Gifted Issues Discussion homepage Forums General Discussion Free tuition at US public Universities?

The Bankruptcy Amendments and Federal Judgeship Act of 1984 made private student loans from all nonprofit lenders excepted from discharge, not just colleges, by striking the words "of higher education". The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 expanded this to include all "qualified education loans", regardless of whether a nonprofit institution was involved in making the loans.

Back in the olden days of the 80s when I was a student, the entire point of rates on student loans was that they were low. Back then, interest rates were stratospheric (15%+), and student loan rates were 8%. This is one of those facts that people (err, especially banks) seem to have conveniently forgotten as the loans have become big business.

I'm not sure where you missed the part where student loans are not dischargeable debt. http://www.finaid.org/questions/bankruptcyexception.phtml

Government officials are trying to rein in increasingly popular federal programs that forgive some student debt, amid rising concerns over the plans' costs and the possibility they could encourage colleges to push tuition even higher.

Enrollment in the plans—which allow students to rack up big debts and then forgive the unpaid balance after a set period—has surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion, U.S. Education Department records show.

The popularity of the programs comes as top law schools are now advertising their own plans that offer to cover a graduate's federal loan repayments until outstanding debt is forgiven. The school aid opens the way for free or greatly subsidized degrees at taxpayer expense.

At issue are two federal loan repayment plans created by Congress, originally to help students with big debt loads and to promote work in lower-paying jobs outside the private sector.

The fastest-growing plan, revamped by President Barack Obama in 2011, requires borrowers to pay 10% a year of their discretionary income—annual income above 150% of the poverty level—in monthly installments. Under the plan, the unpaid balances for those working in the public sector or for nonprofits are then forgiven after 10 years.

Private-sector workers also see their debts wiped clean—after a longer period of 20 years—reflecting a government aim to have no one, wherever they work, paying down student debt their entire working life.

An independent study estimates the future cost of the 2011 program, known as Pay As You Earn, could hit $14 billion a year.

The Obama administration has proposed in its latest budget released last month to cap debt eligible for forgiveness at $57,500 per student. There is currently no limit on such debt.

Today’s Wall Street Journal has a good editorial on the Obama administration’s “Pay As You Earn” program, which is designed to help college students (and also those seeking higher degrees, such as JDs) by allowing many of them to off-load some of their debts. This will probably buy some votes and undoubtedly help to keep the higher ed bubble inflated for a while longer. Especially disturbing is the way the program lures students into “public service” work so they can escape more of their debt. The editorial correctly notes, “impressionable youngsters, who likely have little or no wealth, are being given an enormous financial incentive to pursue careers in government or low-paying nonprofits.”

This is yet another good reason why we should never have gotten into federal student aid in the first place.

Perhaps-- it's just unclear what a better solution looks like.

The market forces definitely have not helped this particular problem, historically speaking.

Like most of the revelations and allegations that have poured out of Andrew M. Cuomo's office in the New York attorney general's investigation into the student loan industry, his latest is provocative and highly charged. Two weeks ago, in a powerfully worded letter to Sen. Christopher Dodd (D-Conn.) and Rep. George Miller (D-Calif.), Cuomo accused some providers of private student loans with engaging in the kind of racial discrimination that home mortgage lenders once practiced.

Some private lenders, he contended, have been using judgments based on the college a student attends -- in addition to typical criteria such as the credit ratings of borrowers and their parents -- as one factor in the evaluation that ultimately affects the interest rate on a loan. The practice, he wrote, is "analogous to 'redlining' in the home mortgage industry," a reference to charging higher rates based on a prospective homeowner's neighborhood, common a generation ago before federal laws changed to prohibit it.

Taking a specific college, or type of college, into account as a factor in determining a credit score could theoretically mean that loans to students at, say, Harvard could be seen by lenders as less risky and therefore more desirable than those made to students at community colleges, for-profit institutions and historically black colleges. John Dean, special counsel to the Consumer Bankers Association, said, for example, that "some underwriting criteria include future earnings prospects that may be reflected in the type of institution." That's where the allegations of discrimination have come in, because critics of the practice say there is a disparate impact that places disproportionately poor and minority students at a disadvantage when applying for loans.

Representatives of the private loan industry bristle at the contention that they are engaging in a present-day form of discrimination, but they maintain that the practice, for some lenders at least, can be useful as a way to make student loans available to borrowers who otherwise wouldn't have access to them at all.

Some on Capitol Hill, though, see things differently and are taking steps to ban extra factors such as a student's institution in calculating credit risk.

But they are "forgiveable". Banks cannot compete with a lender that will forgive debt for political reasons. The overall cost of this loan forgiveness concerns me, and I am further irked by the special treatment of people working for the government and for non-profits (forgiveness after 10 years of payments, vs. 20 years for other people), as if the former group were more noble.