Philadelphia Fed Study Debunks Main Argument for Student Debt Slavery

I am late to write up a research paper that has not gotten the attention it warrants.

As most readers know, the 2005 bankruptcy law reform included provisions that made it virtually impossible to discharge student debt in bankruptcy. Yet borrowers who miss payments wind up paying penalty interest rates, with the result that they will carry their student debt with them to the grave.

But why do student borrowers get such harsh treatment? The justification for the bankruptcy law change was that student borrowers were prone to abusing the bankruptcy code even though they had the ability to make good on their loans. I’ve never bought the “strategic default” meme, which is almost entirely creditor urban legend to justify squeezing more blood from the stone of broke borrowers. Bankruptcy is a painful process that leaves your credit record damaged for years. And why should anyone think that student loans were more prone to abuse? If someone declared a Chapter 7 bankruptcy pre-2005, the court would take all the assets it could lay its hands on, allocate the proceeds among the various debts, and wipe out the rest. It’s not as if student loans were treated worse than any other non-collateralized loans.

Nevertheless, the argument was that student borrowers were defaulting opportunistically. If true, that higher default level would lead lenders to charge higher interest rates to cover for the cost of abusive defaults.

The prototypical strategic defaulter would be someone with few assets but high actual or expected income.

In a new Philadelphia Fed working paper, Rajeev Darolia and Dubravka Ritter constructed a database of private student loan (PSL) borrowers to see if their behavior changed as a result of the bankruptcy law reforms. We’ve embedded their article at the end of the post. Their conclusion:

Our findings contribute to this debate by providing evidence on bankruptcy filing and default behavior using a unique sample of anonymized credit bureau records. Although the 2005 bankruptcy reform reduced rates of Chapter 7 bankruptcy overall, the provisions making PSL debt nondischargeable do not appear to have reduced the bankruptcy filing or default behavior of PSL borrowers relative to other types of student loan borrowers at meaningful levels. Therefore, our analysis does not reveal debtor responses to the 2005 bankruptcy reform that would indicate widespread opportunistic behavior by PSL borrowers before the policy change. We interpret these findings as a lack of evidence that the moral hazard associated with PSL dischargeability pre-BAPCPA appreciably affected the behavior of student loan borrowers.

So why are default levels now so high? Lenders relaxed their standards and handed out more credit as a result of the 2005 bankruptcy reforms. And rising higher education costs means students are borrowing more than ever.

Philadelphia Fed Student Loan Paper
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87 comments

  1. Anti-Schmoo

    Having been a debt slave; I can understand what the children (they are children, not adults) are going through.
    They are financially ignorant; mere babes, being unmercifully exploited by the sophisticated (emphasis on Sophist) financialization culture extant across the western world; especially the U.S..
    No loan should be allowed (for children) without a course in basic finance, debt, credit, and income realities.
    Now retired, debt free, and solvent; I know of what I speak.
    Critical thinking skills are at an all time low in the U.S.; a very serious societal problem; not soon solved…

    Reply
    1. Friedman's Ghost

      One can obtain a student loan in the U.S. if:

      1. You are admitted to an accredited institution (DoE approved).
      2. You complete the FAFSA.

      That’s it! No background check, no FICO score or other such nonsense. (off/sarc)

      Reply
      1. Ook

        “If you reside in a state where you attain your legal majority while still in your teens, pretend that you don’t. There isn’t an adult alive who would want to be contractually bound by a decision he came to at the age of nineteen.”

        – Fran Lebowitz

        Reply
  2. Arizona Slim

    What about the time-worn argument in favor of all the extra money you’re going to make because you went to (genuflects) college? A lot of people have gone deeply into debt because they’ve heard this one. And it’s a lie.

    Reply
    1. diptherio

      It’s not just “extra money,” these days, Slim. If you just want to have a respectable job, you’ve got to get you one of them diploma thingies. Don’t bother applying without it!

      Reply
    2. jrs

      is it really a lie? Don’t people with a degree make more on average than those without? Even enough more over a lifetime for it to make sense at least as a gamble on averages? Do you think this is primarily caused by other things and the same people would have made more without a degree because of other attributes degree holders are more likely to have? But it is true that IS on average and may not apply to any given individual, and if doesn’t apply in someone’s case, for whatever reason, they are in for a world of hurt.

      Reply
      1. JohnnyGL

        “Statistics are like a bikini. What they reveal is suggestive, but what they conceal is vital” – someone wittier than me :)

        Reply
      2. Whiskey Bob

        The studies are true, but I would add that the price you pay for a degree is going higher while what you get out of the degree is getting lower. It is also now at a point where the competition is so fierce that you more or less need a degree to largely be considered for the many part-time and/or temporary jobs that took over after the recession. At this rate, a large crisis is looming. There are still enough success stories to make it seem like nothing’s wrong, but the stories of failure are piling up.

