Ah that's why they're complaining about the student loans.
In The European countries I have been living in, the concept of personal bankcrupty doesn't exist in the same way, at least. People who get too much loans kind of just hang with them, after 15-20 years they are forgiven AFAIK.
Btw, my suggestion for the US would be to remove that special bankruptcy exception for new student loans.
That's because once you do that, the supply of new student loans would most likely dry up. Thus shutting off the money fountain for the education industry.
Your suggestion wouldn’t work because nearly all student loans (over 90%) are issued by the federal government, which does not (and for political reasons, never will) evaluate credit risk.
> nearly all student loans (over 90%) are issued by the federal government
Not claiming you are wrong, because I genuinely don’t know, but how does it gel with the fact that the federal student loans for undergrads cap out at the max of around $9.5-12k for independent students and $5.5-7.5k for dependent students per year[0]?
Given all the outrage I see online, where people claim paying upwards of $20-40k/yr for attendance, wouldn’t they need to supplement it with private loans?
I dont doubt that there are more federal loans out there than private ones (because it always makes sense to get the federal ones first, and only go for private ones later if needed, so pretty much everyone who has private loans also has federal ones). But what about in terms of the actual loan dollar amount?
https://www.usatoday.com/money/blueprint/student-loans/avera... (“As of the first quarter of 2023, student loan debt in the U.S. stands at a total of over $1.77 trillion. More than 92% of this is federal student loan debt while the remaining amount is owed on private student loans, according to Federal Student Aid (an office of the Department of Education).”).
That 92% figure is in terms of debt amount, not number of loans.
The limits you mention are per student. Parent PLUS loans are limited only by the school’s official cost of attendance: https://studentaid.gov/understand-aid/types/loans/plus/paren... (“The maximum PLUS loan amount you can borrow is the cost of attendance at the school your child will attend minus any other financial assistance your child receives. The cost of attendance is determined by the school.”). Schools are extremely aggressive about ensuring parents are on the hook for the loans so students can take out the maximum.
That’s a good point, thanks for bringing it up. It pretty much resolves the conundrum I was having in my original comment.
Small caveat (that ultimately doesn’t negate your point): PLUS loans have credit check requirements for determing eligibility[0] (with exceptions available in certain cases if you can satisfy additional requirements, like bringing an eligible cosigner who can pass the credit check).
An alternative is to tie the federal student loan program to a regulation in school cost. If the school exceeds some threshold, their students are no longer qualify for federally-backed loans. Granted, it creates administrative burden but it’s the only proposal I’ve heard that seems to address the root problem of tuition costs and almost unfettered access to collateral-free loans.
That's unlikely to be accepted for other reasons. Putting a limit means most will approach that limit, and those that exceed the limit will be even more unaffordable. Plus no one will agree on what the limit should be. Which makes them extremely unpopular (except for benefits to individuals which of course should have the lowest limit possible nationwide)
>Plus no one will agree on what the limit should be.
We do this with drug reimbursement costs and construction already and I’m pretty sure those for-profit companies would also disagree on what the limit should be. I also don’t think it needs to be a one-size-fits all threshold; it could be adjusted to COL and/or job prospects that are tied to graduate statistics. IMO that goes a long way to aligning the incentives of the student and the institution.
Yeah, I intentionally didn't say it wouldn't happen, just unlikely :)
Personally I think limits (and significantly higher grants to make student loans unnecessary for a basic post-secondary education) are needed. But I think it's worth recognizing that limits will make what's already a very divisive issue, even more divisive...
I think more thoughtful limits would be a good idea. I also think the reduction of aid money has been part of the problem. I just don't know where the money comes from to shore up that problem.
I have seen other pilot programs. I think it was Purdue who was considering "buying stock" in students, where the student would pay a portion of their income for a certain number of years in exchange for a scholarship.
We are to judge because we are the taxpayers who guarantee the vast majority of those loans. That’s the mail reason I said “collateral-free.” Most of those loans would not happen in a private market because teenagers, in general, do not have collateral to secure the loan, meaning they have little to lose by defaulting.
Their degree and future earning potential is supposed to be the collateral.
