
Student Debt in America: Lend with a Smile, Collect with a Fist - kanamekun
http://www.nytimes.com/2015/11/29/upshot/student-debt-in-america-lend-with-a-smile-collect-with-a-fist.html
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epicureanideal
The person in the terrible situation in the article doesn't blame anyone but
herself for the situation. I agree with the article that while she's mostly
responsible for the situation, the lenders should consider risk at some point.
I don't agree that we should forgive all of such huge debts because the money
was received and spent, although perhaps we should write off some part of it
as bad policy.

Obviously the policy for undergraduate education makes a lot of sense. Don't
consider risk because everyone as a policy decision is guaranteed a chance to
climb the ladder of opportunity. But after completion of a Bachelors degree
the lender should be able to take into account grades and ability to repay
given expected outcomes.

~~~
jostmey
What is wrong is that educational loans have been granted a special status
that makes it impossible to remove them by filling for Bankruptcy. It made the
banking industry too willing to hand out money to people who would never be
able to repay it.

~~~
thomaskcr
That's the compromise to put people on an even playing field though. If you
could get rid of them in bankruptcy, they would require a cosigner with credit
history. Many people don't have access to that, so you would basically be
cutting off anyone not middle class or above from college.

For loans without a cosigner I'd imagine interest rates would be on par with
credit card rates, possibly higher since its a large, unsecured loan.

Regardless, you already can get student loans that can be removed in
bankruptcy, they just require a cosigner and have higher interest rates so no
one wants them.

It would be interesting to see schools cosign loans past the 2nd year. They
could chapter out underperforming students with an associates after two years
since they would be on the hook for repayment past there. Then the loans would
still be accessible basically equally and schools would have incentive to keep
costs down and be more selective rather than just growing indefinitely.

~~~
x0x0
So if you look at the evidence, neither of your first two claims are true;
that's the problem with speculation when there's actual data available. For-
profit student debt was dischargeable in bankruptcy just like almost all debts
until 2005, yet there wasn't a wave of opportunistic bankruptcy filings.
Interest rates were similar to now. Student debt was made non-dischargeable
largely through banks purchasing congresspeople because why not exempt
yourself from bankruptcy if you can?

There are multiple datasets available that you can find yourself, or eg

[http://www.slate.com/blogs/moneybox/2015/04/16/student_loans...](http://www.slate.com/blogs/moneybox/2015/04/16/student_loans_in_bankruptcy_how_the_bush_administration_pointlessly_screwed.html)

~~~
thomaskcr
Those same private loans are still available though - their interest rates are
just higher. Either people aren't taking the time to research their options,
or they desire the lower interest rate in exchange for lack of bankruptcy
protection. Interest rates are lower on the non-dischargable loans, so I'm not
sure why you think they're the same when both types currently exist so you can
see the difference without the need for guesswork.

Additionally, private loans always have and still do take into account the
credit history of the borrowers. If you don't have a credit history or someone
willing to cosign you're basically out of luck.

I don't think opportunistic bankruptcy filings are an issue at all, but I do
think it would be an issue for banks to lend significant amounts of money to
people with no way to quantify the risk associated with it.

I don't have the perfect answer, but I do think it's better to have loans
accessible by lower income people than to have the ability to discharge the
loans in bankruptcy which by your admission only a small number of people do.

~~~
DaveWalk
If I understand OP's point correctly, it's that there is no bankruptcy
protection whatsoever, even with a qualified co-signer. And maybe there should
be. Further, if one does not qualify for government loans, banks are the only
place to go, with lower interest rates being a moot point.

BTW I am very intrigued by your idea of having a school cosign for a student
after the second year. If nothing else it would force schools to think twice
about their acceptance habits. It seems to me to be more in line with
academia's not-for-profit interests, but I guess tuition dollars are too
entrenched at this stage?

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seansmccullough
I'm sorry, but it was completely irresponsible for her to rack up 400k in
student debt in the first place.

~~~
michaelmcdonald
This. She started down one path, gave up on it to pursue another, gave up on
it after getting ill and continue down the original. However this time around
she thought she needed to immediately get her graduate degrees just so she
could earn the "highest possible income". Stupid mistake. Let's count the ways
she could have prevented this:

1\. stick with the original plan of becoming a teacher. Take out minimal
loans, work, pay off loans.

2\. move towards a degree in law and complete the degree after her illness.
Work, pay off loans.

3\. get a teaching job after her illness, hold off on the graduate degree,
work, pay off loans.