        Reply
      3. Noni Mausa

        It seems to me that the student loans have been constructed so as to capture the difference in earning potential (if there is one.)

        Similar to the “longer commute time versus lower mortgage costs” calculations governing bedroom communities.

        Reply
    3. Anonymous

      Degrees with no direct market value are worth nothing. Students who borrow tens of thousands of dollars to get degrees in subjects like History, English, Psychology, Gender Studies, Anthropology, and so on will find their degree is only useful for going on to more debt in graduate school.

      Good jobs take good connections. Generic degrees will work for wealthy students with good connections, but not for the hoi polloi. The universities have all jacked up their tuitions because the students can take loans and they have gone on massive campus building sprees. They build facilities to attract students, e.g. high end gyms and buildings dedicated to safe space programs, among others.

      Having seen the higher education world from the inside for ten years as a graduate student and postdoc I would advise the following to students not coming from wealthy families:

      + If you don’t like school don’t go to college to party and “find yourself.” Pick a trade school, join the military, or anything else but run up scads of debt that will follow you for the rest of your life. Going to a 4 year college with the hopes of finding an ambition for academics you have never had is a fools errand.

      + If you can get scholarships take them, but be careful with the terms. Many scholarships require ongoing performance for the entire term. You may get into a college with a full ride and lose it at the end of freshman year. Then what? Do you leave all your friends and go to community college or sign up for loans to cover that $30000+ tuition? The schools know this. Freshman scholarships get students in the door that will convert to tuition payers.

      + The best strategy for the typical student is to go to community college for as long as possible, and then transfer to a four year program.

      + Hard skills like accounting, STEM, anything with a tangible career path are valuable. Most other stuff isn’t worth it.

      + Academia is severely impacted for professors. Getting a PhD for its own sake with the thought that you’ll teach is bad idea now. Tenure-track professors come from top ten programs or top researchers. Everyone else is in the adjunct pool, if they’re good. Nothing like building a six figure student debt to become a scholar and be up against a ton of other scholars who will do the job for minimum wage.

      Reply
      1. lyman alpha blob

        You are correct with the world being what it is. But I have to believe that there is a value (in a humanitarian rather than monetary sense) in getting an education for the sake of being educated. I say this having graduated from one of those expensive New England liberal arts colleges, not going to graduate school, and working now as a low level accountant never have taken any courses in the discipline.

        I wouldn’t give up my 4 years earning a worthless (to the corporate world) degree for anything. I wouldn’t necessarily say it helped me ‘find myself’ but having come from a small rural town, it did open my eyes to many things which I’d never been exposed to before. The thought of spending four years in college staring at spreadsheets to learn just one discipline that doesn’t really require a 4 year education to begin with (like most jawbz these days) makes me want to drive a spike through my temple. As you note, what you know often matters far less than who you know anyway.

        All that being said, it’s infuriating to see the debt levels current students are being saddled with regardless of what they study. Especially as the colleges like the one I went to have so many billions in their “endowment” (more like hedge) funds that they could allow all students to attend tuition-free and get a decent education. And on the opposite side, we have the University of Phoenix types that are at best glorified high schools that overcharge students for a worthless degree that nobody has any respect for. We have the ability and the means to provide a good affordable education for everyone in this country and simply choose not to.

        Reply
        1. impermanence

          As Mark Twain eloquently quipped, “I never allowed schooling to interfere with my education.”

          Although formal education has some value, real education is self-education, always has been, always will be.

          Reply
      2. Whiskey Bob

        All good points if you want to maximize your chances of employment where you aren’t as badly exploited as the “working class.”

        However, these are merely advices that can only go so far as the system is willing to permit it. The advices are in effect just adjusting your chances and risks. They are not guarantees for a better life. Realistically, these advices are but a drop in the bucket compared to the immense political and financial strength the ruling classes possess and wield towards their own goals. Capitalism is evolving to become increasingly rigged as the ruling classes become more exploitative to maintain profit growth rates. The decision nodes of what one can do to better themselves is continually being constrained.

        Personally, I have STEM skills and can demonstrate them, but I still have difficulty getting my foot in the door beyond minor gigs here and there. It’s really about marketing and more importantly, connections. I see it being explained by how businesses are always thinking about downsizing their operation while increasing productivity to make up for the gap. The job pool is becoming more competitive and constrained and so you need the rat race rigged in your favor through nepotism. Or you can get lucky and try working your way up through the piles of grunts working for lower and lower wages for worsening work conditions out of desperation.

        This is a dangerous situation for a democracy as it is less about the people’s will and more the will of a closed clique. This has implications for a neofeudal future if capitalism accelerates down this path of eroding individual voices for an increasingly entrenched ruling class dynasty.

