
White House rolls back protections for people in default on student loans - daegloe
https://www.washingtonpost.com/news/grade-point/wp/2017/03/17/trump-administration-rolls-back-protections-for-people-in-default-on-student-loans/
======
nhangen
I'm surprised by the comments here. I am a fiscal conservative, but having
taken and struggled to pay for student loans, and having hired people in the
same situation, find that the lending programs are predatory by nature in that
they know students will be unable to service the high monthly payments, and
eventually default as a result.

Do I think people should pay their debt? Yes, but these lenders are the same
lenders that get bailed out time and time again. They are in no peril. It is
our students that assume this risk.

The only reason I was able to pay my loans was because the Army paid them for
me after I completed my term of service. I tried for years to find employment
that could help me escape a life of poverty but could not. It was not until I
left the Army and started my own business that I finally started to claw my
way out.

Our education system is broken. We know this. So lets stop punishing kids for
doing what they've been told do to throughout K-12, and instead help them find
a way out of the rat race. Kids swimming in debt are of no service to this
country. We have to do better.

~~~
PKop
Removing loan guarantees, and forcing students to scrutinize the value of the
degree they are pursuing _will_ improve the problem of students blindly doing
what they've been told to do.

If they don't suffer the consequences of buying a useless degree, why wouldn't
they keep doing it?

Any possible improvement of the status quo is going to involve pain. Certainly
universities themselves could start feeling some of it, as they are complicit
in accepting the guaranteed money without any incentive to more selectively
filter either: the students getting the loans, or the quality of degrees they
are receiving, or both.

~~~
thecpphorse
Why should lenders not be punished for financing the useless degree? After all
the availability of easy financing drives up the price of the useless
education.

Remember, the "moral hazard" spoken of in financial bailouts is that the
lenders aren't being punished for taking bad risks.

~~~
hermitdev
Much like the housing collapse, banks have been mandated to finance to people
that can't afford it for student loans. The blame doesn't solely lay with the
banks. The government is at least equally to blame.

~~~
scarface74
That banks were "mandated" to finance people who couldn't afford housing is
nothing more than a conservative talking point. The risky loans that banks
took on -- no doc loans, interest only loans, negative amortization loans, sub
prime high interest loans -- were "non conforming". "Non conforming loans" by
definition were not government backed loans.

People who were taking advantage of those loans generally fell into a few
categories. Investors who were buying real estate to flip. People who were
getting houses appraised at more than they were worth and were illegally
getting cash out and people with money that were buying over priced houses to
live in but to sell later.

------
BucketSort
After a few years of unemployment and being treated for bipolar depression my
loans were in default. Due to the grace of the system at the time, I was able
to bring my loans out of default and I now pay them like everyone else. This
type of thing punishes the downtrodden even more. There must be a set of
checks and balances that at least attempts to differentiate between deadbeats
and broke people that don't need a higher hill to climb. The loans never go
away. You can't escape them with bankruptcy. Let's not make this a living hell
for people that got educated and fell on hard times.

~~~
UpDownLeftRight
I don't pay student loans. Do you know why? I don't have them. I went to an
inexpensive local school, worked while going to school, and took the public
bus to and from it. (I was fortunate enough to be able to live with my
parents.)

While I don't know your situation, it's hard for me to feel sorry for someone
who went to an expensive private school, lived on campus in a "country club"
atmosphere, and then expects the Taxpayers to cover it.

~~~
metaobject
You say you don't know anything about his situation but then you go on to
heavily speculate about his situation.

I'm in your situation btw. I worked through undergrad and grad school and had
my work pay for almost all of my school so I never had any debt. But I realize
I was lucky and had a good situation lined up and not everyone has the same
opportunities. Some people need more assistance than others, and I don't mind
if the govt helps those folks out.

~~~
UpDownLeftRight
Right. And you may not mind if 'the government' helps them out, but the people
who fund 'the government' might.

------
neves
This USA student loan scheme is one of the most brilliant machines of social
control ever devised.

People get of college already owing a lot money, now they have to work for
shit, and put up with their asshole bosses do. They can't have the option to
spend couple of months searching for jobs or they will have to default their
debt and mess all their future life.

Nothing like a well behaved society where the workers can't complain.

Brilliant!!

~~~
AlexCoventry
"...a cynic might argue that we haven't really abolished slavery; we've just
relabeled it. The cynic would have a point: an ancient Greek would certainly
have seen the distinction between a slave and an indebted wage laborer as, at
best, a legal nicety."

