Why isn't student loan debt dischargeable through bankruptcy?

[white_wolf]

I'm just wondering what the rationale behind this is. Do you all agree with it or do you think it should be discharged if a person declares bankruptcy? Honestly, I think it should. Declaring bankruptcy isn't something that is done lightly and if the person is in a bad enough position financially to have to do so then they aren't in a position to pay off any debt obviously.

[unblock]

1. because the student loan holders have good lobbyists who know where to contribute campaign funds.

[KG]

6. this.

[yourout]

27. Amen brother.

Amen.

[City Lights]

42. We have a winner!

Sad, but true.

[intheflow]

2. It's unsecured debt.

No one can repossess your brain. And the piper must be paid.

...posted as someone in default on about $90k worth of student loans. So sorry, Lenders, the education I got led to my nervous breakdown and I can't work in that field any longer! But fuck me, right?

[Lex]

3. Most debt dischargable through bankruptcy is unsecured. nt

[intheflow]

9. Really?

Because as far as I've seen, only medical debt is the only unsecured debt eligible for bankruptcy protection. What other forms of debt exist exclusively of non-tangible items? For instance, credit card debt probably includes things like travel and meals, but will also include cars, tvs, etc. My understanding is that all those tangible items are secured debt, thus eligible for repossession if the bank chooses to go that route to reclaim some of its losses.

[banned from Kos]

11. No, if you buy a car with a credit card that is still not secured.

A secured loan requires an asset that is formerly stated on the contract.

[Atman]

13. You buy cars with a credit card?

Wow. That doesn't seem like a very sound financial decision. If you can do that, why wouldn't you just get a loan from the dealer, or the local credit union?

.

[unblock]

18. most car dealers will limit the amount you can put directly on a credit card

because they don't want to pay too much in merchant fees.

however, that's not to say they wouldn't do it if you insist on it (and they are making enough profit on the deal).

also, you can raise cash with credit card "balance transfers" (sometimes these offers permit direct deposit into a checking account) and then pay the dealer with cash. technically you're buying the car for cash; the debt winds up on your credit cards.


whether or not it's a sound financial decision depends on the rates and your time horizon for paying it back.

remember car dealers like to offer low or even zero percent financing, but if they're losing money on that, they need a bigger profit on the car they're selling and/or the trade-in. so if you pay with cash you should be able to negotiate a better deal.

[intheflow]

15. Thanks for the clarification.

[unblock]

14. credit card debt would be a lot cheaper if it was secured.

the fact that it's unsecured consumer debt is the justification for often 29.99% interest.

besides it's a revolving debt, you just pay down the outstanding balance from month to month. so how would you decide which purchases were paid off and which purchases were still subject to repo?

[intheflow]

17. Thanks.

That puts it in clearer perspective for me.

[Yavin4]

43. This Is Also Why You Should Never Take Out A Loan Against Your Home To Pay Your Credit Cards

You're transferring unsecured debt to secured debt. If you default on your credit cards and declare BK, there's a good chance that they cannot take your home. If you default on your mortgage, they can take your home.

[Romulox]

39. Really. Your understanding 180 degrees incorrect. nt

[obamanut2012]

24. So are credit cards and medical bills

They are discharged.

[LisaLynne]

4. I've always found that odd.

Yeah, there's nothing they can "take back", but that's true with medical bills, etc. And you can declare bankruptcy on credit cards filled with vacations, if some jerk thinks education expenses are a luxury. You know? I don't get it. Maybe Unblock is right and it's just the lobbyists, but I would like to know if there is ANY rationale behind it.

[Yo_Mama]

45. The taxpayer is on the hook for it

http://www.businessweek.com/articles/2012-11-28/the-needless-tragedy-of-student-loan-defaults

The federal government has most of the exposure, which means grandma on SS is exposed. And the debt is unsecured, meaning that in BK it would go into that pot and most of it would be written off.

FRBNY has a nice set of publications about student loan debt. It's growing very rapidly - from 600 billion in 2008 to 1 trillion in Q3 2012. But in particular, to understand the problem go here and look at debt for the various brackets:
http://www.newyorkfed.org/studentloandebt/

Note that both amounts and default rates are particularly high in the 40-49 group. 90 day delinquencies had gone over 13% for this age bracket by 2011, and income-based repayment brought that down but now it is rising again to 11.9%. Official default rates don't include the problem that a lot of student debt is currently deferred. We are probably looking at 300 to 400 billion that will eventually have to be written off just for the current group of student loans.

[banned from Kos]

5. Good question. Because doctors would declare bankruptcy after 12 years of school

knowing that they would still have vast earnings potential.

