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Question of the Day: Should Student Loans Be Discharged in Bankruptcy?

By JLP | November 29, 2010

My last coupld of posts drew quite a few comments. A couple of commenters made mention that student loans can’t be discharged in a bankruptcy. I was curious about this so I did a little research. I found this mention of student loans and bankruptcy on the Sallie Mae website:

If you’re having serious trouble paying back your debt, bankruptcy is not an easy out. In fact, bankruptcy should be considered an absolute last resort. And, after all your effort, student loans are not normally included in a bankruptcy filing.
Unless you can show that your education loan payment is an “undue hardship” on you, your family, and your dependents, your student loans are ineligible for cancellation (discharge) in bankruptcy.

It is difficult to prove “undue hardship” unless you are physically unable to work and there is no chance of your making money. To discharge your student loans under this special case, you must file a separate motion with the bankruptcy court and present your situation before a judge.

I have big issues with making it easier to forgive/discharge student loan debt (much like I have issues with discharging credit card debt). The only way I could see making student loan debt dischargeable is to also take away the person’s degree and any career positions dependent on that degree. In other words, NO…I don’t think people should get out of paying back their student loans. Harsh? Not in my opinion.

The best solution is to educate kids BEFORE they get themselves into trouble. Some sort of personal finance/college planning/life skills course should be required for all high school students before they graduate.

Topics: Question of the Day | 47 Comments »


47 Responses to “Question of the Day: Should Student Loans Be Discharged in Bankruptcy?”

  1. Jack Says:
    November 29th, 2010 at 11:21 am

    Studend?

  2. Traciatim Says:
    November 29th, 2010 at 11:27 am

    I agree with you, you simply can’t unlearn your education. Plus, what student would want to pay back 100K in student loans after university when they generally own no assets just out of school. Wouldn’t mostly everyone just come out of school, declare bankruptcy, and wait out the 7 years (or less) of crappy credit?

    I know I would have, and didn’t have anywhere close to 100K.

  3. LoveBeingRetired Says:
    November 29th, 2010 at 11:49 am

    I agree with you in principle – you owe the debt, you pay the debt. My concern is with students who do not have the financial means to pay for their college education but are willing to work hard and learn and honestly want to make something of themselves. Then, they graduate into a recession or similar situation and struggle to pay back loans. Rather than bankruptcy, I think it makes sense to extend repayment terms for qualified situations. No one gets paid in a bankruptcy of this type.

  4. JLP Says:
    November 29th, 2010 at 12:00 pm

    LoveBeingRetired wrote:

    ” No one gets paid in a bankruptcy of this type.”

    No, but the taxpayers pay.

  5. Veritroth Says:
    November 29th, 2010 at 12:03 pm

    Traciatim,

    For starters, not every student would be willing to declare bankruptcy to discharge their debt. I would imagine there to be a strong correlation between amount of student loan debt compared to default rates (the higher the debt, the more likely the chance of default). This is a good thing for a couple of reasons.

    First, if the debt can be discharged, banks would have to smarten up as they can no longer make guaranteed profits off the backs of indentured servants. Simply put, we would no longer see 100k in student loans in the first place, as giving them out becomes much more risky for the bank, which is good, because college degrees are an inherently risky bet to begin with.

    This, in turn, means that either: 1) the cost of college will come down; 2) less people will go to college; or 3) people will think harder about the cost/benefits of a degree while saving more for their education. If you ask me, I think it will be a little of all three, which is a good thing for everyone.

    Why? Well, #1 is ostensibly good as a cheaper education is a win for consumers. #2 seems like it would be bad, but I’d argue it’s a good thing as a degree would carry more clout since they’d be in shorter supply, similar to how they used to be 30 years ago. Finally, #3 is good as people finally start taking some responsibility for their own finances (isn’t this the reason why we’re all here?).

    Here’s my question to JLP and others:

    If you think that student loan debt should not be dischargable in bankruptcy, what do you think interest rates are for?

  6. John MacKenzie Says:
    November 29th, 2010 at 1:34 pm

    Student debt should not be able to be discharged. Additional regulation is needed, especially on private student loans to reduce predatory lending and to increased payment options should a borrower be unable to make payments.

  7. Retired At 40 Says:
    November 29th, 2010 at 1:37 pm

    I used to think that way. But the student loan market has changed and is now being gamed by the banks who are charging high interest rates and getting a govt guarantee for what is basically a credit card loan.

