You chose not to wait for a better deal.