And student loans are quasi government loans.

[Buns_of_Fire]

31. I think "quasi government" has a lot to do with it.

Monies owed to the IRS can't be discharged thru bankruptcy, either.

[elehhhhna]

35. people used to BK on their NDSL loans in the 70's & maybe 80"S -

private lenders won't lend for tuition and def. not at cheap (gov't subsidized) rates - so they got BK prevention written into the deal. The fed should direct-loan it but no profit for cronies in that.

[dkf]

7. Think of it from the lenders perspective...

What's preventing a kid from declaring bankruptcy straight out of college and wiping the slate clean?

5 or even 10 years of no credit might be a decent trade off for an amount that is almost mortgage sized nowadays.

[Atman]

12. Bingo.

When you're young, you have plenty of time to rebuild that credit. Hell, even with a bankruptcy on your CR, you can still get a car loan (probably can't buy a house anymore), and you can work within the cash/debit card system. If you have $75,000 worth of loans when you're 22-23 years old, you could wipe it out with a bankruptcy and be back by the time you're 30. That is young these days. Especially when you consider it is unsecured debt. I'm not saying I agree with it...we took on half of our son's bachelor's degree, and he managed to get a good job in his career field after graduation, but he still owes a considerable amount of money which must be fit into his budget, while trying to live in Boston. I can see the rationale. When you're "established" and have a lot to loose with less time to make it back, you're probably less likely to look at bankruptcy as a cost-effective alternative.

[Sheldon Cooper]

22. There's truth to that, but I honestly think that after a set period of time,

say maybe 10 years or so, you should be able to discharge them through bankruptcy. I think we can be a merciful society as well as an educated one.

[Jackpine Radical]

8. Because the whole student loan system exists as part of a new form

of indentured servitude. If you're going to educate people, you need to keep a good handle on them lest they start using their education to question things. Nothing is as cost-effective as massive debt to serve that function.

[taught_me_patience]

10. Student loans are unsecured loans given to young people with no credit history

The risk of default is so high that if these loans were able to be discharged in bankruptcy, it would be too expensive for most to get a loan (think 20-30% credit card interest rates or higher).

[99Forever]

16. Because that would enable...

... those that are trying to improve their lot in life an even playing field when competing with the born on third base in the quest for the best employment. If you can't keep them out of the schools, at least the banksters can keep their boot on their necks and keep them from moving in the neighborhoods of the Gotrocks and the Romneys.

[white_wolf]

23. Honestly, I'm just tired of everyone being at the mercy of the market.

I've read all the explanations in this thread and honestly I really don't buy it. Tuition is much cheaper in Canada and Europe than the U.S. The very fact that we require people to take out massive loans to get an education is a detriment to our society. If the government won't step in and force institutions to lower tuition then the government is not doing it's job. I'm tired of everyone in this country being at the mercy of the market. It's a cruel and merciless god that needs to be reigned in.

[99Forever]

29. You shouldn't be just tired...

... you should be livid. This shit didn't happen by accident, it is a DELIBERATE means to keep us down. Education is the one means those of us not lucky in the birth lottery, have to achieve a better life. The 1% HATE competition if it isn't skewed in their favor. How do the 1% stop that? Make sure a decent education incurs a lifetime of crushing UNNECESSARY debt. If you feel like you are getting fucked, it's because you are.

[smirkymonkey]

34. Thank YOU!

I am over my head in Student Loan Debt (and that is my only debt) just because of compounded interest. I would have no problem paying off what I originally borrrowed, but I was out of work for a few years after 9/11 (I lived in NYC) and then I only got jobs that basically paid me enough to live on so I went into forebearance and then when I could finally start paying the payments were so high, they are just breaking me.

The sick thing is that I am not even using my degree. I could not get a job paying enough in that field so I had to take something else, but it still doesn't pay enough for me to really keep up with the loans. I am so f***ed. I sometimes wonder what the point is.

[joeglow3]

48. A big part is the idiots running the universities

Money had an article a year or 2 ago about the cost of tuition and they listed two huge problems:

1. Technology. Schools feel the need to run out and get all the best technology instead of relying on what they have until they NEED to upgrade, and
2. Amenities. It was disgusting what schools were building (single unit apartments, hot tubs, etc.) to try and attract students.

Drop those 2 and I bet you would see costs drop a lot.

[datasuspect]

19. debt enslavement

ensures your peonage

[lunatica]

20. The bankruptcy laws were last written by banks

The laws are designed to make it more difficult to get bankruptcies. I know. I declared bankruptcy in 2010.