    If a student owes debt to a bank, I’d say they should be able to default on it.

    If they owe debt to a traditional student loan operation which provides below market rate loans then they should not be allowed to default.

    There is some major reform needed in the student loan biz.

  8. BG Says:
    November 29th, 2010 at 2:02 pm

    The bank should eat the bad loans (via bankruptcy). Let the free-market allow these loans to fail and the banks deal with the consequences.

    The bankruptcy law, as it stands now, is guaranteeing the bank is taking on practically NO-RISK — and yet is able to charge interest and penalty fees on these loans.

    Why should the government be giving carte-blanche to banks to screw over the citizenry?

    How about the banks take personal responsibility (and due-diligence) and not give out loans to students who have little chance of paying them back?

    Once again, who is the victim here? The student who knows little about the system, or the banks and their team of lawyers and lobbyist?

  9. JLP Says:
    November 29th, 2010 at 2:28 pm

    BG wrote:

    “Once again, who is the victim here? The student who knows little about the system, or the banks and their team of lawyers and lobbyist?”

    PLEASE…

    A student who willingly signs a document, promising to pay back a loan, is not a victim of anything but their own stupidity. Are they naive? Sure. But that’s not an excuse.

    Victim…if anyone’s the “victim” in this it’s the RESPONSIBLE people (taxpayers) who will have to pay more in interest. It sure as heck isn’t the student who bit off more than they could chew.

    Like I said, if you want to allow people to be able to get their student loans dismissed, then their degrees should also be taken from them along with everything else they own.

  10. Veritroth Says:
    November 29th, 2010 at 2:32 pm

    John MacKenzie,

    I would love to hear the reasoning behind your assertions please.

    BG,

    Ding ding ding. You hit the nail on the head. Let the banks decide if they want to make the loans or not, knowing that people can default on them. As long as no one is forcing their hand (I’m looking at you, Gov) then it’s their prerogative.

  11. BG Says:
    November 29th, 2010 at 2:44 pm

    JLP) How about a 17 year old student? I started college when I was 17 and was signing for loans then. I’m sure a lot of students were at least under the age of 21 signing these documents. We allow banks to offer students under 21 these evil-type of loans — yet they can’t legally drink a beer.

    Once again — the law favors the bank. The bank is protected by the bankruptcy laws so that they are taking on NEAR-ZERO risk (can’t discharge the loans), and are able to charge high interest rates and penalty fees, plus can dictate other terms like refinancing, consolidation, and payment deferments.

    I agree with you, but only for the Federal Stafford loans (which have a maximum loan amount up to $12,500/yr in 2010).

    Banks that are offering loans above and beyond the federal Stafford should not be “BAILED-OUT” by making the laws favor them so much. From my POV, we are bailing-out the banks with the recent (Bush-era) changes to the bankruptcy laws.

  12. Veritroth Says:
    November 29th, 2010 at 2:46 pm

    JLP,

    You’re right, a student does willingly sign the contract, but so does the bank. And so long as the government stays out of it all, the taxpayers are not the victims here.

    As far as the revoking their degree proposition, I think that’s an interesting point. I would be inclined to agree but the only problem, thus far, that I can see if that the college provides your degree, not the bank. There would have to be some sort of agreement where the bank actually buys your degree in exchange for the loan. Hmm…interesting indeed. I’ll have to think more about this.

  13. Beth Says:
    November 29th, 2010 at 3:44 pm

    How can you take back a degree? I mean, it’s the skills and experience employers are after, not necessarily the piece of paper. (I hope?)

    I didn’t “buy” my degree. Sure, I paid the university for it’s services, but I worked my butt off to earn those credits. How can you take that away from someone? It’s not like repossessing a car.

  14. JLP Says:
    November 29th, 2010 at 3:59 pm

    Beth,

    That was my point. You can’t give back your degree so you shouldn’t be able to default on your loan.

  15. BG Says:
    November 29th, 2010 at 4:10 pm

    #14 JLP) Then solve the problem this way: Figure out the ‘tuition’ part of the debt, and make that immune to bankruptcy.

    The rest of the crap: student fees, athletic fees, room & board, party expenses, books, car payments, and other living expenses that the “student loan” money is spent on should be treated like Credit Card debt. Also, any loan-related fees like late-payments fees and interest on past-due debt should also be treated like ‘Credit Card’ debt, and not ‘Tuition’ debt.