Unfortunately, the earning potential of a generic bachelor's degree seems to have mysteriously fallen at roughly the same time a flood of students were offered huge loans to achieve them. Maybe some day we'll be able to find the connection.
I don’t think that’s correct. You can’t put up “future earning potential” as collateral while simultaneously allowing for discharge of debt in bankruptcy. That results in an incentive to incur as much debt as possible and then declare bankruptcy shortly after graduation when the impact is negligible. That’s the whole reason why student loans aren’t generally dischargable in bankruptcy.
I agree that's the theory, I disagree that it actually is what would happen in practice. E.g., if the government stops guaranteeing the loans I seriously doubt banks will accept "future earning potential" as collateral. So I disagree that it's actually collateral (your initial claim). The real collateral is the govt promise to back up the loan.
So the question still stands: if the government no longer guarantees the loans, what is the proposed solution to prevent banks from no longer lending to students?
I’m not against that, but I do think just getting rid of federally backed loans previously causes more problems. (Ie it’s one of those simple cures that may ignore blowback) Do you think there is an opportunity gap to be closed? If so, how do you think that would work?
> (Ie it’s one of those simple cures that may ignore blowback)
I actually want exactly the 'blowback': I want student loan creation to fall off a clip.
> Do you think there is an opportunity gap to be closed?
What is an opportunity gap?
> If so, how do you think that would work?
I'm guessing here what you mean by opportunity gap. I think the cheapest way is to open the US labour market to virtually anyone on the globe. That would be good for the US economy, wouldn't cost the tax payer anything (in fact you would save on border enforcement), and the people with the least opportunities globally would benefit enormously.
If you only care about Americans, I would suggest to give poor people money, and let them decide what to do with it.
Eg whatever the cost to subsidise education (including subsidised student loans) right now, just pay it out to poor people. Than they can buy education, or whatever else they deem more necessary.
>whatever the cost to subsidise education (including subsidised student loans) right now
It sounds like you may not understand how the system works. It doesn’t cost the government anything, with the exception of the loan repayment pause surrounding COVID.
I know the simple solutions like “Just give away money” can be seductive, but IMO they generally don’t work well in complex and nuanced problems. People aren’t rational actors by and large, and it’s a mistake to assume they can be modeled as such in many cases.
I'm talking about real costs. The government doesn't lose money by guaranteeing loans (in fact they make money, which is a totally different — but reasonable —argument against the current setup). I assume you mean opportunity costs as in "what else could the govt fund" with that money; if that's your claim, it again belies a misunderstanding of what's going on. You seem to have created this false narrative in your head that doesn't reflect reality.
There is much research, especially in behavioral economics, that shows that more objective decisions can be made by creating systems that facilitate more rational decisions. So my current position is that we should set up systems/institutions to foster those better decisions rather than push everything down to the individual, given the complexities of modern life. So to directly answer your question, there's decades of research that shows individuals aren't great at making rational decisions at the individual level. It's also interesting that you simultaneously seem to claim the "state" should make decisions, but also that institutions don't know what's better than individuals. It doesn't make for a very cohesive take.
> I'm talking about real costs. The government doesn't lose money by guaranteeing loans (in fact they make money, which is a totally different — but reasonable —argument against the current setup).
The government guaranteeing arbitrary loans isn't free in economic terms. Just like eg increasing the length of patents from 20 years to 40 years ain't free, even though it won't show up as a cost on any government balance sheet.
So what do you think the non-monetary realized cost is? And that cost compare to the benefit of a more educated populace?
At least with your patent example, we can measure it in economic terms, since patents are a commercial protection. Once we start getting into wishy-washy measures, people can make just about any arbitrary point to fit their narrative.
I think that's a potential part, but to play devil's advocate: don't you think this may exacerbate the opportunity gap? I.e., those who are the best bets (in terms of not defaulting) are also those who come from well-off backgrounds?
Unless someone else (like parents) stand as guarantors, I think the greatest predictor for a default will be how competent the candidate is after finishing the education.
Also, instead of allowing a bankruptcy at any time, student loan down payment could be limited to max 25% of income after tax OR 10% of net worth, whichever is greater, with any balance after 30 years transferred to the college.