        Reply
        1. LyonNightroad

          And even if you are one of those lucky fellows who manage to work your way up, like myself, It’s next to impossible to truly enjoy it if you still have anything resembling a soul inside you. Every privilege you enjoy is a reminder of how unfair the world is. You work 1/4 as hard for 4 times the pay and all you can do is remember when you used to have to ask to use bathroom but you now get paid while you drink lattes at Starbucks.

          Reply
      3. Bob Jones

        Just wanted to mention: many STEM fields are roughly as useful as English or History in real-world value, again unless pursued to the PHD level. How many professional Physicist jobs open up every year that don’t require a PHD, and would actually prefer an engineer?
        t- BSc Physics

        Reply
        1. RMO

          Neither my formal trade education to become an Aircraft Maintenance Engineer “M” (I’m Canadian) nor my formal university education in accounting have resulted in any paid work for me. On the other hand my wife with a Ba in music makes a decent income teaching piano…

          Sometimes I wonder what the income level studies regarding the monetary value of a degree would indicate if they eliminated the top 0.1% and the bottom 1% of earners from the mix.

          Reply
  3. Sam Adams

    Nondischarable student debt disincentivizes risk, it delays formation of families and demoralizes. However the greatest risk was to the Republic. It destroyed a belief in justice, law and faith in the system that destroyed the student borrower.

    Reply
  4. KYrocky

    Come on. The primary purpose of the law seems to have been to make the bundling of student loans a more lucrative offering for Wall Street. The law was the mechanism to provide greater certainty of performance and an increase in the amount of borrowing. Students abusing bankruptcy was always a lie, but like every Conservative meme it was repeated by powerful people, very often, and with great authority in their voices. So it had to be true.

    Reply
    1. jefemt

      Indeed. Securitize it, parcel it out, make it impossible to contact a single entity who could negotiate the debt. Also, everything done on-line- no such thing as an ink-signed promissory note. The whole thing is demoralizing- I have seen my kid and his peers reflect the most demoralized, cynical hopeless demeanor. And the collective we stand by and allow it. License and consent. Criminy!

      Reply
      1. Chauncey Gardiner

        Don’t personally have an iron in this fire in an immediate sense, but my sympathies lie with your son and his peers. Student debt should be optional, with public universities providing a post-secondary education, room and board at very low cost to any citizen who desires it. Secondary issues are that public universities have been larded up with layers of highly paid administrative staff, new construction, and costly football programs that have added to students’ debt loads. Absent ideological opposition, these crushing student debts could be discharged tomorrow by a federal government concerned about the economic and social health of its citizens.

        Reply
    2. redleg

      It also accelerated the switch from college as an institution of learning and research to a generic manager financial instrument using adjunct instructors hired at starvation wages (who have to pay off their loans for grad school).

      Reply
    3. Enquiring Mind

      Joe Biden figures prominently in such discussions. Delaware Joe knows how to take care of his home state financial services friends and their Wall Street competitor frenemies. Why not collect some checks and ignore the plight of those citizens who elected you? Oh right, because the banks paid better.

      Reply
      1. nonclassical

        …history of Delaware involvement in legislation leads directly to Wall Street and ability of powerful insiders to sway smallish state government (in secrecy) to codify bankster wishes, as historically documented here, by Nicholas Shaxson; “Treasure Islands: Tax Havens and the Men Who Stole the World”:

        https://www.youtube.com/watch?v=7aJzzeRcoVo

        https://www.amazon.com/Treasure-Islands-Havens-Stole-World/dp/B0058OR61O

        (Delaware, integral to “LLC” origination)

        Reply
  5. HowAboutIBankruptYourFace?

    I was a smart 18-year-old, but not smart enough to realize I was being pimped out by the prestigious University that offered me just enough scholarship money to go with the “of course these University-sponsored private loans are your best option” pitch. I was from a poor family and thought this was the best opportunity I would have to start a career.

    I couldn’t have been more fucking ignorant. Blood from the stone, indeed

    Reply
    1. nonclassical

      ….sir…I work with – speak with many youth every week; none even comprehend how they are “placed” in secondary level classrooms…

      ..which I learned by accident, as instructor – U.S., learned contrast as instructor, Europe; 7th or 8th grade, students begin accumulating graded record – as U.S. Ed. is based upon “curve” grading system, youth are placed by previous grades, given curriculum. This means a few “A” past record students are placed ostensibly to raise “B” students, certain number of “B” students to ostensibly raise “C” students, etc.

      “Curve” grading system produces (and is intended produce) a few “winners”, few “losers” (form of violence-having experienced student suicide), and majority mediocrity…(cheap labor force.) U.S., unlike Europe, provides no connection following secondary, to university or vocational Ed based upon individual aptitude. (Europe where continuing Ed. is provided at state expense-payback, lifetime tax base for social structure.)

