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Classic example of why private student loans need to be reformed.

I can understand zero sympathy for those who borrow federal student loans direct from the government. What I fail to understand is why people are opposed to private student loans getting the same treatment as credit cards in bankruptcy.

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deadbeat needs to pay his bills.

NewToFatWalletUser (Jul. 08, 2010 @ 10:22p) |

And that is a bad thing????

If a loan for a certain purpose has market interest rate R, why do you want to push it down t... (more)

tolamapS (Jul. 08, 2010 @ 11:59p) |

^But if the loans can be discharged in bankruptcy, every "dumb dumb" will just be spending other people's money going co... (more)

nycll (Jul. 09, 2010 @ 7:03a) |

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article said: Christopher was climbing a tree in a friend's yard when, on his way down, a limb snapped and he fell headfirst 45 feet to the ground.
Who climbs 45 foot tall trees for fun?

What do you mean when you say you "can understand zero sympathy for those who borrow federal student loans"? So you think people with federal loans shouldn't be protected but those with private loans should be?

greling said: Classic example of why private student loans need to be reformed.

I can understand zero sympathy for those who borrow federal student loans direct from the government. What I fail to understand is why people are opposed to private student loans getting the same treatment as credit cards in bankruptcy.
I'm lost. What does this news story have to do with private student loans treatment in bankruptcy?

PS: You have to remember that changing student loans treatment in bankruptcy will change interest rates and availability. You can be sure lenders will be less willing to loan money to students if the loans can be discharged more easily.

TxAggieJen said: What do you mean when you say you "can understand zero sympathy for those who borrow federal student loans"? So you think people with federal loans shouldn't be protected but those with private loans should be?

Federal loans already have borrower protections built in. If you lose your job and have no income, your payments can be reduced or put on hold. If you die or are permanently disabled to where you can't work, your loans are canceled. Your interest rate is fixed and is usually very low. Private loans, however, have none of these protections. Imagine taking out a cash advance from a credit card to pay for your education and not being able to get bankruptcy protection or negotiate a better payback plan when something terrible comes up. That's what private loans are like.

So yeah, no sympathy for federal loan borrowers. You really have to be screwed up and try really hard to mess those kinds of loans up. With private loans, however, one single late payment is all you need to end up paying penalty fees that are sometimes as much as 50% of the balance of the loan.

theman2 said: PS: You have to remember that changing student loans treatment in bankruptcy will change interest rates and availability. You can be sure lenders will be less willing to loan money to students if the loans can be discharged more easily.

That didn't prevent them from lending prior to 2004 did it?

markjoto said:
Who climbs 45 foot tall trees for fun?


Amber does

greling said: I can understand zero sympathy for those who borrow federal student loans direct from the government. What I fail to understand is why people are opposed to private student loans getting the same treatment as credit cards in bankruptcy.

If you don't pay your house or car loan there's a tangible asset that can be liquated to make up for the lenders loss. If you don't pay your student loans there's no way to liquidate or take back a college education and no asset to be sold.

If private loans were dischargable by bankruptcy then interest rates would need to be much higher to account for the lenders increased risk. Historically many people would run up $200,000 tuition bills and then file bankruptcy when they graduate and have zero income. During the 70s, filing bankruptcy on student loans to avoid repaying federal lenders became a widespread trend especially for law degrees.

Since there is no free lunch in economics the people who abuse the system for a free ride ultimately have to be subsidized by the responsible users of student loans and\or tax payers, either through higher interest rates or through higher taxes.

Why should someone who went to an affordable public college need to subsidize an irresponsible person who went to a private school that will never see a return on investment?

pietromoon said: markjoto said:
Who climbs 45 foot tall trees for fun?


Amber does


I guess there is no need to ask the person on the tree whether she is on team Edward or Jacob.

I think that all the article really argues for is that private student loans should have the same cancellation in cases of permanent disability/death that federal loans do. If the feds are letting private banks give out loans that can't be discharged in BK, they should at least require them to offer the same forbearance/deferment/cancel upon death clauses that federal loans have.

Article said: The Christopher Bryski Student Loan Protection Act (H.R. 5458) would provide some forewarning for families, requiring banks providing student loans to inform borrowers and co-signers of their obligations in case of incapacity or death, to define those terms in a standard way, and to discuss the option of credit insurance, which pays off debts in the event of death. Read more: http://www.kansascity.com/2010/07/08/2070152/familys-tragedy-may-lead-to-new.html#ixzz0t7ZWPlQx

The bill talked about in the article is really a joke. Instead of passing legislation mandating that private lenders extend some of the terms like canceled on death on their federally guaranteed loans, they just want to require banks to warn parents that if the kid dies, you as co-signers will be on the hook anyway. Then they hope that 'market forces' will push the banks to offer those protections. The bill really boils down to requiring that borrowers have to sit through a pitch for credit insurance.

I think that student loans shouldn't involve co-signers in the first place. They already have protection against BK. I'd propose removing the requirements for co-signers, requiring the same hardship/forbearance policies that are on the federal direct loans, and an amended cancellation on death/disability clause. Simply change it call for the cancellation of whatever portion of the balance would be remaining IF the borrower had started repayment after finishing school without the use of hardship clauses. So if someone died during school, the entire balance is forgiven. If they have been making all their payments on time for 5 years, and then die, the balance is forgiven. If they've made liberal use of the hardship and forbearance clauses, then their estate is on the hook for the amount they should have paid, assuming a normal repayment schedule (this would work to prevent people trying to drag out their SL payments into retirement, planning to die with some of it unpaid).