    Any payments that have already been made should be considered to have been applied to the ‘tuition’ part of the debt first.

    When someone files for bankruptcy, this would ensure the TUITION portion of the debt which is for the diploma is forced to be paid off. The rest of the student-loan debt is not for the diploma, and hence is not as ‘important’.

    Banks should adjust their interest rates accordingly.

  16. JLP Says:
    November 29th, 2010 at 4:16 pm

    BG,

    Why? It’s still debt that was taken on by the student.

  17. Veritroth Says:
    November 29th, 2010 at 4:22 pm

    JLP,

    Without putting words into your mouth, could you tell us what bankruptcies you would allow then, if any?

    For instance, should people who did cash-out refinances and spent the “equity” on a trip to Hawaii be allowed to default? Also, what about severe medical debt? Should that debt be dischargeable? I’m guessing you’ll say no but I’d be interested in hearing your thoughts on this as well.

  18. BG Says:
    November 29th, 2010 at 4:27 pm

    JLP) Students take on credit-card debt too. Should this ALSO be included as ‘student loan’ debt and be held to the highest standards like child-support payments and back-taxes are?

    Do you really think people are spending $200k for the DIPLOMA?!?! A very large portion of that debt is equivalent to credit-card / mortgage / personal loan and other types of debt — which ALL can be discharged in bankruptcy with much lower standards.

    I agree with #17 Verritroth — what debt would you allow then? so we know that we aren’t fighting a wall :)

  19. Jack Says:
    November 29th, 2010 at 4:34 pm

    Then, BG, they should have used credit cards for those purchases, not student loan money.

  20. BG Says:
    November 29th, 2010 at 4:42 pm

    Then, Jack, the bank should not have given so much money to the student in the form of ‘student-loans’ when it was obvious that the money was being spent for more than just tuition.

    See how I turned your statement around and show you that it is the bank preying on the student?

    You try to make it sound like the bank (with their lawyers, lobbyists, and the freaking bankruptcy code on their side) are the victims — and the kid who isn’t old enough to buy beer is the predator.

  21. Sam Says:
    November 29th, 2010 at 4:42 pm

    If student debt becomes eligible to be discharged in a bankruptcy, then the amount of student loans will drop to near zero. What loan officer would judge an 18 year old with no credit history, no job, no track record as a good risk to loan tens of thousands of dollars on? The return of pay-as-you-go education.

  22. Jack Says:
    November 29th, 2010 at 4:59 pm

    “the bank should not have given so much money to the student in the form of ‘student-loans’ when it was obvious that the money was being spent for more than just tuition.”

    Why not? The law said the debt could not be defaulted.

    “See how I turned your statement around and show you that it is the bank preying on the student?”

    The bank did not “prey on the student.” The bank loaned money at a lower interest rate than it could have gotten on a credit card, with the stipulation that the debt was outside of bankruptcy. The student took that loan because it was at a lower interest rate.

    If we subsidize stupidity, we get more stupidity. If stupidity HURTS, fewer people will be stupid.

  23. Veritroth Says:
    November 29th, 2010 at 5:47 pm

    “What loan officer would judge an 18 year old with no credit history, no job, no track record as a good risk to loan tens of thousands of dollars on?”

    Not many, which is precisely the point! They are not a low risk, but rather a highly speculative bet, and the amount of money that they are loaned should be reflected on that.

    The same risk factors that brought down the housing market are in play in the student loan arena. Would you give that same 18 year old a $200,000 mortgage? No, so then why do the same for a college degree?

    Some will immediately point out that a degree is “different” as it may lead to higher pay and is thus an “investment” in that person’s future. Hmm, that argument sounds familiar. Now where have I heard that before? Oh, that’s right, the housing market!

    Housing prices went up in the bubble years as the government and others made lending artificially cheap. But houses were never really worth what people paid for them in 2005 (as many are seeing now). There was only an illusion of higher prices as lenders continued playing their game of musical chairs.

    The same thing is occurring with student loans now, and it’s causing a massive bubble in higher education. Everything is fine so long as the music is playing and they can keep finding a new sucker to buy into the hype, but eventually the music stops, and when it does, prices will come crashing down.

