Brian Tamanaha's New York Times editorial Forum

[Renzo]

You're assuming that investors will look at only the risk/return in evaluating who to extend loans to. The credit market doesn't work like that. If you have a lower middle class kid whose parents have missed a few payments on their credit card, he's not getting a good enough credit rating to get loans for the same exact law school that someone from an upper middle class family whose parents have sterling credit will get.

I started to type this same thought, but you said it better.

It's no different than a bank loan to start a business: if you don't have collateral, no bank gives a fuck how good your business plan is, or how much money you could make.

[thelawyler]

New market for Education Venture Capital?

[MatMat]

You're assuming that investors will look at only the risk/return in evaluating who to extend loans to. The credit market doesn't work like that. If you have a lower middle class kid whose parents have missed a few payments on their credit card, he's not getting a good enough credit rating to get loans for the same exact law school that someone from an upper middle class family whose parents have sterling credit will get.

I started to type this same thought, but you said it better.

It's no different than a bank loan to start a business: if you don't have collateral, no bank gives a fuck how good your business plan is, or how much money you could make.

Well, actually, missing a few payments on a credit card and/or not having collateral would indicate risk and be a perfectly appropriate component of a risk/return calculus. But nonetheless, your general point is well taken.

I'm just not sure it's a bad thing. Meaning -- starting a business, much like going to law school, is a risky proposition (which is also why the government shouldn't be in the business of giving loans to private sector businesses -- see, inter alia, Solyndra). Allowing the market to reflect that reality would help potential students make rational decisions about their own risk/cost equation. A bunch of people who shouldn't go to law school, wouldn't be able to go to law school (much as in how many people who shouldn't be able to buy houses, cannot buy houses). Is there an empirical good in having more lawyers? Does the federal government have an interest in ensuring equitable access to professional school to all members of society?

The world's not perfect -- I guess I'd prefer less lawyers from lower-middle class backgrounds than a ton of law school grads who had no business going to law school in the first place. At least when the government tried to encourage home ownership there was an underlying asset of some value (like, you can live in it). A JD without a job is worthless. Either way, there will be suffering and "unfair" outcomes. I'm not sold that one is better than the other.

[timbs4339]

You're assuming that investors will look at only the risk/return in evaluating who to extend loans to. The credit market doesn't work like that. If you have a lower middle class kid whose parents have missed a few payments on their credit card, he's not getting a good enough credit rating to get loans for the same exact law school that someone from an upper middle class family whose parents have sterling credit will get.

I started to type this same thought, but you said it better.

It's no different than a bank loan to start a business: if you don't have collateral, no bank gives a fuck how good your business plan is, or how much money you could make.

Well, actually, missing a few payments on a credit card and/or not having collateral would indicate risk and be a perfectly appropriate component of a risk/return calculus. But nonetheless, your general point is well taken.

I'm just not sure it's a bad thing. Meaning -- starting a business, much like going to law school, is a risky proposition (which is also why the government shouldn't be in the business of giving loans to private sector businesses -- see, inter alia, Solyndra). Allowing the market to reflect that reality would help potential students make rational decisions about their own risk/cost equation. A bunch of people who shouldn't go to law school, wouldn't be able to go to law school (much as in how many people who shouldn't be able to buy houses, cannot buy houses). Is there an empirical good in having more lawyers? Does the federal government have an interest in ensuring equitable access to professional school to all members of society?

The world's not perfect -- I guess I'd prefer less lawyers from lower-middle class backgrounds than a ton of law school grads who had no business going to law school in the first place. At least when the government tried to encourage home ownership there was an underlying asset of some value (like, you can live in it). A JD without a job is worthless. Either way, there will be suffering and "unfair" outcomes. I'm not sold that one is better than the other.

1) I think you assume people in general, and law students, are capable of acting rationally. They're not. This is why transparency, while a good rallying point since it starts at some of the worst conduct of law schools, is never going to solve the oversupply problem by itself. Meanwhile, the profession is taking a reputation pounding that may have serious consequences beyond law school admissions and into the future.

2) The government has a much bigger interest in who is getting a higher education and in what than whether people buy or rent. It has an interest in social mobility and making sure people who can be good lawyers are getting the opportunity, since lawyers serve vital social and political functions. I'd rather see less lawyers than more, but that can be accomplished in other ways than abandoning the higher ed market to the God of the Invisible Hand. I'd like to see something more like the AMA, which tightly controls entry into the profession.

[CanadianWolf]

Once student loans are dischargeable again in bankruptcy, the government should &, most likely would, limit their participation in the student loan market to the neediest students, or as Prof Tamahana suggested in the NYT article. Private lenders would then take over the remaining portion of the market. Lending standards would be stricter, leading to less "easy money" to fuel law school tuition increases.

Simply getting the government out of the student loan market wouldn't solve the problem of increasing tuition & expanding number of law schools. All student loans need to be dischargeable in bankruptcy or else private lenders have little incentive to tighten lending standards. Plus, government loans &/or grants are needed to help the neediest students.

