I think the cultural stance in the U.S. that to progress in life/elevate oneself/stigma against forgoing college is also a large part of it.
I personally think that one policy that could have an outsized effect in solving this problem is establishing a max percentage of income that student loan repayment can be required to be for a maximum number of years (I'm pulling these numbers out of nowhere but just as an example) like 7.5% of gross income for 20 years. If the student hasn't repayed by that time using that percentage of income, the college is on the hook. Alternatively, a combination of the college and the lender (potentially switching away from government lenders).
The problem I'm hoping to solve is the insane growth rates of tuition for a wide variety of degrees that do not justify their cost. Young kids being told that college is the required pathway into a good life often are not given the commensurate instruction that the college degree should be useful in terms of earning more/securing a job. An instruction of "study whatever you find interesting!" sounds good but is IMO very poor advice. It should be modified "Study things you find interesting but remember that college is to build and refine your skills for your career after"
If you let students default on debt - most of the problems get solved.
Creditors are going to make risk-free high-interest loans. As long as the loans are available - students will take them to get their underwater basket weaving degrees.
If students could default on debt - then there wouldn't be an endless supply of creditors willing to lend them money to get degrees they know won't pay enough money to pay them back.
This doesn't work though because even the attractive degrees can declare bankruptcy based on having greater liabilities than assets immediately after finishing their degree. Allowing students to default on student loan debt without requiring a minimum time period to do so basically means no one can safely provide loans for any degrees regardless of income potential.
Some people have far more than $100k in debt, so the tradeoff might be far more attractive.
If you're finishing undergrad at 22, your bankruptcy won't harm you for buying a house at 29-30 which is kind of when you want to buy a house anyways since saving up 25% takes a good amount of time. It seems like a very worthwhile trade to declare bankruptcy.
As for being allowed to declare, the time to do it is before you have a job. At this point you have debt higher than assets and no income so the case for bankruptcy is extremely clear.
> Some people have far more than $100k in debt, so the tradeoff might be far more attractive.
That would be the lender's problem for lending far more than anyone reasonably needs to be lent to obtain a degree. They'd have to price the loan accordingly.
> It seems like a very worthwhile trade to declare bankruptcy.
You don't get to just declare bankruptcy on a whim because the outcome is favorable to you.
> You don’t get to just declare bankruptcy on a whim because the outcome is favourable to you.
I’ve addressed this in the above by mentioning when you do it. You have assets < debt and no job therefore no income. No court is going to reject this bankruptcy because you are actually underwater and will in theory take infinite time to repay the amount you owe.
Yeah bankruptcy is a legal process. Judges and probably lawyers are involved. It's not "free" and (my supposition) if you have legitimate near-term future prospects for income the judge may not grant it and tell you to get a job and pay what you owe.
We already have what you describe, it's called Income Driven Repayment. Your monthly payment is set to a certain percentage of your income, and after 20-25 years, any remaining balance is forgiven. The only difference being that forgiveness is paid for by the government, not the school.
The program is frankly a mess, with a ton of byzantine rules around eligibility and how the monthly payment is calculated. I work for a company that deals with this and have partial ownership of the code that has to implement these rules, and it's frankly a nightmare.
Furthermore I have serious doubts about the value of the program. It's really only good as a stop-gap measure to avoid defaulting on your loans in the immediate future. Going for the 20-year forgiveness seems unwise to me, since you are experiencing negative amortization for that time and your loan balance will be increasing. So most of the amount forgiven will be accrued interest, which will then be taxed. In most situations it would probably be better to focus on increasing your income and just paying the loans off.
X% of income *above the poverty line*, no time limit, disappears upon death. Administered through the IRS, it's a line on your tax return and thus automatically adjusted for income.
(And I'd do the same thing with child support--x% up to $y.)
I personally think that one policy that could have an outsized effect in solving this problem is establishing a max percentage of income that student loan repayment can be required to be for a maximum number of years (I'm pulling these numbers out of nowhere but just as an example) like 7.5% of gross income for 20 years. If the student hasn't repayed by that time using that percentage of income, the college is on the hook. Alternatively, a combination of the college and the lender (potentially switching away from government lenders).
The problem I'm hoping to solve is the insane growth rates of tuition for a wide variety of degrees that do not justify their cost. Young kids being told that college is the required pathway into a good life often are not given the commensurate instruction that the college degree should be useful in terms of earning more/securing a job. An instruction of "study whatever you find interesting!" sounds good but is IMO very poor advice. It should be modified "Study things you find interesting but remember that college is to build and refine your skills for your career after"