    Many, if not most, degrees obtained today come at a much too high cost for the value provided. Due to the easy lending in the student loan arena, more people are going to college than would have otherwise. And while this seems like a net benefit on the surface, there are many unseen consequences.

    The most obvious drawback is that college is more expensive than it should be, due, in major part, to the subsidies. Just as housing prices went up when everyone could get financing, so goes the story with college costs as anyone and everyone can get a student loan.

    Additionally, if overpaying for your degree wasn’t bad enough, problems are compounded when you try to use your degree to get a job, as there are now more people competing for the same positions. More supply of college grads means their overpriced degrees are worth less, and thus we have out-of-work recent grads.

    Unfortunately, this problem is only getting worse by the day as employers, by necessity, become more selective and have started looking for even higher levels of education when hiring (ie why MBAs are now a dime a dozen).

  24. Kirk Kinder Says:
    November 29th, 2010 at 6:03 pm

    The loans aren’t discharged in bankruptcy because they are usually government backed. The government doesn’t want to pay the bill. It is the same with back taxes – can’t get rid of those in bankruptcy either.

    This just shows how we need the government out of the process of education. We will see prices of schooling come down, and the loans will be properly underwritten to ensure the banks get repayment.

  25. Veritroth Says:
    November 29th, 2010 at 6:19 pm

    …continued

    Another drawback is that kids are now going to college for majors that they’ll never be able to find a job in, or won’t be able to pay back their loans if they do. I have numerous friends who have “art therapy” and other similar soft science degrees and nearly all of them are out of work or working in another field. Yet the easy money allows these people to never have to think twice about the cost/benefit of these degrees. It’s only after they’ve signed their life away do they realize what they’ve done.

    Finally, an arguably more fundamental point can be made that not only are kids paying for overpriced degrees that may never land them an interview, let alone a job, but that these degrees may be entirely unnecessary in the first place. As a fairly recent graduate, I can easily say that 90%+ of what I learned was learned on the job. The same is true for the majority of students.

    Most training can and should be done on the job, but because of the artificial market in higher education, people are forced to get that piece of paper if they even want a chance at an interview. Now they are stuck up to their eyeballs in debt and lucky if they even find a job.

    The irony of this situation is that students are now trapped with debt the size of a mortgage, and all the Baby Boomers who have chastised them for their onerous debt now expect to sell their home to these kids in order to fund their retirement. Yet this younger generation is going to have to delay these purchases as they pay down their mountain of debt, inevitably putting more downward pressure on housing prices, the same ones the Boomers expect to live off of.

  26. BG Says:
    November 29th, 2010 at 6:48 pm

    “Would you give that same 18 year old a $200,000 mortgage? No, so then why do the same for a college degree?”

    Very well said!

    Kirk, it isn’t just that the government is involved in the process — the real problem is that the bankrupcy laws were changed in 2005 to favor banks over the citizens. Perhaps they were out of balance pre-2005, but now they are way out of balance (in the other direction).

  27. Yana Says:
    November 29th, 2010 at 7:56 pm

    You say “I have big issues with making it easier to forgive/discharge student loan debt (much like I have issues with discharging credit card debt)”

    And you believe student loan debt should not be discharged in bankruptcy. Like you, I have issues with bankruptcy/credit card debt, but my conclusion is different. Student loan debt should not be special. Debt is debt. When you borrow money, it means you can’t afford what you are spending it on. I say you’d better have a good reason, and luxury is not a good reason. If it’s okay to discharge credit card debt, it is equally okay to discharge any other kind of unsecured debt.

  28. JLP Says:
    November 29th, 2010 at 8:30 pm

    Veritroth wrote:

    “Without putting words into your mouth, could you tell us what bankruptcies you would allow then, if any?”

    I Don’t like bankruptcy but I understand there are times when it’s the only answer. I’m okay with liquidation if there are assets that can be sold. You can’t do that with student loan debt.

    My main concern is people getting ree rides. Go to school, blow a bunch of money, party, graduate, and then file for bankruptcy to get out of paying your bills. We have enough freeloaders in this country. We don’t need to make it easier to add more freeloaders.

    Yana,

    Debt is not debt. Student loan debt is a whole different ball of wax. You start forgiving student loans and the cost of college will skyrocket.