Objectives:
1) Reduce the incentive for colleges to offer education tracks that they KNOW (or should have known) will never lead to much beyond a minimum pay job.
2) Prevent unlucky or unsuccessful students to get stuck with an impossibly large loan that just keeps growing, absorbing all they earn or own.
3) Ensure that students still do feel some pain when this happens, but not so much that they lose all incentive to build themselves up. They still keep 75% of their income after tax AND they're guaranteed that the loan will end within 30 years.
4) Incentivize pricing of of the student loans in ways that reflect the risks involved. If students that study "lesbian dance theory" have to pay a 10% interest rate while Physics students pay only 5%, that's a pretty strong indication that the "credit score" for the former is pretty bad.
5) Also incentivize minimizing cost while maximize the useful learning for the college, to minimize the risk that they'll be stuck with too much of the debt.
If this leads to some (presumed worthy) students having fewer opportunities than they otherwise would have, it's still possible for the collages, government or others to provide stipends or other similar forms of support.
That's why we shouldn't subsidise education in the first place.
The net benefits of education accrue to more than 100% to the customer. And, people from well-off backgrounds can and do take more advantage of education.
We should just give poor people money, and let them decide for themselves how they want to spend it. If they want to spend it on (unsubsidised) education, that would be fine choice for them to make.
I do agree that when you subsidize something you get more of it. So there’s a case that in some instances like education, it’s a good thing. Most people probably agree that a more educated society is better than a less educated one (although I agree there’s still room for debate on what that education should entail). The issue with an open-ended handout is that you don’t know what you’ll be getting more of.
> So there’s a case that in some instances like education, it’s a good thing.
That's where we disagree, I guess.
I don't mind education in the sense of people learning something. That's harmless enough (but doesn't need special subsidies. Just give money to the needy, and let them decide whether they want to invest it in a library membership.)
What I'm against specifically is education in the sense of getting a certificate at the end. A degree etc.
That sort of education has negative externalities and should be highly taxed, not subsidised. It leads to an arms race of credentialism, and is a big reason why eg a high school graduate can't get a decent job these days.
(There are plenty of jobs that used to be done by high school dropouts, that haven't changed all that much. But now require a degree, if you want to be considered for an interview.)
I think we actually agree largely on the education piece, that’s why I gave the parenthetical. I don't get the impression you really think a more educated populace is worse, but we may disagree on how one gets educated. There are many routes to education, and I think it’s wrong to think all people need the same route. But I think you’re committing the same error by assuming the library route works for everybody.
I do also think over-credentialism is a problem, but that is largely up to the employer. All they have to do is start hiring people without credentials if they aren’t warranted and the problem is solved (for non regulated industries). But I wouldn’t go so far to say credentialism as a whole is worthless. I’m glad the food I buy is credentialed by the FDA, and the doctor I e see is credentialed as is the engineer who designed the bridge I drove across to get to work.
What I do see on HN is that the crowd generally biases towards libertarian autodidacts and that colors much of their worldview.
> I think we actually agree largely on the education piece, that’s why I gave the parenthetical. I don't get the impression you really think a more educated populace is worse, but we may disagree on how one gets educated. There are many routes to education, and I think it’s wrong to think all people need the same route. But I think you’re committing the same error by assuming the library route works for everybody.
The library was just an example. People can use their own money and time to pursue whatever route they wish. They can attend schools (and pay the fees), they can go to the library, they can read Wikipedia, they can do an apprenticeship, etc, whatever works for them.
> I do also think over-credentialism is a problem, but that is largely up to the employer. All they have to do is start hiring people without credentials if they aren’t warranted and the problem is solved (for non regulated industries).
Alas, no. Employers aren't stupid (and neither are workers). Employers are paying attention to the credentials because they signal useful qualities in the prospective employee. Mostly compliance and conformity.
For an individual worker and an individual company, the credential is a useful signal. Just like it's useful for an individual country to get some extra nukes.
But from an economy-wide perspective, it's just an arms race. (Similarly, there's no global benefit from every country getting some extra nukes each.)
> I’m glad the food I buy is credentialed by the FDA, and the doctor I e see is credentialed as is the engineer who designed the bridge I drove across to get to work.