[https://books.google.com/books?id=lliTBQAAQBAJ&pg=PT275](https://books.google.com/books?id=lliTBQAAQBAJ&pg=PT275)

~~~
ryanmaynard
Thank you for the citation; I've ordered the book. Would you happen to have
any other book recommendations on the topic, or adjacent topics?

~~~
AlexCoventry
Also, Soros's _The New Paradigm for Financial Markets: The Credit Crisis of
2008 and What It Means_ , though Graeber's book is what really brought Soros's
claims into focus for me.
[https://www.amazon.com/dp/B004HKIFR4](https://www.amazon.com/dp/B004HKIFR4)

------
brogrammer2
Sometimes I do wonder why American Universities charge exorbitant tuition fee?

Education being the bedrock of an advanced society, isn't but natural the
developed economies like US should be able to subsidize education to such an
extant that youth of country don't have to worry about paying their tuition
fee and focus more on learning and innovation that will take everyone forward.

It is but a reflection on the sad state of affairs that our higher education
system has fallen into!!

What do you people think?

~~~
brianwawok
> Sometimes I do wonder why American Universities charge exorbitant tuition
> fee?

Students demand a lot. Good profs. Dorms with AC. Sports teams. Medical care.

All that cost a lot.

States and federal gov't pays less each year. The difference has to come from
somewhere?

In any case, its not perfect but I will take US colleges 100x over Japanese
Colleges or Chinese Colleges or Mexican Colleges or 98% of the colleges in the
world.

~~~
pilsetnieks
I bet they'd gladly pay $10'000 less per year even if it meant no $100M
football stadium.

~~~
brianwawok
If you read my posts further down, Football is one of the only net positives
for most universities. So getting rid of Football may raise your tuition by
$500.

Now if you got rid of swimming, lacrosse, cross country, track, cricket, etc.
etc., that would lower tuition by a bit.

------
muhfuhkuh
Ironically, the head of the Dept. of Ed. invested over a hundred million
dollars in a debt collection agency that tacks on these usurious fees and
rates.

~~~
bluejekyll
I don't think that's irony. That is corruption.

------
UpDownLeftRight
There's a trillion dollars of liability we're talking about. I'm OK with some
forgiveness, but if and only if the Government gets out of the student loan
business. (Watch tuition drop like a rock if this happens!)

~~~
dkrich
And if guarantees for the loan companies are removed and the inability to free
yourself from it in bankruptcy. Essentially move the 100% of the risk that
borrowers currently have and move a nice portion of it to the lenders so they
both bear the burden of the loans can't be repaid.

Imagine if banks had zero risk when providing home loans. I don't think it
would be too difficult to buy a house you couldn't afford and quickly the
price on homes would be driven up. The student loan industry is so completely
fucked and needs to be reformed before it ruins our economy.

~~~
DrScump

      And if guarantees for the loan companies are removed and the inability to free yourself from it in bankruptcy.
    

Then why would the loan companies do student loans _at all_ except at
exorbitant rates (thereby making the _responsible_ students pay more for those
who aren't excluded altogether)?

~~~
dkrich
They wouldn't. That's the point. You shouldn't be able to borrow $150k+
without some collateral or a 20% down payment.

I believe that if this happened, you'd see tuition rates plummet. But it won't
until some catastrophic economic event occurs because the student loan
industry is predatory and corrupt. Essentially ruining people's lives by
selling them a lie in the name of "investing in your future."

------
smkellat
It doesn't matter if it was a nice idea but if it was adopted outside the
normal and proper means of adopting regulations then it is not okay. Forms of
action matter regardless of the desirability of the substance. However,
nothing prevents this being adopted again in the _proper_ fashion under the
Administrative Procedures Act.

~~~
andr
From the article it sounds like the regulation comes from a court precedent.
The court sought advice from the Obama administration. It was not an executive
order.

~~~
smkellat
Not quite. The use of "Dear Colleague" letters by the US Department of
Education have dubious status in terms of being regulations let alone being
binding. It didn't play a role in a court case directly. A court _sought_
clarification after a settlement was reached between litigants but it wasn't
necessarily required to be issued in that fashion by the case.

------
throwaway2016a
I've always wondered if the fact we make it so essentially students are forced
to repay their student debt (even if they are otherwise insolvent) contributes
to higher cost of education.

After all, you have a captive market that has to buy your service or deal with
a higher risk of unemployment and a lending institution that doesn't take on
any risk.

What if we let students default on their loans?

My bet:

\- Less people will go to college (not necessarily a bad thing)

\- The cost of college will go down because the demand is stifled

If the government works to guarantee you will get paid, you can charge
whatever you want and that might be what we are seeing.

~~~
LeifCarrotson
Absolutely. There are three parties here: Schools, students, and lenders.