  29. Don Says:
    November 29th, 2010 at 9:56 pm

    Student loans are not causing a huge “education bubble” if by that you mean tuition growing faster than inflation, etc. Tuition is growing faster than inflation for two reasons: 1) the primary expense of a college or university is faculty and staff pay and benefits, and 2) non-tuition sources of income for colleges and universities is decreasing (and tuition is raised to fill the gap).

    To be explicit, medical expenses are growing faster than inflation, so the benefits part of pay packages follows suit. And endowments and state budgets were hurt by the fall of the stock market (lower capital gains taxes). Reduced alumni giving, reduced state budgets, fewer grant opportunities, etc. all combine to cause an income shortfall for colleges and universities that has to be made up somewhere.

  30. Joe Says:
    November 30th, 2010 at 12:07 am

    Student loans shouldn’t really be able to be discharged, but we need to find a way to make it real to college students that every cent they borrow they will have to repay. And recent graduates rarely land six figure jobs. Even parents get caught up in the student loan trap when they cosign or take out big loans to pay for their social work majoring child’s $20k per semester education.

  31. Manny Says:
    November 30th, 2010 at 8:31 am

    I agree on that student’s loans should not be easy to be discharged. My original comment, and maybe it was not clear, is that there is an unhealthy relationship with banks, colleges/ universitites and the feds. When I went to school there was a huge difference in costs between and Ivy league/ Top Tier education vs. a middle tier school.That is no longer the case as almost all mid tiers are almost as much as top tier schools. IMHO partly due to the relationship i previously mentioned. The choices for a education that does cost $135k to $200 has decreased dramatically. This has caused many students/ parents to get into too much debt.

  32. BG Says:
    November 30th, 2010 at 8:42 am

    “You start forgiving student loans and the cost of college will skyrocket.”

    You mean, it would have gone up even higher if the bankruptcy laws weren’t changed in 2005 to make these loans nearly impossible to be discharged in bankruptcy?

    I’m have the opposite conclusion: banks are very aggressively pushing these loans because the bankruptcy laws favor them. On top of that, they are charging between 9% and 15% on these student loans (according to SallieMae website). If 9%-15% is the going rate for loans that must be paid back (can’t be discharged), then if the loans were allowed to be discharged, interest rates should be 20%+ for the increase risk.

    If interest rates were 20%+, people wouldn’t borrow as much and demand for college would decrease, lowering the costs down to a happy medium.

    Colleges (like every business) are charging what the market will bear. The easy credit artificially increases the line for what the market can bear — raising costs for everyone.

  33. Clay Boggess Says:
    November 30th, 2010 at 8:47 am

    Unfortunately society has bought into the misconception that bankruptcy is the easy way out and thus people seem to want to jump into it without realizing the consequences. Attorneys who are credible will always provide both sides to making such an important decision. With that said, students need to be educated on what they are signing up for up front when it comes to student loans. Perhaps we need to pay closer attention to educating ourselves financially and not just academically.

  34. Ryan Loos Says:
    November 30th, 2010 at 9:10 am

    I think that student loans should not be bankruptable. I also believe that a college education is a privilege and not a right. Even though this is not politically correct, not everyone should be in college or even be trying to attend college. Also, I personally think that no 18-19 kid out there really knows what they want to do for the rest of their lives. We have to move away from rights and look and who can and will succeed in college (privilege). In my family, I while most of went to college, my cousin who when to a trade school, is doing the best financially and owns her own business. I believe this is due to her mom and dad knowing her skills and personality and encouraging her to take a different route than college.

  35. Todd Hickman Says:
    November 30th, 2010 at 9:25 am

    Education is a privilege, not an entitlement. No one is entitled to take money from me nor anyone else for their education. The idea that someone can major in “women’s studies” and rack up $200k in college debt and then believes they are entitled to have someone else pay for it speaks volumes about the virtues or lack thereof of said individual.

  36. Veritroth Says:
    November 30th, 2010 at 9:55 am

    #32 BG,

    I couldn’t agree more. As you showed, the costs for college would actually come down, not go up. You correctly point out the difference between nominal costs (the actual dollar value on a loan) vs. the cost of borrowing (the interest rate).

    So when JLP says that the cost of college will skyrocket, he’s somewhat correct. The cost of *borrowing* for college will skyrocket, as it should. Interest rates are artificially low for students loan right now, and in a free market they would be allowed to rise to compensate for the actual risk associated with the loan.