      Upon return from Europe I debated this reality with father, PhD, Stanford, Physics-Chemistry, during that time at Kwajalein where he was one of Boeing star wars-missile intercept CEO…several phones on desk when in states, other MIC contractors, Pentagon, etc…grade one Pentagon clearance.

      In end he admitted “curve” is used intentionally to create winners-losers-majority mediocrity…

      (economic decision, by those who benefit)

      Reply
  6. Lenny Faedo

    I declared Chapter 7 bankruptcy in 2002, and I wasn’t able to discharge any of my student loan debt. The 2005 law changes may have made it more difficult to do, but it certainly wasn’t easy beforehand.

    Reply
  7. Linda Amick

    The calculation by lenders related to determination of monthly payments of student loans is flawed as payment amounts are unrealistic given actual living expenses in the US.
    Therefore students take advantage of the Income-driven calculations which sometimes do not even cover the interest payment. Students not only keep the debt for their lives but the principle increases dramatically in some cases over the years.
    How demoralizing to our young citizens. Why try? Hope is extinguished. Such a brutal society we have become.

    Reply
  8. Steve Ruis

    Hello? The entire purpose of this legislation was to enslave students. Remember back in the 1970’s when students were marching in the streets against the War in Vietnam. Students! Showing no respect for their elders. And, besides they were just liberal voters in waiting. By making student loans almost impossible to discharge in bankruptcy, a sizable number of students were taught the lesson to “sit down, shut up, and do as you were told.” The elites know how to run the country better than you do.

    Reply
  9. Lindar

    My son in law got his Law Degree at U of I. He told my daughter that he would declare bankruptcy if he could because he now wants to leave his job and become a winemaker. Seriously. When I went to college, a private school, my parents got divorced and I ended up putting myself through school by….working. Low paying jobs such as the student breakfast line, working in the administrative office and working throughout the summer. As a Mom with two kids who went to college, I did not see the students working like I did in school. My nephew is doing his first two years of college at a community college and then plans to transfer because of costs. It is my opinion from what I have seen that default rates would be high and it would be abused because I do not see the same work ethic and thought put into many individual’s planning for the future, as well as being responsible with money. This statement is a generalization and I recognized there are still hard working students who apply themselves in many areas.

    Reply
    1. Bill Carson

      When I was in college in the 80’s, work study programs were common. True, the college only had to pay $2/hr when minimum wage was something like $3.35, but the work wasn’t hard, and sometimes you could study while getting paid.

      Now, from what I can tell from my own daughter’s college experience, work study is very rare. Also, the cost of college has gone up 300% after inflation, while wages have not kept pace with inflation.

      Reply
      1. jrs

        I never thought of working one’s way through college as actually consisting of working student jobs. Even though the original posters point was how much of a work ethic they had it all sounds pretty soft really.

        I always thought (and I’ve seen) it mean entering the full of the big bad world without benefit of degree and using the money to pay for college (but how much is one qualified for without a degree? Well unless one has special skill sets .. Walmart? no the hours are too crazy. Starbucks? Some do work at non-unionized grocery stores).

        Reply
        1. FiddlerHill

          My daughter is in her second year of university and — out of a sense of responsibility and guilt — insisted this past summer that she was going to get a campus job this academic year. I tried to talk her out of it, for the simple reason that this time of her life — these four (or five, or six, who knows) years — are too important, intellectually and emotionally, to be compromised by doing mundane work. She finally relented and did not get a job. I work with her every week, as a sounding board and editor — so I can see, in great detail, the immense demands being made on her academically. If she were working even part-time at some job, her studies would suffer, defeating the whole purpose of her going to a university. We’re a middle class working family, but fortunately with some help from grandma, we’re paying for my child’s education. If our political class truly valued education, they’d make sure this precious time in every child’s life was protected from the financial vultures in society.

          Reply
    2. Sam Adams

      Ah… the law school scam: borrow to the point of a millstone necklace to attend and then dive into a shark tank! There are insufficient numbers of decently paying entry jobs to train the newly admitted and the JD degree garuntees the HR question, “will you stay if you find a law job” before being passed over for the job because you’re over-qualified with a 2500 month student loan to pay. God bless Merika!

      Reply
      1. Massinissa

        There’s a reason that Law School enrollment numbers are basically at near historic lows. More people are wizening up to the scam, at least for Law degrees if not the rest.

        Reply
    3. Jeremy Grimm

      You need to check into the costs for going to college today versus when you put yourself through with all your hard work, discipline, and virtuousness. Then check into how much money you can make today working “the student breakfast line, working in the administrative office and working throughout the summer.” Then check into the cost of living — housing, food, a car or money for public transportation — if you can find any. Do the numbers and I think you might be shocked. Even community college isn’t all that inexpensive when you do the math.