I'm not an American, but I think the FDA is pretty much useless. (But that's mostly because it's a federal agency, and the relevant authorities should probably sit at the state level at the highest or even lower. With voluntary coordination between the different states. Very similar to how traffic signs and rules are regulated and coordinated.)
I think your response is overly cynical. As the Oscar Wilde quote goes, a cynic is someone who knows the price of everything and the value of nothing. The FDA is far from perfect, but I have much more confidence buying a drug regulated by then than some pills sold at the convenient store.
>Employers are paying attention to the credentials because they signal useful qualities in the prospective employee. Mostly compliance and conformity.
Again, I think this is overly cynical and lacking nuance. There is debate in the economics circles on how much a college credential is signal for culture fit and how much is signal fit skills. It’s far from settled, and almost certainly a mixture of the two.
I personally think employers use credentials because they are incentivized to be risk adverse. It’s easier to defend a binary credential than to accurately gauge skillset and cultural fit through a behavioral interview. HR is concerned more with reducing false positives than letting a good candidate slip through the cracks.
I also disagree with the coordination piece at large scale. When societies get big enough, we don’t have the individual bandwidth to manage every interaction so we rely on institutions to shoulder some of that burden. I suspect that’s why you see a convergence on societies setting up a “council of elders” (ie govt) when they get to a certain size. Most of the people who lean into the unnuanced libertarian ideal tend to also lean towards certain troubles managing social dynamics.
> I think your response is overly cynical. As the Oscar Wilde quote goes, a cynic is someone who knows the price of everything and the value of nothing. The FDA is far from perfect, but I have much more confidence buying a drug regulated by then than some pills sold at the convenient store.
I suggested that state level agencies can do that regulation. Why do you bring up the straw man of unregulated drugs?
Most countries are smaller than the US, and still manage to get safe drugs. In fact, many countries are even smaller than many US states. So it should be certainly possible for US states to regulate drugs. (Especially since they can cooperate, just like they do on traffic rules or the Uniform Commercial Code.)
I'm not sure why you want to paint my position here as some radical 'libertarian' fanatic? Even the Catholic Church likes subsidiarity, and it's (in theory) one of the guiding principles of the European Union. See https://en.wikipedia.org/wiki/Subsidiarity
> Again, I think this is overly cynical and lacking nuance. There is debate in the economics circles on how much a college credential is signal for culture fit and how much is signal fit skills. It’s far from settled, and almost certainly a mixture of the two.
Aren't you the cynical one? I am suggesting that most likely employers and employees ain't idiots and know what they are doing. And you suggest 'hold one, they probably are idiots'.
> I also disagree with the coordination piece at large scale. When societies get big enough, we don’t have the individual bandwidth to manage every interaction so we rely on institutions to shoulder some of that burden.
Sure, but that doesn't mean subsidising credentialism is the only way. We have examples from successful societies in other parts of the world and in other parts of history doing just fine with a lot less of that. So your argument from universal convergence doesn't fly, when there is no universal convergence in the first place.
Because it illustrates the problems of scale. Much of commerce is regulated at the federal level because crossing state lines makes the complexity of the problem much harder to manage. UCC is not a very good example; it has barely changed in half a century, in part because getting all states to update and agree becomes onerous. As an effect, the UCC largely boils down to a contract law policy of "shut up, pay me." That type of approach isn't great for handling nuanced problems.
>Most countries are smaller than the US, and still manage to get safe drugs.
You do understand much of this is predicated on the very institutions you are maligning. A vast and disproportionate amount of pharma R&D is done in, and regulated by, the U.S. Other countries generally use that information as a proxy for in-house regulation. Ever wonder how small countries manage to regulate their aircraft without much overhead? It's because they accept the US FAA certifications. They effectively outsource the oversight to the US.
>I am suggesting that most likely employers and employees ain't idiots
If you review my comments, I'm don't think you'll find me using the word "idiot." What you will find is that I claim individuals act irrationally and also struggle to manage information when the complexity of society gets high.
>Sure, but that doesn't mean subsidising credentialism is the only way.