    Additionally, as I was writing this I realized one major oversight in this discussion regarding student loans. What, pray tell, is stopping the banks from requiring students to stay current on their loans? Allowing banks to have control over this will singlehandedly prevent people from taking out $100K in loans only to default after they get their degree.

  37. Mark Says:
    November 30th, 2010 at 9:57 am

    Students are a very high risk for banks – no credit history, no assets. And education cannot be repossessed, which essentially makes the debt unsecured.

    If the debt was dischargeable, then private lenders would charge a LOT more for these loans. Probably the same as they charge high-risk borrowers for credit cards.

    On the other hand, the students are not well-informed about what they are buying or paying. Why not let debt up to some limit (e.g. average tuition plus reasonable living costs) be protected, and the rest exposed to discharge in bankruptcy. Or perhaps have government backing up to that limit.

    That way, “everyone” could get a loan for a typical college education, but the option to get more is available.

    This is exactly what was done with mortgages. Jumbo loans cost more, and if you want one, you can ask for it. But the maximum conventional loan is enough for most people to buy a reasonable home.

  38. Veritroth Says:
    November 30th, 2010 at 10:00 am

    Todd,

    “Education is a privilege, not an entitlement.”

    Agreed.

    “No one is entitled to take money from me nor anyone else for their education.”

    Apparently the government thinks that they can which is exactly our point. Get the government out of education.

    “The idea that someone can major in “women’s studies” and rack up $200k in college debt and then believes they are entitled to have someone else pay for it speaks volumes about the virtues or lack thereof of said individual.”

    The idea that banks would loan someone $200k in college debt and then believe they are entitled to have it guaranteed speaks volumes about the virtues or lack thereof of said institution.

  39. DaleyCenter Says:
    November 30th, 2010 at 2:11 pm

    Veritroth, you hit the nail on the head: what lender in their right mind would loan a student $200K to complete a degree in women’s studies, or some other similarly worthless degree such as law? Answer: a lender that incurs absolutely no risk in the making the loan. Really, what incentive does a lender have to “not” make a student loan? None…

    The “situation” with higher education in this country, including such notables as the ridiculous oversupply of lawyers, the myriad of “non-traditional” degree nonsense, etc., will not change until the student loans that fuel this impending economic catastrophe are reigned in, and I can only see a few ways to reign them in:

    (1) Make student loans dischargeable in bankruptcy. This will force lenders to evaluate a students future earning capacity to repay the notes, i.e., compel the lender to analyze the economic benefits of a BA in “Urban Studies,” “Art History” or “Criminal Justice,” or the future job prospects of an aspiring law student to name a few.

    (2) Compel schools to publish accurate employment data/statistics. Take law schools for example. Virtually every law school, including third and fourth tier toilets claim that >90-95% of their graduates are employed within 9 months of graduation. Really?? Doing what? US law schools churned out approximately 46,000 new attorneys in 2009…into a market that could at best absorb 15-17,000 (and that’s a wildly rosy prediction if you ask me). What happened to the other nearly 30,000 students? They’re asking if you want fries with that burger or “tall, grande, or venti” on that mocha. Yet the schools keep expanding their class sizes and the American Bar Association keeps accrediting new law schools.

    So in 2009, law schools generated at least 30,000 students, many/most with >$100k in student loan debt, many of whom do not, and will not have the economic wherewithal to service their massive debt…debt which they took on largely in part because the law schools knowingly sell them a false bill of goods.

    I would suggest that if any school publishes false or purposefully misleading employment data, the students should be awarded a refund of their tuition as a penalty, even if it were only 25% or 30%.

    On a different note, someone had mentioned earlier that we simply have to many college graduates running around. In my younger years, I would have disagreed with such an assertion, however, things have changed. The vast majority of entry level positions in the workforce today do not appear to require any skills beyond those which would be inculcated in a typical non-urban high school setting. Do the employers demand a college degree? Sure they do, but they only do so because they can, it isn’t because the job requires a particular skill set. Furthermore, I have encountered way to many “college graduates” that aren’t capable of drafting a semi-coherent letter or carrying on a semi-intelligent conversation about anything other than sports. I’m sorry, but I think it is time for the Chicago States, Governors States, University of Phoenix (motto: rising from the ashes of your financial future) and all these ridiculous trade schools, psychology schools and oriental medicine colleges to go the way of the dinosaurs. If this pace with degree requirements sought by employers keeps escalating, it isn’t going to be long before the entry level degree demanded is a masters of some sort.

