The first pebble in the student loan default landslide

[JettaKnight]

Something that I find dumb about this whole debate about student loans is that there seems to be no societal expectation that the lenders perform due diligence when issuing student loans. If purchasing a loan for a car or mortgage, the bank has some responsibility to check that the property being purchased has value, and that the borrower will have the ability to pay it back. Higher risk borrowers pay more interest.

The government has completely broken the way this credit market works by making student loan issuance an entitlement. Rates are artificially priced because the same rate is issued to good students in programs that will likely yield a high postgraduate income vs bad students and students going into worthless areas of study. The loose availability of credit also incentivizes universities to make programs longer and less efficient so they can charge more tuition, rather than streamlining programs so that you can earn a degree more quickly. This is why associates degrees are no longer a thing. This is also why universities offer a smorgasbord of useless degrees, because undergraduate programs are designed to appeal to dumb 18 year olds who are going to school as a fun resort to get away from their parents rather than as a serious career building step to their future.

So what is Congress doing about this? They are making the incentives worse by trying to pass legislation like "Income Sharing Agreements" which will do a lot to protect the business risk of creditors, but absolutely nothing to incentivize better quality loan issuance or accountability on the part of universities. College is now in many ways a trap to turn financially illiterate young people into debt slaves of the banking system.

Do we really want lenders making decisions with those factors in mind? We already have lenders cutting lines of credit to gun dealers...

Lenders have pretty strict rules about what factors they can consider, and I'd rather not undo those for various reasons.


Perhaps Mitch Daniels' new way will catch on.

The in-depth podcast: The $1.5 Trillion Question: How to Fix Student-Loan Debt? (Ep. 377) - Freakonomics Freakonomics

And a shorter podcast: https://www.npr.org/sections/money/2019/03/29/708152566/episode-903-a-new-way-to-pay-for-college