But That's None Of My Business

You don't think that tying up so much wealth in student debt is going to stifle our economy for all of us?

Paying what you owe does keep the money flowing.

I offer this as food for thought: when you owe so much money that really paying it back is never going to happen and nobody is getting their money, it is customary to grant you a right to file bankruptcy, which, under certain caveats and rules, nonetheless frees your skills and experience to apply yourself elsewhere in the economy, and after five or six years even allows you to retry at something entrepreneurial...

...unless that loan is a student loan, in which case Nixon says that the money still has to be there no matter what; and as any homeowner can tell you, coming up with six figures can easily take two or three decades if you just don't have the means. So goodbye to the house market, the auto market, all these things, until you make good on an investment that didn't pan out many many years ago.

So, an auto mechanic goes to trade school and passes. Once in the world he isn't making the choices that take him further than doing oil changes for 9.00 an hour. Should he not be responsible for paying back the loan he took out for trade school? Or is this limited only to those who got the best of educations and still decided success was not for them?

You seem to be under the impression that bankruptcy is a free pass - a walk in the park that wipes the slate clean for no effort.

It's not at all! It is SO restrictive, almost oppressive, that people only use it as a last resort - or they quickly regret doing it at all.

So to take your auto mechanic example, understand that if he is filing for bankruptcy on his trade school loans, he must be truly desperate - for example, maybe because he's been searching endlessly for a position that pays better than 9 an hour that he's qualified for and those jobs are just not out there.

Look, nobody "decides" that success is not for them. Nobody wakes up in the morning thinking "MAN, I love filing papers in corporate archives - and to think I'll never have to pay back on that English literature degree I spent five years on!" It just doesn't happen; if you want people to strike out and work hard and try new business ideas based on the skills they learned in college, you gotta give them the financial freedom for it - capitalism is literally the connection of entrepreneurs to capital.

But if you're going to say "nuh uh, get a good job and pay off that loan first" you're going to get the question "what happens if I can't get the job that allows this to happen?"

And in this day and age, that's a good question. In Nixon's day, arguably college WAS a low risk sure-fire way of getting those good salaries. But what if it isn't anymore?

To your 1st point, divorce left me bankrupt, I know EXACTLY what it is like. If I could have had debt deferred (like a student loans can be) I would have gone that route. Bankruptcy is SUPPOSED to be restrictive, oppressive and a last resort. Otherwise there would be no credit EVER issued and you would never get that 100k education.

2nd: People decide success isn't for them all the time, by using drugs, immersing themselves in alcohol and many other less obvious ways.

3rd. So no business was EVER created buy non-college grads or people not actively working at a job they hate while getting a business off the ground?
There are also many directions to go for a career that do not require a four year degree from an expensive college.

College is a privilege not a right.

How about this:

Imagine your auto mechanic is tired of working for his boss after eight years, he thinks he can do a better job, he goes to the bank, the bank loans him $100,000 and he opens up his first business.

The market dries up on him through no fault of his own. It happens: let's say that he's not a drug addict and not an alcoholic, let's imagine that he's a hard worker, but sometimes the economy just craps out and suddenly nobody can run a car let alone get it fixed.

The court hears his case. They say "that sucks, but here's a court order for your bank; they're going to be upset, they're going to say that it should be your responsibility to pay back that loan, but we're realistic - we'll protect you, you don't owe anything."

Seven years later, the court says "you can go ahead and try to run a business again."

But the auto mechanic who borrowed $100k for trade school is still penniless seven years later, because the school debt is still there while the business loan qualified for forgiveness.

Why? What is so magical about a school loan that it's not considered the same as when a bank says "here's a loan to start your own business"? Afterall, we tell our kids that higher education is an investment in one's own future; so why is it that in the business world a debt can be forgiven in extreme situations, but in the case of education, "hey, it's your responsibility!"