This might cause rate increases from private lenders, though not from direct loans (the modification of the death clause would actually make the loans slightly less expensive than currently for direct loans). I've never been a big fan of private SL's anyway. The banks love them because they are making a guaranteed profit, since the feds guarantee the loans there is no risk. Since the direct loan program is profitable for the taxpayers, why let private companies have a piece of it in the first place? And that's before you have private lenders offering incentives to Financial Aid officers to push naive students toward private lenders instead of direct loans...

markjoto said: article said: Christopher was climbing a tree in a friend's yard when, on his way down, a limb snapped and he fell headfirst 45 feet to the ground.
Who climbs 45 foot tall trees for fun?


Adventurous people who realize life isn't all about sitting behind a glowing screen in the safety of a brick cage so that nothing outside can hurt them?

brettdoyle said: If private loans were dischargable by bankruptcy then interest rates would need to be much higher to account for the lenders increased risk.

I just don't buy it. If they're going to be given the same bankruptcy protection as federal loans, then why not charge the same interest rate as federal loans or require them to give borrowers the same protections?

Prior to 2004 these loans were fully dischargeable in bankruptcy court and making them non-dischargeable didn't lower their interest rates one bit.

The perceived "risk" of a $20,000 loan at 18.9% variable lies more in the lending terms than in the fact that it can't be discharged.

brettdoyle said: Why should someone who went to an affordable public college need to subsidize an irresponsible person who went to a private school that will never see a return on investment?

Why should someone who borrows for their education be treated more harshly than someone who ran up tens of thousands in credit card debt?

jcbrooks said: markjoto said: article said: Christopher was climbing a tree in a friend's yard when, on his way down, a limb snapped and he fell headfirst 45 feet to the ground.
Who climbs 45 foot tall trees for fun?


Adventurous people who realize life isn't all about sitting behind a glowing screen in the safety of a brick cage so that nothing outside can hurt them?

Seems much better than getting paralyzed or being put into a coma.

pietromoon said: markjoto said:
Who climbs 45 foot tall trees for fun?


Amber does


Is that the cuckoo who is/was in the tree at Berkeley?

greling said: brettdoyle said: Why should someone who went to an affordable public college need to subsidize an irresponsible person who went to a private school that will never see a return on investment?

Why should someone who borrows for their education be treated more harshly than someone who ran up tens of thousands in credit card debt?


Repossess ability of assets purchased with a credit card is greater than zero.

greling said:
Why should someone who borrows for their education be treated more harshly than someone who ran up tens of thousands in credit card debt?


+1 to this

theman2 said: PS: You have to remember that changing student loans treatment in bankruptcy will change interest rates and availability. You can be sure lenders will be less willing to loan money to students if the loans can be discharged more easily.

I don't see what's wrong with that. Just because you can borrow for school doesn't mean you should. Too much easy credit allows too many schools and students to make unwise decisions.

I also doubt it will be the doomsday you predict. Some tightening in credit markets will be matched with controls on tuition, expansion of federal loans, and more logical decisions on the part of students (which school to go to, which program to take, etc.)

Those who still need to borrow with a private loan can make the decision that the increased rate the lender needs to charge is worth it to them.

The special status given to private student loans puts them in a feedback cycle that ensures their need. If lenders can lower rates and minimum standards for private student loans because they can't be discharged, have special garnishment rules, etc., loans are more easily available to students. If loans are easily available to students, schools have little downward pressure on tuition.

If you've been to a college or university in the past 5 years -- you should realize how desperately our system needs an overhaul.

greling said: Why should someone who borrows for their education be treated more harshly than someone who ran up tens of thousands in credit card debt?Fresh out of school normally is the lowest point of one's earning power and personal assets. It would be optimum for most people to file BK to wipe out the student loan debt. So the interest rates that need to be charged on student loans will have to me much higher than that of credit cards, which essentially covers the entire population.

BTW, a loan being non-dis-chargeable in BK doesn't mean it is unbreakable under all circumstances. If there is true hardship (I am sure the poor kid in coma qualifies), the court will also reduce or eliminate the student loan debt.

barbcole said: I also doubt it will be the doomsday you predict. Some tightening in credit markets will be matched with controls on tuition, expansion of federal loans, and more logical decisions on the part of students (which school to go to, which program to take, etc.)

Those who still need to borrow with a private loan can make the decision that the increased rate the lender needs to charge is worth it to them.
You got it backward. If there is a way to discharge the private loans in a BK, to a lot of people, the high rates become irrelevant, since the interest are capitalized during school years.

deadbeat needs to pay his bills.

theman2 said: greling said: Classic example of why private student loans need to be reformed.

I can understand zero sympathy for those who borrow federal student loans direct from the government. What I fail to understand is why people are opposed to private student loans getting the same treatment as credit cards in bankruptcy.
I'm lost. What does this news story have to do with private student loans treatment in bankruptcy?

PS: You have to remember that changing student loans treatment in bankruptcy will change interest rates and availability. You can be sure lenders will be less willing to loan money to students if the loans can be discharged more easily.


And that is a bad thing????

If a loan for a certain purpose has market interest rate R, why do you want to push it down to R-x by creating artificial market forces?

The tuition for universities is growing out of control.

Why? Because every dumb-dumb can borrow money "to attend college". Thank god not every dumb-dumb can get enough value out of going to college.

^But if the loans can be discharged in bankruptcy, every "dumb dumb" will just be spending other people's money going college.



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