Schools set the​ price based on what they can get students to pay, which is a
function of the willingness of lenders to give the students money.

Lenders approve borrowing students based on their likeliness to repay, which
is currently very large due to the legal framework.

Students select college programs and loans based on a convoluted mix of
17-year-old wisdom, well-meaning advice suggesting they pursue their dreams,
their ability to get the loan, and a hazy idea of future employment, income,
and repayment.

It's obvious that increasing the penalties to the students after graduation is
about the least effective measure you can take.

If students were allowed to discharge student loans through bankruptcy, that
would still be a hefty penalty. Lenders would be less willing to give them
money. With less money available, schools would have to charge less.

------
cromwellian
Costs of increased military spending in Trump's budget: $54 billion

Estimated costs to make college tuition free for every citizen: $62 billion

~~~
aianus
> Estimated costs to make college tuition free for every citizen: $62 billion

How? There are ~20 million Americans enrolled in college so $62 billion is
only $3,000 per person. In comparison, the US spends about $12,000 per year
per high school student.

~~~
jsmeaton
I'm not disagreeing, but presumably at least some portion of those expenses
would be paid back in some way. The Australian model has the government
provide the student loan. The interest rate is fixed to CPI and repayments are
garnished directly from salary provided you earn over a certain amount
(something like 50k). Students also get discounts via copaying which was about
$500 per year from memory.

The government obviously never breaks even directly from this scheme. I think
they've begun to exclude certain degrees that don't have good prospects which
is a big debate at the moment.

------
aresant
The actual protection being rolled back:

"That [protection] forbid the agencies from charging fees for up to 16 percent
of the principal and accrued interest owed on the loans, if the borrower
entered the government’s loan rehabilitation program within 60 days of
default."

~~~
notadoc
16% interest on student loans is basically usury

~~~
distances
For loans you can't default on it should be the market rate plus a tiny
margin. So maybe 2% or so nowadays.

~~~
zeroer
The lendee can't default, but that doesn't mean the loan gets paid. Some
people just don't have money/income/assets to seize, and courts will not
garnish poverty wages.

------
hermitdev
Good. I paid the $120K for my education and co-signed a loan for a friend (big
mistake) for $10k for her education that I ended up paying off because she was
a dead beat.

There has been a huge disturbing trend in the US in the last 30 years or so:
you're not responsible for your actions; it's always some one else's fault.

You choose to go to a high priced school and study something that offers no
marketable skills or is hyper competitive and only a few positions exist, why
should I, as a taxpayer, fund that? - that is your choice.

I wanted to study physics, because I love the subject, but when I entered
college, I evaluated that my job prospects were low, especially with merely an
undergrad degree. Instead, I studying electrical & computer engineering, and I
paid off my student loan debt 4 or 5 years after leaving college.

~~~
dikdik
So you are against the ability for people to declare bankruptcy then?

Many boomers that spent beyond their means and lost their homes in 2008 were
able to walk away from their loans. While they had a house to "give back",
that asset probably lost 50-300K depending.

Many people every year get expensive medical care and are unable to pay it
off. They cannot "give back" a medical procedure, so the cost is written off
and/or they declare bankruptcy. This negatively affects everyone else that
pays for healthcare.

But when it comes to education, it's a different story? I have a feeling the
different story is: educational debt primarily effects the young,
housing/medical debt primarily effects the older generations.

Educational debt used to be like other debt, but then the boomers went to
college and got into positions of power...

------
artursapek
I keep seeing people say that the student loan crisis will be the next "bubble
pop". It seems like colleges and lenders both got greedy and created a mass of
debt to them that will never be paid off. That, and I imagine the current
generation will send their own kids to college at a much lower rate than their
parents did. The "college bubble" is going to pop.

~~~
madenine
Its going to be a really rough bubble. There's no one source to point the
finger at, but we've got ourselves in a spiral where:

-More people are going to school

-University costs have skyrocketed (mostly due to expanded administration services), which has increased the need for students to secure loans

-Wage growth has been low/flat for a long time

-A college degree has replaced a high school diploma/GED as a minimum requirement for most middle class jobs

-New grads are coming out of school to lower paying jobs relative to the cost of their education than ever before, driving defaults.

-As college matriculation becomes more and more necessary, even great high schools pivot towards a goal of getting students into college, instead of providing them great educations which have a secondary effect of getting them into college. Further decreasing the value of high school as someone's highest degree of education.

The last one is very worrisome for me, and something I hear a lot about. I
have family and friends who are college professors - even those at ivy league
universities are saying their students are just as smart as before, but on
average now they're not as generally educated and way less prepared for
serious academic work. They can't handle the same work loads, don't write or
research as well, require more oversight/direction - things like that.

How do you fix that without blowing everything up and probably destroying the
lives for a huge group of people who's only crime was being born in a certain
set of years? Not to mention the economic implications of an entire generation
going into middle age already carrying massive debt - how are they going to
generate asset wealth?