If you read carefully, I have not been an advocate for subsidizing education per se. What I am saying is we need to be careful of the blowback of simple solutions. If the intent is to increase education, subsizing it is one way, but it obviously has unintended consequences. Simply removing subsidies does not necessary fix the problem without creating second order problems of its own. I'm saying we need to be cognizant of that, and asked for solutions that effectively manage those consequences. Generally, those simple fixes like "remove subsidies" or "just give people money" belie a lack of nuanced understanding and risk creating more problems than they solve. Most of your perspective seems to be built on an overly simple model of human behavior that tends to break down on complex situations.
Germany has Verbraucherinsolvenzverfahren. The individual's credit rating will be negatively affected for several years after the completion of the procedure. The insolvency proceedings are recorded in a public register, which can be accessed by anyone. The process typically lasts for six years, during which the individual must adhere to a strict budget and make payments to creditors. After completing the six-year period, the remaining debts are discharged, provided the individual has adhered to the terms of the insolvency plan.
Step 1 is außergerichtliches Schuldenbereinigungsverfahren where the debtor attempts to reach an out-of-court settlement with creditors. This stage usually lasts up to 6 months.
Then there is Eröffnung des Insolvenzverfahrens where if the out-of-court settlement fails, the debtor files for insolvency with the local court. The court appoints a trustee to manage the debtor's assets and liaise with creditors. This stage typically takes 1-2 months.
Next there is either Regelinsolvenzverfahren or vereinfachtes Insolvenzverfahren. In the latter if the debtor's assets are insufficient to cover the costs of the proceedings, the court may initiate a simplified insolvency process. The debtor proposes an insolvency plan to the creditors, which includes a 6-year repayment period. If the plan is accepted, the court approves it, and the debtor begins making payments.
In the former, if the debtor's assets are sufficient to cover the costs, regular insolvency proceedings take place. The trustee liquidates the debtor's assets and distributes the proceeds among creditors. The debtor proposes an insolvency plan, which typically includes a 6-year repayment period.
After the insolvency plan is approved, the debtor enters a 6-year good conduct phase called Wohlverhaltensperiode. During this period, the debtor must adhere to the repayment plan, maintain gainful employment, and inform the trustee of any changes in their financial situation. The debtor is allowed to keep a portion of their income for living expenses.
If the debtor complies with the terms of the insolvency plan during the good conduct phase, the court grants a discharge of the remaining debts called Restschuldbefreiung. This typically occurs 6 years after the opening of insolvency proceedings.
This is really not that different from bankruptcies in America. I think Europeans are simply unaware of their options.
In the US Chapter 7 bankruptcy will remain on the individual's credit report for up to 10 years, making it difficult to obtain credit, secure housing, or find employment. Chapter 7 bankruptcy is a matter of public record, which can be accessed by anyone. The process is relatively quick, typically lasting 4-6 months. Most unsecured debts, such as credit card balances and medical bills, are discharged upon completion of the process.
Chapter 13 bankruptcy will remain on the individual's credit report for up to 7 years, which is less than Chapter 7. Like Chapter 7, Chapter 13 bankruptcy is a matter of public record. The repayment plan typically lasts for 3-5 years, during which the individual must make regular payments to creditors. After completing the repayment plan, the remaining eligible debts are discharged.
Verbraucherinsolvenzverfahren lasts longer (6 years) than both Chapter 7 (4-6 months) and Chapter 13 (3-5 years). Verbraucherinsolvenzverfahren and Chapter 13 involve a repayment plan, while Chapter 7 does not. Chapter 7 has a longer-lasting impact on credit ratings (10 years) compared to Verbraucherinsolvenzverfahren and Chapter 13 (6-7 years).
France has a procedure called "rétablissement personnel," which is similar to Chapter 7 in the US, allowing individuals to liquidate their assets and discharge their debts. In the UK, individuals can file for bankruptcy or enter into an Individual Voluntary Arrangement (IVA), which is similar to Chapter 13 in the US.
In The European countries I have been living in, the concept of personal bankcrupty doesn't exist in the same way, at least. People who get too much loans kind of just hang with them, after 15-20 years they are forgiven AFAIK.