      Instead of mourning for the lack of work ethic in the young people who are all going to the dogs — as they have since the times of ancient Greece — you should get angry about paying taxes for decades to educate the children of the previous generations only to have the State cut back on funds for public colleges and universities when your children come of age. Then you should become very angry at the way our system of education has been twisted into job training for our Corporations because Corporations don’t want to train their employees. Take a look at what the “job training” amounts to. It looks to me like a mill for grinding out grade chasing mindless drones ready to chase $$ instead of grades and trained not to ask too many questions and not to question what they are told. And to add injury to this injustice — those drones are bound up in debt and compelled to do mindless, often meaningless jobs while forever frustrated from enjoying the wanton consumption they were promised and trained to value above all else.

      The Romans accused Carthage of sacrificing their children — feeding them into the red hot maw of their great brass idol to Moloch — praying that Moloch would save Carthage. I don’t know if that story is any truer than the old story of Rome razing Carthage and sowing salt into the ground where Carthage once stood. But if so, at least the Carthaginians were trying to save their city and their lives. We are blindly sacrificing our children to Moloch — now married with Mammon — and for what?

      Reply
      1. Louis

        […]you should get angry about paying taxes for decades to educate the children of the previous generations only to have the State cut back on funds for public colleges and universities when your children come of age.

        State have cut back funding for higher-eduction because voters collectively decided that tax cuts were more important than keeping higher-education affordable and accessible to as many people as possible.

        Exhibit A of this phenomenon would be the state of Colorado,which has constitutional limits on raising taxes and some of the lowest–if not the lowest–levels of higher-education funding in the country.

        Reply
    4. Whiteylockmandoubled

      Total nonsense. Every generation thinks the following generation has no work ethic. Welcome to the old fogeys club. These darn kids today….

      What you’re missing are facts. Well, one fact: college tuition, room and board have been increasing at three times the rate of inflation for a quarter century. These kids today with their lazy work ethic can’t work their way through four year colleges without emerging with tens of thousands of dollars in debt, even if they want to. Just can’t be done.

      My son is at a four year private college. Every middle class and working class kid he knows has a job. Some two. They’re all going to have heavy debt when they get out.

      Reply
    5. Massinissa

      What Grimm and Whitey said. That ‘student breakfast line’ pays about as much today as it did when you went to school, but the yearly tuition is several orders of magnitude higher. Youre making an apples to oranges comparison. And that’s JUST tuition: Add in more expensive housing and transportation costs, and its even more absurd.

      And to top all of that off, wages have been stagnant for a few decades, so even if todays students are able to find a job in their field, wages havn’t risen to compensate the increased costs of education. And that is IF the student is able to find a job in their field.

      Reply
    6. Edward

      “I do not see the same work ethic and thought put into many individual’s planning for the future, as well as being responsible with money.”

      This might reflect the programming of children by the advertising industry.

      Reply
  10. Pelham

    1) We tell students that a college education is a wholly wonderful and even necessary thing.

    2) Then we punish them mercilessly for getting one.

    3) And btw, the training in the STEM fields (more correctly known as the “servile arts”) that so many of them get these days doesn’t really constitute an education.

    Reply
    1. jrs

      2) They are punished mercilessly if they don’t get one as well though, life isn’t some paradise for the high school grad/college drop out etc., not generally, a few rich drop outs excepted.
      3) I don’t know STEM pretty broad, you are arguing people studying physics and chemistry aren’t really getting an education, which seems pretty silly to me. But it is an education in what it is and not in everything, but then so is liberal arts. As for servile I don’t know why one pick on science or math as opposed to studying business or law.

      Reply
      1. JEHR

        I thought that the things a student learns in the liberal arts is not the same as those things learned in science and math. There should be a bit of science in the liberal arts and a bit of liberal arts with the sciences. There should also be an emphasis on giving back to the public for one’s education. Education should either be free or low cost.

        Reply
        1. Other JL

          Do you have much experience with college degree programs? Pretty much every undergraduate degree program I know of is as you describe: liberal arts degrees always require multiple science credits and B.S. et al require liberal arts credits. Even highly specialized undergrad degrees, like the B.Mus. Ed. at my undergrad, require some science credits.

          As for emphasis on giving back, I think it depends a bit on the institution but as a whole there should be more of it.

          Reply
        2. kurtismayfield

          I went to a liberal arts school and graduated with a STEM degree. We needed a certain amount of credits outside of our major in order to graduate, which wasn’t too hard to do. I would usually have three 4 credit science courses and one non science each semester.

          What I did learn when I got to the working world was the value of such a degree. I learned it was cheaper to get a graduate student or a post doc to do it, so us techs got paid very little. I also learned that even with a doctorate in a STEM field you can still post doc forever until you land a career. I have a few colleagues in secondary education who learned that and got off the post doc train to teach High school. A STEM degree doesn’t mean as much as your connections and the school you get your doctorate from.

