Sunday, October 16, 2011

College Loan

Glenn Reynolds links to this Zero Hedge bit on the student loan racket.  What struck me most was that besides debts incurred due to breaking the law, every other loan except for student loans can be discharged in bankruptcy (at the Federal level).  It was also interesting to see the timeline where the terms for loans got more restricted over time.

What's interesting of course is that if the loan could be discharged, it would be an unsecured loan, essentially a credit card loan.  In fact it's even worse than that as a credit card company may have some recourse on their debt (for instance, if you ran up your credit card debt right before declaring bankruptcy). For student loans that money is gone, and if priced appropriately for the market the interest rate may be outrageous (although typically a cosigner is required anyway and this would seem to mitigate the fear that lenders might have).

Overall though, I don't like it.  I hate the idea of anyone being a 'debt slave'; no one is making these people lend money (most of the time) so it's their own gamble as to whether or not they will be paid back. They shouldn't involve the government in their poor investment decisions.

(I should point out that it's debatable to what extent any loan is dischargeable any more.  Karl Denninger has pointed out that laws should be much more liberal in this regard as forcing society to hold onto bad debt (be it public or private) prevents a nation from being able to quickly correct mistakes and resume economic growth; particularly after the implosion of debts bubbles, such the time we are living in now).

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