~~~
xor1
>How do you fix that without blowing everything up and probably destroying the
lives for a huge group of people who's only crime was being born in a certain
set of years?

A huge number of millennial college students who weren't fortunate enough to
graduate into a tech career between 2007-2011 already went through this. It
wouldn't be anything new.

>Not to mention the economic implications of an entire generation going into
middle age already carrying massive debt - how are they going to generate
asset wealth?

I mean...this is already happening. I'm not sure what you're getting at here.
"Blowing everything up" is the only way to stop this cycle.

~~~
madenine
Probably should've separated/clarified my last two sentences; I agree that its
already happening, and that the system will blow up on its own eventually.

My questions are: Can we do something about to reverse it? If not can we do a
"controlled demolition"? Is there even anyone in a position to do anything /
is the train accelerating with no breaks and no one at the helm?

------
masonic
Two things to note on this:

1) the Obama policy (not even official administrative rule with any weight of
enforcement, just a memo with a veiled threat of negative attention if flouted
with any frequency) was only in place for his last 1.5 years. This letter just
pulls that back to the first 6.5 years of his reign.

2) Note this quote: "The withdrawal of the Obama administration memo arrives
the same week as a report from the Consumer Federation of America (CFA)
showing that millions of people had not made a payment on $137 billion in
federal student loans for at least nine months in 2016, a 14 percent increase
in defaults from a year earlier. "

In other words, after this rule was put in place, _millions_ of loan
recipients _stopped making any payment altogether_ and 14% _more_ entered
default _despite added mechanisms for avoiding default_.

This article doesn't even go into the huge taxpayer bailout of students of
closed and failing for-profit diploma mills[0]. It was an unprecedented
windfall for those affected, the entire debt was _forgiven_ , they took no hit
on their credit, _and_ the debt forgiveness wasn't counted as income by the
IRS (like debt forgiveness normally works). Taxpayers paid for it all. It was
a great buy-off of new voters.

An obvious _small_ mitigation would have been to instead have their debt
applied against a replacement degree program (e.g. you owe $20,000, you go to
a new school at $10,000 tuition per year, then your first two years' tuition
payments wipe out that debt, with interest charges stopped while in school).

[0] [https://www.usnews.com/education/blogs/student-loan-
ranger/2...](https://www.usnews.com/education/blogs/student-loan-
ranger/2015/12/09/pursue-a-federal-student-loan-discharge-as-a-victim-of-
college-fraud)

[EDIT]: Here is the original Obama FFEL memo:

[https://ifap.ed.gov/dpcletters/attachments/GEN1513.pdf](https://ifap.ed.gov/dpcletters/attachments/GEN1513.pdf)

------
jmcdiesel
I guess I'm just simpleminded and think that you should just pay your debt
that you agreed to acquire..

------
yummyfajitas
This is probably a good idea. It's ridiculous that we coddle people who
wastefully took out loans with the goal of improving human capital, and then
failed to take advantage of them.

Previously student loans were a socialized losses, privatized gains situation.
This gives borrowers some skin in the game and will hopefully give them more
reason to carefully evaluate whether college is really a good idea for them.

~~~
imsofuture
What? Borrowers already have skin in the game. Lenders have _none_.

Make student loans dischargeable and suddenly a lot more people are thinking
about the actual utility of college and it's costs.

~~~
nhangen
I agree with the downvote and the fact that borrowers have skin in the game,
but not that lenders have none. Debt should not be dischargeable, else it's
not debt at all.

~~~
HarryHirsch
Of course debt can be written off. Out there in the real world contracts are
renegotiated all the time. More of that would be advantageous in the face of
information asymmetry, the party with better insight would be less tempted to
exploit their position.

~~~
nhangen
You're talking about corporate debt not personal debt. Show me an example of
personal date that is frequently discharged (outside of bankruptcy) and I'll
adjust my position.

If you're referring to the fact that it can't be discharged as part of
bankruptcy, then I tend to agree with you. It should be.

~~~
icebraining
_If you 're referring to the fact that it can't be discharged as part of
bankruptcy, then I tend to agree with you._

How else would they be dischargeable? I assume you were talking about
bankruptcy.

~~~
nhangen
As some sort of student loan forgiveness program.