          Reply
      2. rd

        Unfortunately, a STEM degree prepares you for a fake world where there is logic, reason, evolution, and generally immutable physical laws. As we all know, this does not describe the real world where perception dictates policy and prayer will overcome all.

        Reply
    2. a different chris

      Nononono you don’t understand. JRS was close but he was looking at it in the wrong way – our Beneficent Masters actually want to prevent our college students from having such a great advantage over those who do not go to college.

      So they burden them with massive, undischargable debt. Subtle but effective. It’s easy to hide the gap between the 1% and the 99%, because how many 1% people are you gonna rub shoulders with? But if the 85->99% don’t have student loan debt, they will cause a new gap. And *that* will certainly be noticed.

      It’s all part of the plan, don’t you see? It allows Our Betters to work in peace towards the proper future of humanity, which I believe works something like a beehive.

      Reply
  11. nonclassical

    …can we “follow the $$$$” to how student debt “got here”? George W Bush allowed his contributor-credit card lobbyists re-write bankruptcy laws, whereby student debt became backed by government…which allowed Wall Street banksters raise now “guaranteed” (by taxpayers) student debt interest rates to rise from 2-3% to over 10%…it was yet another gift to oligarchy-Wall Street…

    http://www.slate.com/blogs/moneybox/2015/04/16/student_loans_in_bankruptcy_how_the_bush_administration_pointlessly_screwed.html

    Reply
    1. Whiteylockmandoubled

      Don’t kid yourself. This wasn’t an evil republican scheme. It was a bipartisan screwing. My one-time congressman Jim Moran got bribed to lead on the D side.

      Oops. Sorry. Received a low interest consumer loan to consolidate his personal debt in a transaction having nothing to do with his advocacy for fair bankruptcy laws.

      Reply
  12. McWatt

    The entire purpose of everything is to enslave everybody. The last time anybody in Congress did anything good was when Jimmy Stewart exposed corruption on the Willow Creek Dam project.

    Reply
  13. Dave

    No chance to fail and start over = no capitalism.

    Besides, average income is very poor as a measure. I still haven’t seen college value indicators that account for:

    – High earners by virtue of family wealth.
    – High earners who distort averages upwards in a winner-take-all world.
    – High taxes on the higher earnings.
    – High living costs in the places where high earnings can happen.
    – High student debt payments, especially where earnings are high and payments are based on earnings.
    – Government income supplements for those with lower earnings.
    – Lost wages to attend college.
    – Lost opportunity costs of student debt burdens.
    – High risk from about half not finishing and about half of finishers not getting work in their field.

    I bet there is good reason enrollments are declining.

    Reply
    1. Massinissa

      I don’t know about regular college, but Law schools are having a real hard time finding students right now.

      GOOD.

      Reply
  14. Tomonthebeach

    College loans are a pact with the devil. You think you will outsmart the devil, and that is just what he is counting on. It would be cheaper and better for all if the government paid for college as long as people could pass the exams and high school GPAs, just like in EU. Instead we indenture people who after college go into non lucrative fields like K-12 teaching.

    My only student loan was to buy a replacement car while in grad school. I t was $6K. Immediately upon graduation I started getting aggressive demands for payment. After 18 months of threats if I was late with payments, I just said “Screw it!” and wrote a check for the full amount. Not all people have to option.

    Reply
  15. Randall Stephens

    The young “poors” are ruined in the legal/judicial system through “broken windows,” and/or “stop and frisk,” et. al. (I can no longer, in good conscience, equate that system as having much, if anything, to do with justice).

    The young middle class are ruined in the educational/financial system.

    I become more convinced that the goal of government, and corporations, is the ruination of the citizen/consumer, with such ruination to occur at the earliest opportunity.

    Reply
  16. vegeholic

    A tenet of the neo-libertarian agenda is that the only legitimate uses for public money are armies, police, and the courts. In other words, only those institutions which serve to protect their wealth. Public money for education is anathema to them. It started with opposition to desegregation in the 1950’s and continues in many (disguised) forms today: less state support for “state” universities, vouchers to encourage privatization in secondary schools, the curious symbiosis of skyrocketing tuition and student loans which cannot be discharged. They know they cannot openly advocate for their odious agenda, so they dress it up as freedom, or liberty or something that sounds respectable. Somehow we keep falling for the same ruse, over and over.

    Reply
    1. nonclassical

      …see – hear…obviously “vege’s” synapses are holistically firing…it isn’t “somehow” however, it’s process by which people are un-and dis-informed; which is what we are un-doing here-NC, in large part. This historical revelation – video discussion by British journalist Robert Fisk (book=”The Great War for Civilisation: The Conquest of the Middle East”) involves U.S. media complicity, from parallel British perspective:

      https://www.youtube.com/watch?v=Qu8R8CQpYBE

      (..have never experienced wider perspective of actuality, Middle-East: from Brit foreign correspondent living decades, Beirut; Fisk’s book is full of witness documentation, meetings with Osama bin-Laden, and horror-Iran-Iraq War and beyond, at over 1300 pages…video is perhaps more direct approach.)

