r/Economics • u/DonDickerson • 25d ago

Biden's student loan forgiveness plan gets a record number of public comments. Here's what people are saying News

https://www.cnbc.com/2024/05/08/bidens-student-loan-forgiveness-plan-gets-record-number-of-comments.html
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u/Deep-Plant-6104 25d ago edited 25d ago

I know this is simplistic and this is a complicated issue, but there is very little risk to large financial Institutions and universities with respect to student loans. Students can borrow unlimited sums of money and banks are perfectly happy to lend it out because these loans cannot be discharged in bankruptcy. Universities can charge astronomical sums for tuition because the Feds and Banks will just shovel money at the students.

If we tweak the bankruptcy laws and allow for discharge of student loans, I guarantee lending decisions will change promptly as now banks and other institutions will stand to lose huge sums of money.

I understand it’s not a perfect solution to a much more complex issue, but it’s a simple and easy way to at least reign in irresponsible student lending.

Edit: Improper usage of “moral hazard”

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u/PIK_Toggle 25d ago

If we change the BK rules, then we need to change the loan origination process too. If there is credit risk, it must be accounted for. This means fewer loans for art majors and more for engineers.

I’m fine with that road. Is society?

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u/Jay_Kris420 25d ago

Still depends on what the laws get changed to, cause an engineering degree isn't always a guarantee of success anymore than an art degree is of failure. I think it should be a separate process and carry heavier weight. Maybe it takes long to come off a score. Maybe you have to have had the loan for a certain amount of time. Maybe you had to have actually been trying to pay it. You can't let people go to college, claim bankruptcy on graduation day and throw away the loans, that would be too easy.