Few that apply actually get a business loan. Lenders also assume the risk based on qualities the applicant possesses as well as the need for that particular business in the proposed location and a SOLID business plan. Many other factors are involved in acquiring a business loan, which also carries a higher interest rate because of the risk.
Education loans are much easier to acquire because the risk is accepted by the applicant who basically AGREES to repay the loan no matter what. Do you not get that if students are allowed to default on their student loans, student loans will become as difficult to get for EVERYONE as a business loan? What you propose hurts the masses, not helps.

If your point is more directed at GM, AIG and others who received bailouts, I agree, no company is too big to fail.

Exactly! The lender assumes the risk!

I would actually be fine with a system where banks say "you know what? Your high school grades aren't that good. You're a high risk borrower for educational financing. Student loan denied." Fewer people would get to go to college or trade school (unless we reinstated state run colleges which were free to anyone who, again, had the grades for it) but this way, if we have a situation which is all too common under our current system where somebody went to school for four years only to find that nobody's hiring for their profession - the banks are the ones holding the risk, and the students are free to decide where to take their lives from there.

Students who didn't have the grades or the references from their teachers would have to acquire work experience or further adult/community education to give themselves a better standing - but could I assume that you're all in favour of people working hard to give themselves a better shot?

Under our current system, the banks are giving loans to literally anybody who asks, INCLUDING STUDENTS WHO WEREN'T THAT SERIOUS OR SURE ABOUT WHAT THEY WANTED TO DO IN THE FIRST PLACE. (Most kids are 17 when they make this decision! They don't know themselves or their limits yet!) (And I've heard it suggested - and it may be true - that this endless low standard of loan approval may be what's driving the rising pricetags of tuition far beyond what they should be worth.)

This seems to be an inherently reckless system to begin with, and the student loan providers should know better and be held more accountable.

Putting the risk of education costs onto the lenders, combined with re-opening low-cost education options, should lead to a more fair system where students really do have to work hard to get what they want, and have a last-resort fallback plan if it goes pear shaped.

What do you think about all that?

I think there is a good deal of common ground there. I believe all things should be judged on merit as opposed to quotas or some other government mandate. Privatizing most (I repeat most but not all things) is usually the best way to go. Legislating home lending practices lead to the downfall of the housing market, and I agree that it could lead to the demise of higher education. I was shocked several years back when ASU here announced they were increasing tuitions, not because they were in need of money, but to be in line with similar schools around the country. I was even more shocked that major news outlets didn't light them up for making that statement, which was largely yawned at even by local news. If private lenders were more involved in the process, the growing costs of education would decline, resulting in more affordable degrees. It would also limit the number of junk degrees and garbage courses offered in college. Colleges would have to decide if students were better served by improving the education or if rock climbing walls were a higher priority. In short schools would have to compete for the money by providing a better graduate. I think you and I have a lot of similar thoughts on the topic. By the way my 16 year old daughter have been having a parallel conversation on this topic. She has actually changed her mind about where she wants to go to school because of ASU's party reputation.

Well, thank God for that - from what I hear, ASU isn't fit to train hot dog stand attendants.

I think that wraps up our discussion nicely. You didn't walk into the trap I set up - a lot of people respond by saying "how could you be so heartless? We want to get as many kids into some kind of post-high school education as possible" at which point, they've made a choice that makes them responsible as a voter and a taxpayer to shove as many kids as possible through a system that is doing a poor job of connecting graduates to jobs. Which would have contradicted your original meme.

But it looks like we agree on a lot of stuff about who's responsible for the status quo, and I'm glad.

I don't care how many go to college, as I said there are plenty of other avenues and the key is to make sure the ones that are there are the ones that want to be there for the right reasons. Then I think the problem takes care of itself. I'm happy to see we are closer in thought than I originally believed. Have a good one!

I really think schools could be run much cheaper. The school system really hasn't changed since way before computers existed.

Is an educated workforce not in everyone's best interest? It is a great investment.