[FightForMichigan]

21. However...

if you pay for your tuition on a credit card and then turn around and file for bankruptcy, it's gone. I'm surprised they haven't figured out how to prevent that, yet.

[Z_I_Peevey]

25. One explanation:

http://insidethelawschoolscam.blogspot.com/2012/08/making-student-loans-dischargeable-in.html?m=1

http://www.nakedcapitalism.com/2012/08/moe-tkacik-student-debt-the-unconstitutional-40-year-war-on-students.html

The student who kept bankrupting 1970s-era loans is kinda the Welfare Mom meme that started the whole ball rolling.

[kittypat]

26. Student Loans Used to Be Able to Be Discharged Through Bankrruptcy

Back in the '70's you could get rid of student loan debt through Bankruptcy Court action. It was eliminated because people would sign-up for school, get the grant money plus the student loan money, to bail themselves out of a "need " be it legit or not. They might go
to a couple of classes, or do enough to keep themselves eligible for the money's sake. When they flunked out or dropped out that
interest began to accrue, immediately and bankruptcy was the only option. They finally cut it out. And, now of course, they're coming
after any and everyone.

I had a acquaintance who took a job working for what they call Sallie-Mae, which is the agency responsible for collecting on overdue
loans. She worked in the department that harassed former med students. I cannot vouch for the veracity of this story, but I knew
her well-enough to not have a reason to doubt her. She said she had gotten a doctor OUT of surgery, to talk to him about his student
loans. I asked her, "why would you do that, knowing how hard it is for us trying to raise kids, etc.?" She justified it by saying they
are living in fancy houses, and driving fancy cars, they can afford to pay ! I argued a little but she was adamant.

[white_wolf]

28. Fine how about we make it a requirement you earn your degree before loans can be discharged?

That way you can help those who need it and not discourage abuses of the system. I'm sorry, but it is simply unjust to punish everyone for the actions of a minority especially when there are simple ways to correct the problem.

[aikoaiko]

30. Because a lot of students would take the calculated risk of staying under- or unemployed

after college to discharge the debt and then start with a clean slate.

One could do an internship or volunteer for a year.

[Recursion]

32. Because we've unofficially switched from debt to equity without admitting it

We don't really have student debt anymore, we have equity in graduates' income.

[Yo_Mama]

41. That is an elegant and accurate way to phrase it n/t

[Egalitarian Thug]

33. Essential to turning higher education into a massive corporate welfare program,

with the added bonus of recreating the peonage system.

Silly rabbit.

[musical_soul]

36. It's because it's usually a government related loan.

Never tick off the government.

If you're having trouble paying the debt, try out for a deferment or a reduced payment.

[ParkieDem]

37. This. ^^^

If a student loan is in default, the government has then shelled out $ to the lender as guarantor. Just like tax debt owed to the IRS, this type of money to the government can't be voided in bankruptcy.

[Romulox]

46. So are mortgages. Un-secured (under-secured) mortgage debt is dischargable.

[slackmaster]

38. The idea was to discourage students from taking out loans that they knew they would never...

...be able to pay off; with the intent of discharging them through bankruptcy.

It didn't work out as planned.

[Yo_Mama]

40. Well, a rising wave of student loan defaults caused Congress to make it non-dischargeable

Personally, I think that was a bad move.

However, the public policy of making loans available to all students for all education implies that you will have massive defaults, which will put the taxpayer on the hook. The federal government has now effectively taken over most student loans.

Our current policies seem to be moving toward income-based repayments and eventual write-off (after 20 years) of the remaining balance, but that also implies that the public is racking up a large debt that is not shown on the books and will come back to hurt us later.

The only way to recoup the losses when you have loan classes with very high default rates is to raise interest rates, but that is obviously rather injurious to students.

So now we are in a classic bind and we will have to work out a medium solution that will leave everyone owning some of the losses - with the taxpayers picking up quite a chunk.

[Fire Walk With Me]

44. Because America is "free market" and capitalist, and these loans represent the worst abuses of both

in a nutshell. Colleges appear to be complicit in this mechanism.

Research the Strike Debt Rolling Jubilee, an offshoot of Occupy Wall Street, who are turning the collection system's features against itself and are eliminating personal debt for pennies on the dollar.

(Conspiracy theorists may go so far as to offer that it is to ensure that only the children of the rich receive an adequate education, with predictable resulting class division. Non-conspiracy theorists will likely already see that republicans have been hacking away at the middle class since Reagan, including the recent installation of "right to work" union-busting laws in their testing ground, Michigan.)

[Romulox]

47. It's a way to trap naive 18 y.o.s into wage slavery before they even begin. nt