    Oh yeah, how could I leave MBA’s out of this rant… Unless you’re getting into a Harvard or Northwestern type MBA program you’re wasting your time, MBA’s are rapidly approaching parity with law degree’s on the “uselessness” scale.
    Don’t even bother telling me at your interview that you have a “masters in business administration from Governors State University.” When you haven’t managed or supervised anything in your life, trust me, you will not be able to convince me that you are a “master” at business administration… Oh well, lunch is over, back to work…

  40. JK Says:
    November 30th, 2010 at 7:13 pm

    “You start forgiving student loans and the cost of college will skyrocket.”

    Stupendously false. If you repeal the absurd restriction on student loan debt and allow borrowers to file bankruptcy, lenders (the government, in this case) will more closely scrutinize the borrower and evaluate him/her under a traditional debtor risk/reward analysis. Since no bank in its right mind is going to give Random Joe 60k a year to attend Random U, the tuition at Random U will drop.

    The single biggest reason for skyrocketing tuition is the government backing of student loans, absolutely without question. Government backing ensures that students can afford whatever price the school charges. This creates a situation of infinite demand. Schools have finite supply. Anyone who’s taken economics knows where this is going.

    Tuition prices would drop like a rock if you allowed dischargability or otherwise removed indiscriminate government backing. The poster above (Don) who suggested higher costs are for faculty expenses and a lack of outside sourcing has absolutely no idea what he’s talking about.

  41. JLP Says:
    November 30th, 2010 at 8:24 pm

    I’m pretty sure Don knows what he’s talking about. I’m not sure if health care is responsible for the entire cost of tuition increases but I’m sure it’s responsible for some.

    I looked at the tuition for Northeastern (the college of the person who inspired all these posts). It turns out it’s right at $50,000 per year. So, I don’t think banks were giving this woman way more than her tuition needs.

    I’m not an economist so it’s hard for me to wrap my mind around what would or would not happen if people were allowed to erase their college debt through bankruptcy. I can’t help but think the consequences wouldn’t be good. I’ll have to think on this one some more.

  42. jdpainter Says:
    December 1st, 2010 at 9:07 am

    Here is a Hypothetical that no one seems to be able to answer for me:

    Joe comes out of Law School owing 100K in Student Loan Debt to Sallie Mae.

    Joe cannot find a job that pays enough to handle the debt, so he keeps deferring, and deferring, until the debt grows, ten years later, to 200K.

    Sallie Mae, a Private Company, has been made whole already, because the taxpayer has paid Joe’s debt througout those ten years, and instantly and directly to Sallie Mae.

    But Sallie Mae keeps sending Joe invoices, and adding on penaltys and fees anyway.

    Then the situation changes. Joe suddenly wins the Lottery, and decides to Pay Sallie Mae the entire 200K.

    In this scenario, won’t Sallie Mae be collecting or getting paid twice on Joes’ debt? Once from the Taxpayer, and once from Joe?

  43. BG Says:
    December 1st, 2010 at 2:58 pm

    “I looked at the tuition for Northeastern (the college of the person who inspired all these posts). It turns out it’s right at $50,000 per year. So, I don’t think banks were giving this woman way more than her tuition needs. ”

    No — it sounds like the banks and that school are in bed together.

    jdpainter) Who says that the government/taxpayer is backing these loans? AFAIK, there are the Stafford loans which are capped at $12,500 per year that our federal loans. Anything beyond that amount, like the extra $37,500 a year, are private loans and not federally backed by taxpayers. <– someone correct me if I am wrong.

    The bankruptcy laws, however, are backing these loans (in a sense) because you can't get rid of them in bankruptcy; though this doesn't cost taxpayers anything directly — it's a cost on society through increased via higher education prices and dealing with kids who will be in debt for 30+ years.

  44. carol Says:
    December 1st, 2010 at 6:19 pm

    The reason so many employers require degrees is because they can’t give IQ tests…tests are so biased, you know.