I have no sympathy for her. She clearly couldn't afford college (which is
acceptable, that's why loans exist); however she also couldn't think to budget
or plan financially for the future. She should have stuck to a single path and
slowly worked forward rather than trying to do everything in as short a time
as possible.

~~~
Apocryphon
The first problem with college in America is that it assumes college students
are fully-formed adults who know what careers they want to have for the rest
of their lives. The second problem is that college has become the mandatory
mealticket into the middle class.

~~~
pkaye
On the second problem, there is no reason you have to pick a college far from
home. Go with a state university. Certainly don't go out of state and pay
higher tuition.

~~~
sanderjd
Most state universities have been losing public funding and raising tuition.
It is not hard to rack up lots of debt going in-state.

~~~
pkaye
Sure but it is still cheaper than many private universities or out of state.
Exception might be if you got a full scholarship to a private university.

~~~
sanderjd
Maybe, but I find it frustrating that many people seem to believe that in-
state universities are the solution for not going deeply into debt while
supporting state policies that make them more expensive. I think state-
supported higher education should be an important part of the solution to this
problem, but policy is headed the opposite direction in most states.

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outside1234
This is a great example of why federal loans, while they appear to "help
people up", are horrible policy.

They 1) make tuition unaffordable (even for those who aren't taking on debt),
and 2) enslave those that do take on the debt.

We should cancel the program en mass.

~~~
rwmj
How do you plan to fund universities?

~~~
emp_zealoth
Normally, like the first world does. Somehow it works in most of Europe?

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johnnyb9
Every time she came across adversity, the answer was "get more higher
education". Suzie Orman (love her or hate her) always yells at people on her
show whenever they talk about "going back to school" as a way out of their
financial ruin.

~~~
judk
Whatever the merits of the idea, a tv celebrity yelling is not releveant
evidence. We can't all follow her path of selling self help books to riches

~~~
brianwawok
Eh ad hominum. She can have valid ideas, celebrity or no. I generally don't
live her but she is a good start for a lot of people.

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reverend_gonzo
The part that sticks out to me is:

 _Ms. Kelley has one possible escape route: a federal loan forgiveness program
that caps her payments as a percentage of her income and erases her debts if
she logs 10 years of service in the public or nonprofit sector. (For today’s
students, income-based repayment systems are helping lift the burden of debt.)
But that would still mean a decade of what she describes as “futile” payments
that won’t even cover her monthly interest expenses, leaving nothing to put
away for retirement._

She didn't pay a single dime towards her loans in 25 years. Furthermore, she
voluntarily cashed out her retirement fund, which would have been 100%
protected against creditors.

Working for 10 years in the public sector in order to forgive her debt is not
futile. That would be the one intelligent thing she could do in the 25 years
of pure stupidity. She doesn't deserve a retirement, especially when she's
done everything possible to not have one at all.

Yes, she doesn't claim that it's anyone else's fault, yet at the same time,
she doesn't really seem to understand that all of her actions have serious
consequences, and the actions she still makes also have consequences. She
seems to think that when she reaches retirement age, she should be able to
retire, just like that, even though she has actively jeopardized it in the
past 25 years.

If she's not willing to pay a portion of her debt because its "futile", the
best she can hope for is that her kids do well and take care of her ... or
leave the country.

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Shivetya
I am so glad she does not blame others for her excessive borrowing. I still
think the government taking over the student loan program was the worst
decision ever. This article emphasizes why, government agencies tend to not
operate with any sense a business would and therefor make terrible decisions
for themselves and those they serve.

the way out would be a government program similar to HARP, let them finance to
a new low rate, remove penalty amounts, and start paying it back. Perhaps
teaching at low income high need systems to earn credits as well. I have
little issue with funding a college education provided it is needed by society
and there is a defined service payback. However hers is just lots of bad
mistakes compounded by a undisciplined government agency.

Amazing that the loan agencies cannot cut deals like they can do with people
with huge tax loads.

~~~
nickthemagicman
The government takeover has been great from a loan holder point of view.

With Sallie Mae I would speak with foreign customer service rep who was barely
fluent in English, I would be put on hold for literally hours, would be lied
to about my eligibility for certain programs, the website was horrible, and
trying to get paperwork processed was took months.

Direct Loans, I speak with an American, am on hold for under 10 minutes, and
have all my questions answered truthfully. Their website is great and all of
my stuff gets processed under a week.

Despite all of the Republicans chest beating about privatized industry doing a
better job than Government can, I've found it to be an extreme degree of
exactly the opposite in this case.