      Reply
    2. Jeremy Grimm

      The Philadelphia Fed’s Working Paper spends 21 pages of dense reasoning mixed with the equations de rigeuer to arrive at the conclusion: “We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.”

      I am mystified how concerns about moral hazards and debts could become the focus of our Congress as they crafted what to me is extremely bad policy — on its face. I am mystified why so much energy is spent worrying about student loans while funding for our public colleges and universities is cut and those once proud public institutions are placed in the control of financial interests that beggar those who teach while they grow overpaid bureaucracies sucking money out of what remains of Education. And worse those financial interests have grown the costs of Education while reducing its content and put the burden of paying for their depredations on the backs of students, their parents, and their grandparents.

      Do we really want our concerns spent in seeking better terms for managing rent extraction from the growing army of student debtors? I want student debt ended now and I want the heads of those who have preyed upon our young and undermined what had been one of the finest systems of Higher Education in the world.

      Reply
  17. Bill Carson

    I would seriously encourage any potential college student to consider enlisting in the military as a way to pay for college. No, this route isn’t for everyone. There isn’t enough capacity, since 2.1 million high school graduates will enroll in college every year and 180,000 people will enlist in the military annually.

    But for those would consider joining the military, the fringe benefits (including college tuition) are phenomenal.

    Reply
    1. nonclassical

      BC-another constructive approach is community college, first 2 years; many appear unaware 4 year institution to some degree base their “rating” upon numbers of student failure, first year…

      Reply
    2. Carl

      A someone who followed this path years ago, I would suggest from personal experience that this can lead to catastrophe. Personal, spiritual, and physical all.

      Reply
    3. Massinissa

      Yeah, working for American Empire to potentially escape poverty, what a great deal.

      Have you noticed that homelessness is higher among veterans than civilians, as are mental health problems? I’m sorry but even aside from the moral problems of encouraging people to devote their lives to American Imperialism, the truth is that it is not the gateway out of poverty you are painting it as.

      Reply
      1. Bill Carson

        Nobody painted it as a gateway out of poverty, but it is one way to avoid life-long, soul-crushing student loan debt.

        Reply
        1. Massinissa

          Yes, because taking a risk of homelessness or PTSD is definitely worth avoiding student debt.

          Substituting one bad option for another bad option doesn’t seem like a great plan to me.

          Reply
        2. jrs

          That it even is one way to improve one’s life long term (avoiding student debt and living on the streets is I’m sorry not improving anyone’s life – avoiding student debt while good all other things held constant has to be seen in context of avoiding plenty of other even worse fates) takes a lot of analyzing risks etc..

          Vets are much more likely to be homeless – more than twice as likely, though some of this may be from very old wars like Vietnam. Some of the likelihood of ending up homeless may depend on what other inner and outer resources a person has (but if they had that many outer resources would they really be looking at joining the military to pay for college?) and how many 18 year olds are really able to evaluate this? One way of escaping student debt and being successful because some people are able to do it (and of course they are) is not a rational way to evaluate life choices, as opposed to evaluating all the statistics and odds including higher rates of homelessness.

          Reply
          1. Bill Carson

            That’s kind of cliche’, isn’t it—the old saw that all military vets end up homeless with PTSD. Well how about this question: how many homeless people went to college? You simply can’t answer that question because they don’t keep statistics that way: there’s no political advantage to studying that question. But there is political advantage to pointing out how many vets are homeless, because it allows congress another reason to increase the military and VA budget.

            Reply
    4. Henry Moon Pie

      Become a trained killer! Put yourself in a position where you may have to choose between killing or being killed! Serve the ruthless Empire and give yourself a chance to murder civilians on four–maybe five–continents!

      It’s the way to get ahead in 21st century ‘Murka.

      Seriously, how can anyone counsel another human being to join the American military? Unconscionable.

      Reply
  18. Ian

    You guys/gals are all over the place on these issues. Granted, it’s an unconscionable mess, created on purpose for various reasons.
    But little has been mentioned by all but one person above- why can a student fill in a FAFSA , apply for loans and then get them, with no further questions asked?
    No one has mentioned that a large number of “loan counselors” have a background in subprime mortgage origination, just check their names on Linkdn, they seem proud of the fact that large numbers of the mortgages they wrote or vetted or funded( or whatever)that were securitized, lost up to 90% of their value within 6-12 months following purchase by investors.
    How about a separate article on this Yves? You know more about it than I do

    Reply
  19. Allyn Barnett

    All over the place indeed. And every post with a clear undeerstanding of the problem that, if solved, will just make it go away.
    Life isn’t that simple. The laws weren’t passed to enslave the inteligensia, but rather to protect the institutions from loss. No doubt the laws have gone too far, but seriously people.
    Having said that, I will say that if you are going to invest in your future by borrowing money, you aught to at least attempt to make sure it’s a good investment.
    That’s not to say that education for the sake of education isn’t valuable, both for the individual and society. However, one needs to determine if getting a formal education in anything that won’t pay you back is really a good investment in yourself.
    BTW, if anyone cares, I have a STEM degree with a smattering of other interesting “stuff”, but the engineering degree has certainly payed for itself.

