It's a very bad idea to train everyone that their debts are optional, and that they have no obligation to pay them back. Loans for people who won't abuse the system will become much more expensive to make up for those who don't pay them back.
Debts are optional to repay, and there are legal frameworks to resolve debt disputes if you choose not to. Businesses do it every day why shouldn't people?
Student loans are completely outside of this framework because they're risk-free for the lender and can't be discharged at bankruptcy by the lendee.
Because of this the loan costs for those that present a good and bad debt proposition are basically the same - I'd call this more of an abuse.
I completely agree that they shouldn't be risk free - that was probably a harebrained idea to make college cheaper and more accessible to everyone, but it completely messes up the incentives.
And I know they're technically optional. What I was saying is that we shouldn't be trying to build the idea that it's OK to default if you're better off financially not paying people back into our culture. Trust is important to the functioning of society.
> What I was saying is that we shouldn't be trying to build the idea that it's OK to default if you're better off financially not paying people back into our culture. Trust is important to the functioning of society.
I disagree with this. We saw people during the GFC screwing themselves by continuing to pay mortgages that they were underwater on out of some misguided sense of honour.
In that case, they should have walked away and left the bank saddled with the stranded asset. Loans are a commercial proposition with a risk and a reward. Introducing washy hard to define concepts like 'trust' to pressure one side only screws the good guys - the unscrupulous ones will do what they want.
Better to have a clear playing field where both lenders and lendees understand there will be situations in which the loan isn't going to get repaid and have the risk of that priced in.
But we already do this with businesses... We live in this bad idea system you are describing, except that the little guy is getting screwed while fictional business entities ride high amongst the waves.
You seem to be saying the equivalent of "Businesses are acting shitty, so individuals have to be shitty to compete".
That's how you end up in a society that no one wants to live in. We should find ways to bring the standards of business up, not bring the standards of individuals down.
Would you be ok with instituting a law that mortgage and medical debts can no longer be discharged through bankruptcy?
I bet people get really irresponsible when they realize they don't have to pay these debts, they just have to take a massive hit to their credit score....or maybe, most people don't become irresponsible, the people that really need the help get it, and a couple take advantage of the system.
No, that's not what I'm advocating for at all, nor would I bring back debtor's prison, or any of the other relics of The Bad Old Days. Just advocating against trying to tell people that it's totally OK to declare bankruptcy in the event that it makes more financial sense for them. It should be reserved for completely untenable situations, and unless you had a reasonable expectation that it would work out, there should be a at least some personal shame involved for having made such poor decisions, such that they don't make the same mistakes again. We shouldn't try to normalize it.
You're spending other people's money. Treat it with respect.
> there should be a at least some personal shame involved for having made such poor decisions
What about the shame of the lender for making poor lending decisions?
> We shouldn't try to normalize it.
Why not? The only reasons you've given is "because it makes for a nicer society" but I don't actually see how it does. All you're doing is taking one of the few tools the individual has to mitigate financial problems away from them because you want to moralise their failure.
It's not like declaring bankruptcy is a walk in the park. It's a total pain and really negatively impacts your ability to do a lot of stuff. It is already a last resort for individuals and they shouldn't be stigmatised for taking it.
> You're spending other people's money. Treat it with respect.
No you're spending your own money, gained through a business transaction in which the lender has accounted for the risk of non-repayment.
I actually think it makes for a potentially nicer society if lenders are incentivised to have a stake in the successful outcome of their clients. If the client is culturally conditioned to try and pay their loan even after the point it makes no sense to, then the lenders will put more and more onerous terms and rates on loans because they know the person will never give up. Lenders will have to make sure it's a good deal for their clients, not just themselves.