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marincounty
I've heard some comments like, "She should move to another country." Don't do
this.

Yes, lenders will harass you. Yes, they might sue you.

If you are in debt, and can't pay back--first send a registered letter to the
collection agency stating you do not want to be contacted again about the
debt.

If worse comes to worse, and they get a judgement against you; don't panic.
You have rights. They cannot clean out you bank account. They cannot take you
entire paycheck. (with a little accounting magic, you could make a fair amount
of money, and they still wont be able to attach you pay check.) You are
allowed to keep possessions, but make sure you read what you are allowed to
keep. Hell, you are even allowed to keep heirlooms up to a certain value.

My point is yes they want your money. Be smart? Don't panic. You can still
have a full life. Try to make your self Judgement Proof.

I've never said this, but if you are a recent graduate, and have student
loans, and have a sneaky feeling you won't be able to pay off the student
loans; maybe read on. Really try to keep your credit clean. Get that first job
--apply for unsecured credit. Don't lie on the applications. If you can swing
it, use credit cards to pay off your student loans.

Yes, use CC to pay off your student loans. Do it right. Make sure you have
enough unsecured credit to pay off the student loans.

Wait a few months. Declare a chapter 7 bankruptcy.

It's not an easy maneuver, but as far as I know it's legal, but run it by an
attorney. If it works--great! Try to keep abreast of federal bankruptcy laws,
and changes. It seems like with every Republican administration lobbyists try
their best to make declaring bankruptcy more difficult. I foresee a Republican
administration in our near future? In doing any legal research--I found
findlaw to be a horrid legal site. Too many wannabe attorneys.

What ever you do don't do anything rash--like leave the country, or even think
about suicide. Yes, there are people who have killed them-self's because they
don't know they have basic debtor rights. Being in debt is not the end of the
world.

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JDiculous
A lot of the comments on here are bashing her for being fiscally irresponsible
- which even she is not disputing - but the real atrocity here is the system.
The government is effectively driving up tuition prices while imposing a life
tax on children of the middle class and the poor in the form of student debt
that cannot be discharged even in bankruptcy.

Of course since our Congress doesn't really give a shit because they're mostly
millionaires, the only "reform" they talk about is lowering interest rates and
expanding income based repayment programs - none of which address the crux of
the problem.

I'm glad that students are finally realizing that they're getting royally
fucked in the ass here, and that given our current legislative environment,
absolutely nothing will be done until students across the nations collectively
default on their loans. Luckily I think we're going to see this happen within
the next 5 years. This is just piss poor policy, and it's a shame that more
people aren't advocating for change, and that Congress can get away with
continually kicking the can down the road.

~~~
DaveWalk
I also felt that the real atrocity is the system, despite this one
individual's choices. This article reminded me of an interview in the "The
Giant Pool of Money" broadcast about the mortgage lending crisis. This person
took a loan 100% intending to never make a payment. The system gave him the
money, he bought a house and then it was taken away, uprooting his life. Human
interest aside, it was amazing to me that this set of events could even
happen.

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jakejake
It seems like there should be some sort of check in place for loans based on
the expected income. If you're going to be a teacher, loans should top out at
$30k or some reasonable number. You can't get a $500k loan for a $50k house.
It doesn't make sense that you should be able to get $100k loan for a career
that won't likely be able to repay. Prices for degrees should be in line with
the career.

I've noticed that young students have to make these choices about loans right
out of high school, but we don't really force them to calculate their starting
salary and payments until it's time for graduation. It's like pretend money at
that point for all of us and of course we all think we'll be the next
billionaire anyway.

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jlarocco
After thinking about this a bit, why isn't there a rule that once a person has
graduated with student loans (or dropped out for some number of years), they
have to pay back some large percentage of their loans before taking out more?
At the very least make it so that additional loans can only be used for a
graduate degree in a field directly related to their undergrad degree, and
only within a fixed number of years.

This lady isn't very bright, but at the same time it's not very smart to keep
loaning people money when they've repeatedly failed to pay back the money
they've already been loaned.

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heptathorp
> The $410,000 total shocked her.

This is the problem. It shouldn't have shocked her. It takes a minute to do
the math and calculate how much a debt will equal in x years if you don't make
a single payment. It's 100% predictable.

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scotty79
Could she just move to another country and renounce her US citizenship?