    Reply
    1. Lemmings Folly

      I have three STEM degrees and excellent grades…but they still don’t guarantee you a job, especially when you come from a poor family and have no connections, no guidance, no support, and difficulty integrating socially with people from upper class background. When young, we only know that getting a good education is the path out of poverty and insecurity. Then we arrive at our goal and find out we had no idea what we were doing.

      Reply
  20. Edward

    “I’ve never bought the “strategic default” meme”

    Hasn’t Donald Trump declared bankruptcy seven times? Our president/welfare queen does not set a good example for students. Its the usual hypocrisy with the rich doing A and the poor being accused of doing A.

    Reply
    1. Yves Smith Post author

      He’s never declared bankruptcy personally. Business is completely different.

      And this is seven legal entities out of hundreds he’s owned. Private equity overlords create bankrupt companies at a much higher rate.

      Reply
      1. skippy

        The problem is its an artifice that exists outside the functional aspect of a BK e.g. sound business that has a bump in the road.

        disheveled… Bush Jr thingy, I don’t consider these exploits anything capitalism….

        Reply
      2. Edward

        I think journalist David kay Johnston implied in an interview on Democracy Now that Trump used these bankruptcies to avoid some debts. I think the question here is whether they were a gimmick or a necessity. Who ended up eating the costs of the bankruptcy? How much wealth did Trump gain from this process?

        Also more info is needed about the 7/100 figure, because the 7 could be larger then the 93. The 100 businesses don’t necessarily count equally.

        Reply
  21. Steve

    I actually knew a married couple who were strategic defaulters. They loaded up on credit card debt, defaulted, waited seven years, loaded up, defaulted, etc. They did it twice successfully but on the third attempt they missed a deadline of some sort and lost their house and cars. They had a whole host of strategies – besides the credit cards, they would pay their electric bills during the summer but not pay them in the winter (when by state law the power company could not turn it off) and then get on a payment plan in the summer, and they did this every year. They were also unbanked – they would cash their paychecks in the fiscal office of their employers, so this way they had no assets in their names, only debt. They just knew how to work the system and were unashamed to do so.

    Reply
  22. Michael C.

    Let’s not forget that the higher costs of education are due to state budgets being slashed via US style austerity. Public education is slowly being privatized to run on a business model, while a growing poorly paid adjunct precariat faculty take on the teaching load. Meanwhile, the managerial and administrative segment grow larger at a university, and the pay of the top officials escalates to CEO dimensions. The purpose of education in a democratic society has succumbed, lije everything else, to the clutches of capitalism.

    Reply
  23. Eclair

    I picked up a copy of John Grisham’s latest, The Rooster Bar, at the local library. (Yes, I read trashy novels and mysteries; drugs, alcohol or reality TV just don’t work for me and one needs some escape from the unrelenting bad news.) It’s about a trio of students in their final year of law school; but a for-profit law school that enrolls anyone who can get a student loan under the federal program (which is anyone who is accepted at an approved educational institution.) They have just realized they are each $200,000 in debt and no one will hire a graduate of Foggy Bottom Law School, even if they could pass the bar exam. They are already being harassed by their loan servicers, their friend has just committed suicide after unraveling the connections between the owner of the law school (he owns a brace of them,) a Wells-Fargo-like bank and the collection and loan servicing agencies. They are from working class and immigrant families, without the right ‘connections’, so what’s a body to do?

    Add a couple of zeros to that trio and we have trouble, right here in River City.

    Reply
  24. Roxan

    Schools cheat students in so many ways it’s amazing! When I went for my RN, they took hundreds each semester from my student loan for ‘student activities’–but had no gym and no student activities. (This was a major medical school, not some fly-by-night joint) When I asked about it, they claimed they ‘planned to’ (some day!) The professors would not reveal their book list ahead of time in order to prevent us buying our very expensive medical books second hand. We were compelled to buy our poor quality uniforms from the school at high prices, and also their brand health insurance. We also had to pay exorbitant prices to park in the hospital lot as there was no on-street parking. On and on it went….

    Reply
  25. Felix_47

    Maybe if we still had the draft students would have risen up and blocked the AFG and Iraq invasions. That would have freed up 7 trillion that could have funded education. Until the MIC is stopped the nation is not going to be able to do much.

    Reply

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