All of this insanity could be solved if student loans were treated like any other loan. If student loans could be dismissed in bankruptcy then it would align the interests of lenders and students. As is in the current system, since loans cannot be dismissed, it turns into practically guaranteed profit for the lenders. In the worst case they can garnish wages so the equation changes from repayment to lifetime earnings of at least $x --- loans as 'lifetime rent' packages.
This has completely bastardized education in purpose, cost, and quality. The US now literally pays more per capita [1] for higher education than Germany. Germany has subsidized 'free' education for everybody, including foreigners.
Like all things, I'm certain the current system started out with good intentions -- probably with some good feeling and wholesome name like 'equal access to education act.' But instead of positively changing things, it seems to mostly have just distorted what was already there. For instance giving a loan, which now regularly surpass 6 figures as tuition raises in response to the availability of 'free' money, for somebody to go study a field that's going to have no meaningful impact on their future earnings is simply exploitative. It's take advantage of naivete and the inability to dismiss that loan. Nobody in a million years would do that if loans could be dismissed.
This would leave the less productive degrees to be primarily the domain of the 'bourgeois' and I don't really see that as a problem. Their family and connections can subsidize the value of such education if they see fit -- people from less privileged backgrounds do not have that luxury. And those from less privileged backgrounds are arguably even more susceptible to the belief that if they just get a degree, any degree, they'll be able to get, nay - be entitled to, a great job. Less privileged tends to imply that one's parent(s)s did not manage to obtain 'great jobs' themselves, and so may be less aware of the conditions to find such a job. In any case, the intersection of this myth and reality is something that never ends well.
If student loans could be dismissed in bankruptcy, there would be approximately no student loans. Why would a bank ever issue one when the student's financially optimal move is to take the loan, finish school, and then immediately file for bankruptcy?
Student loans are difficult for this reason precisely - the people who need the money have no assets, and they're borrowing to buy something intangible that thus can't have a lien against it.
You can't assume the status quo, in which I'd agree you'd be correct.
The big deal right is now that is almost certainly a causal relationship between the skyrocketing cost of education and the ease of access of student loans. If you have a customer base who thinks your product has a practically infinite value and they access to x funds, then your price is going to approach x. Lenders are incentivized to just keep pushing x higher and higher. Their price point limitation is going to be when their lifetime 'rent' of real lifetime expected earnings starts to become comparable to the real value of their loan. A quick search shows real median lifetime earnings for low value majors at about $800k. 15% there would be $120k. It's actually a good bit higher than that due to reasons outside the scope of this post.
When loans are constrained to the expected earnings of an individual, there is going to be an incentive to offer loans that the individual not only can but will payoff rather than take the decade long credit hit of bankruptcy. Will somebody pay off a loan that's 70% of their disposable income? Probably not. Will somebody pay off a loan that's 5% of their disposable income? Probably.
This is what I meant by dismissal aligning the interests of lenders and students. Students obviously want loans they can comfortably pay off, and if loans were dismissible then lenders who would want to create loans that also fit this criteria. Instead we have this bizarre system creating results like your barista having an education that was supposedly worth 6 figures.
I don't think I understand your argument. What would change such that immediate bankruptcy filing after graduation would no longer be the obviously correct move? A degree would have to be astoundingly cheap for this to not work out - bankruptcy typically costs <$3000. Add in the cost of it being on your credit report, which is fairly low given that few people need large sources of credit in their 20's beside student loans, and its hard to imagine it costing all-in more than $10k. Just living expenses on a 2-year degree are going to run higher than that, even if tuition somehow drops to near $0.
If an individual graduates at 22 that stain on the credit means they're going to struggle with basic credit related issues. Until the age of 32 they'd struggle with housing, transportation, and even many employers check applicant's credit ratings -- any sort of security clearance work or entrepreneurial enterprise would be almost entirely out of the question. And on top of this, most loans require a guarantor.
Aside from the coercive effects, I think most people are genuinely well intentioned. I don't think most people's initial instincts when borrowing money is to go see if they can run off with it. But right now with lenders constantly pushing up the cost of education they are not only making it less likely people are able to reasonably pay off their loans, even if they wanted - but simultaneously destroying any notion of good will. There is no reason this need be the case, and indeed in a time when lenders and students' interests are aligned I think the true value of the service they're providing would be seen once again.
This has completely bastardized education in purpose, cost, and quality. The US now literally pays more per capita [1] for higher education than Germany. Germany has subsidized 'free' education for everybody, including foreigners.
Like all things, I'm certain the current system started out with good intentions -- probably with some good feeling and wholesome name like 'equal access to education act.' But instead of positively changing things, it seems to mostly have just distorted what was already there. For instance giving a loan, which now regularly surpass 6 figures as tuition raises in response to the availability of 'free' money, for somebody to go study a field that's going to have no meaningful impact on their future earnings is simply exploitative. It's take advantage of naivete and the inability to dismiss that loan. Nobody in a million years would do that if loans could be dismissed.
This would leave the less productive degrees to be primarily the domain of the 'bourgeois' and I don't really see that as a problem. Their family and connections can subsidize the value of such education if they see fit -- people from less privileged backgrounds do not have that luxury. And those from less privileged backgrounds are arguably even more susceptible to the belief that if they just get a degree, any degree, they'll be able to get, nay - be entitled to, a great job. Less privileged tends to imply that one's parent(s)s did not manage to obtain 'great jobs' themselves, and so may be less aware of the conditions to find such a job. In any case, the intersection of this myth and reality is something that never ends well.
[1] - https://nces.ed.gov/programs/coe/indicator_cmd.asp
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