~~~
hwstar
Probably, but you'd have to move to a country which doesn't have extradition
treaties with the US.

~~~
kiiski
Since when do countries extradite for debts? I'm pretty sure you have to
commit a crime, and the crime must be something that is a crime in the
extraditing country as well.

~~~
hwstar
You are probably right, although if it is a government student loan,
emigrating with the sole purpose of avoiding payment could be construed as
fraud.

They could also bring a lawsuit for the debt in the country where the US
person emigrated to. This is much harder.

~~~
yareally
You have any examples where this actually happened?

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orky56
As the article states, this individual is in the 1.8% of all debt holders with
the large amount that she owes. She does not represent the majority but rather
a minority that has slipped through the cracks based on the current policies.

The payday loan industry and consumer loans in general are under ever-growing
scrutiny and some of the most recent proposals and regulations are based on
ability to repay. If a lender does not do their due diligence on a potential
borrower based on objective information of current/projected income and
expenses, the lender could be penalized and even lose their lending license.

With student loans, the ability to repay is considered a moot point since the
borrower is a student and likely has no income, let alone income history.
However this increased risk is met with an artificially lower interest rate
(<10% vs 50-200% APR), the most lax underwriting criteria & acceptance rates
(almost all domestic students qualify and receive), and no questions about how
it will be paid off.

The primary externality here is that a whole industry, secondary education,
has adapted to these crutches by increasing tuition, as the article states.
The value provided by these institutions is arguably not increasing since it's
becoming more of a commodity than a value-add (e.g. the fact that the
bachelor's is the new diploma) and thus you could argue that adjusted for
inflation post-degree salaries are not increasing. This leads to the ability
to repay not improving and even getting worse.

The false assumption in all this is that education is an investment that
yields a higher income even while adjusted for the interest on loans. The
elephant in the room is the necessary segregation of students based on
potential ability to repay, which is the present value of a student's income
based on their future income. The primary indicators of this are based on
caliber of the institution, graduation rates as per institution/major,
desirability of their major, performance in school, necessity/likelihood of
going to graduate school, current unemployment in the industry, job growth in
the industry as it relates to time of graduation and beyond, and other
significant factors. By understanding this, loan products can be customized
for each student in the absence of credit history to more accurately assess
risk.

Higher risk applicants may think twice when seeing higher interest rates and
ultimately may make the decision to seek a lower product by pursuing a lower
risk opportunity. At the end of the day, these are very personal decisions
that can only be decided by the individual. However by not pricing loans
accurately, we are giving the false impression that each student's decision
after high school and/or undergrad is similar in ability to repay with their
limited resources (e.g. stress, time, money). The government owes it to their
citizens to be even more responsible than the private industry. Student loans
may seem like an income generating opportunity such as tax revenue but it is
preying on the least educated, most vulnerable, but most promising
demographic. It should be viewed like Social Security and Medicare where a
certain demographic is dependent on it for livelihood rather than an
afterthought.

~~~
jcalvinowens
> By understanding this, loan products can be customized for each student in
> the absence of credit history to more accurately assess risk. Higher risk
> applicants may think twice when seeing higher interest rates and ultimately
> may make the decision to seek a lower product by pursuing a lower risk
> opportunity.

I get this argument, but IMO it would ultimately devolve into a system with a
fixed set of sanctioned fields of study which only the wealthy could venture
outside of. We really don't want that.

Don't forget that knowledge is an end unto itself: an educated person is
better for society at large, even if they're flipping burgers for a living.
The economic utility of a college education extends far beyond the student
being educated.

~~~
judk
Why don't we want that? We will never escape a little unfairness, and we don't
need to. Telling a kid that their only path out of poverty is to be an
engineer or schoolteacher, but art historian is not an option -- I would love
for that to be the worst of our social problems.

~~~
jcalvinowens
> We will never escape a little unfairness

Of course not: IMHO, the unfairness in the current system is preferable to the
unfairness you describe.

> Telling a kid that their only path out of poverty is to be an engineer or
> schoolteacher, but art historian is not an option -- I would love for that
> to be the worst of our social problems.

You're assuming the sole motivation is to make money, which isn't always the
case. Some would be much happier as a poor art historian than a moderately
wealthy engineer. Who are we to question that?

~~~
orky56
It would be hard pressed to argue that the government is offering loans for
the ultimate happiness of the student. As the article points out, the lender
is smiling when giving the loan but the end goal like any other business
should be to get the funds back with interest in a reasonable time frame. If
someone were to pursue a degree for happiness the government does not need to
be in the business of funding that. They should be funding students looking to
create a sustainable life for themselves.