    What price PC…

  45. JK Says:
    December 1st, 2010 at 8:35 pm

    Why would you expect health care costs to abnormally affect college campuses? That’s essentially what you’re arguing. Many industries have employees with health care benefits, yet countless other services did NOT outpace the CPI by a ridiculous margin. For the most part, college campuses are going to have lower spending per employee than other businesses due first the nature of the work (low-stress white collar) and second because the people in the positions are generally healthy and well-off.

    The difference is that other businesses are subject to normal market conditions, where they HAVE to cut costs to compete. Because they have an illusory, near-infinite demand for their product, colleges have no pressure to keep expenses low. So when the auto companies, for example, started getting rising health care bills, they had to cut salaries, slash other expenses, and do everything else to avoid raising prices, because if they had raised prices, they would lose customers. But colleges don’t have to play by those rules; they can raise prices AND keep expenses high (and continue raising salaries to absurd levels).

    Health care costs have risen, but it’s a constant for all industries, so it simply can’t be an explanation for tuition’s outpacing the CPI. It’s all because the government has manipulated the market for college educations and unduly interfered in the supply/demand equation, both by backing loans and removing bankruptcy protection.

  46. Indentured educated class! Says:
    December 9th, 2010 at 12:30 am

    I know this is from a month ago, but I had to comment! They can take your professional license! What good is the knowledge if you can’t use it! Employers are also able to check credit, so there goes that job you are trying to get! Ya know, the one to help you pay the loan!
    I get sick of the holier than thou attitudes from commenters that have never been in the situation!!
    Another one-”This is real life…pay your debt!” People get sick, people lose their jobs, people become disabled, people have disbled children, and people are set up to fail from the beginning! THAT IS REAL LIFE!!
    Trust me, after you sign the paperwork the lenders change the rules! They have this power because student loan borrowers have no consumer rights! You cannot deny that taking away consumer rights leads to predatory practices!!!
    The tax payers pay no matter what! Student loans are guaranteed by the government! That is why these lenders do whatever they want with these loans because they are taking no risks! Not only are the students being scammed, so are the tax payers! Open your eyes!
    I totally believe you should pay what you owe, but these lenders are making it impossible with their high compounding interest rates! They benefit when you default, and that is exactly what they want! Why don’t you all look up how Sallie Mae was fined 3.4 billion dollars for automatically putting people in default without ever trying to collect on them! That means they were trying to fraudently collect all this money from the government/taxpayers!
    Why should a person suffer for getting an education? Oh, right, the best thing to do would be strap them down with student loan debt, so they can’t contribute to the economy! The sad thing is, they are doing this to our kids! KIDS! You can try to teach a TEENAGER all you want to, but they are still a TEENAGER! Adults seeking a better life are taken advantage of, too!
    Bankruptcy protection is used to help people facing financial distress! I do not blame anybody that has ever had to go there. I know someone that had to, and it was very hard on them! I get sick of critics trying to make it sound like a walk in the park!
    The same lenders that claim bankruptcy protection should not be restored because borrowers wouldn’t have income when they first get out of school, making it easier to be dischargeable, are the same lenders telling the borrowers they don’t care if they have income…PAY UP! Hmmm…
    These predatory practices are what has caused the student loan crisis! Restoring consumer protections would force these lenders to have to be honest, and work in the best interest of the student!!!

  47. Galaxia Says:
    January 4th, 2011 at 12:08 pm

    I believe majority of people on this forum aren’t understanding why they want to have student loans that are PRIVATE loans included in bankruptcy. First off being a student who struggles to pay for my student loans, learned the hard way because the college that I trusted gets kick backs from working with a direct lender called Sallie Mae. This lender whom is a PRIVATE lender does only a credit check and your 18 yrs old…and they say sure here is any dollar amount you want…good luck paying it back…the GOVERNMENT gives you a limit for your education and has payment plans that work with your income. Sallie Mae does not, and they say too bad we will get your money anyway through wage garnishment, tax returns, and even take your government food stamps and sell them on the black market. This is a problem, which is why it should be included in Bankruptcy…credit cards give credit to people that shouldn’t have it, but do they take back everything that the person bought with the credit cards? NO! If the private student loan industry was regulated, like the credit cards are NOW after the bubble, this wouldn’t be an issue. But when you have a rate at 7% for a loan and then it goes up year after year to 25%, there is a problem. These young adults are signing documents they do not understand and expect guidance from their college and there normally isn’t any. So tax payers can bailout the banks and wall street, but forget about the average american…we only work to make the rich –richer!

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