Dischargeabilty in bankruptcy is the key to putting the brakes on soaring tuition & increasing number of law schools.

[CanadianWolf]

The Ivy League system of financial aid to undergraduate students is unlikely to work since few law schools have the massive endowments enjoyed by almost all Ivy League schools.

[Tiago Splitter]

Once student loans are dischargeable again in bankruptcy, the government should &, most likely would, limit their participation in the student loan market to the neediest students, or as Prof Tamahana suggested in the NYT article. Private lenders would then take over the remaining portion of the market. Lending standards would be stricter, leading to less "easy money" to fuel law school tuition increases.

Simply getting the government out of the student loan market wouldn't solve the problem of increasing tuition & expanding number of law schools. All student loans need to be dischargeable in bankruptcy or else private lenders have little incentive to tighten lending standards. Plus, government loans &/or grants are needed to help the neediest students.

Dischargeabilty in bankruptcy is the key to putting the brakes on soaring tuition & increasing number of law schools.

Why hope for that outcome when you can just get right to it? Have the government restrict it's participation in the student loan market. Don't do something else which does nothing to fix the current issue and then hope that 5-10 years down the line the consequences lead the Feds to make changes.

Also, getting the government out of the student loan market would of course mean student loans could once again be discharged in bankruptcy, since it took an act of Congress to take away dischargeability in the first place.

[CanadianWolf]

Simply restricting government involvement in the student loan market is only a partial solution since private lenders would fill the void due to very minimal credit risk if student loans remain undischargeable. Lending standards need to be tightened substantially in order to stem the flow of easy money that is currently fueling tuition increases & law school expansion. Lending standards will only be tightened sufficiently when the lenders risk loss of their investment through bankruptcy.

[Tiago Splitter]

Simply restricting government involvement in the student loan market is only a partial solution since private lenders would fill the void due to very minimal credit risk if student loans remain undischargeable. Lending standards need to be tightened substantially in order to stem the flow of easy money that is currently fueling tuition increases & law school expansion. Lending standards will only be tightened sufficiently when the lenders risk loss of their investment through bankruptcy.

Right. As I said, student loans need to be treated like any other loan for things to return to normal. But just letting them get discharged in bankruptcy simply shifts the risk fully back to the taxpayer. The Feds might get sick of this, they might not. But it would take a while before they legitimately backed out of the student loan business to something like you're suggesting. The higher education lobby is far too entrenched and powerful.

[CanadianWolf]

I think that you underestimate the effect of allowing student loans to be, once again, dischargeable in bankruptcy. The US Government will react (Tamanaha's proposals outlined in the NYT editorial, for example, offer a couse of action) . Private lenders will fill any void & tighten lending standards.

[Renzo]

I think that you underestimate the effect of allowing student loans to be, once again, dischargeable in bankruptcy. The US Government will react (Tamanaha's proposals outlined in the NYT editorial, for example, offer a couse of action) . Private lenders will fill any void & tighten lending standards.

Actually, private banks will largely cease to make unsecured student loans. After all, anyone in their right mind would declare bankruptcy the minute the graduate, before they have any assets or real need for credit, just like in the old days before they made student debt non-dischargeable.

[CanadianWolf]

Disagree. Private lenders can use credit ratings as they do for other unsecured loans. Government can guarantee a limited amount. Things will change or, at least, revert back to pre-2006 standards & practices. Bankruptcies were not widespread or as common as your post suggests. Additionally, a bankruptcy can severely limit one's employment options for seven to ten years as well as affect one's chances for obtaining security clearances for certain jobs.

The educational system survived pre-2006 when student loans were dischargeable in bankruptcy so why would a reversion to pre-2006 practices be substantially different now ?

P.S. I am not advocating for complete government non-involvement in the student loan market, just more limited involvement. Again, an example is offered by Professor Tamanaha's NYT's editorial.

Also, the goal is to reduce the cost of higher education which would make financial distress of graduates less severe & ,therefore, less likely to result in bankruptcy.

[manofjustice]

Finally, someone (besides Krugman) who things we need more spending and less austerity.

How can we have less austerity when there hasn't been any?

Nice.

[Renzo]

The educational system survived pre-2006 when student loans were dischargeable in bankruptcy so why would a reversion to pre-2006 practices be substantially different now ?

Pre 2006, only private student loans were dischargeable in bankruptcy. The practice then, as now, was for students to rely almost exclusively on government loans. So reverting to pre-2006 practices would have a negligible effect. I assumed that you meant making all student loans dischargeable. All student loans haven't been dischargeable since the 1970's.

[CanadianWolf]

No, I meant that all student loans could be discharged in bankruptcy. Certain debts could be reaffirmed, however, such as student loans still in their first 5 years of repayment.

[CanadianWolf]

The goal is to reduce the cost of higher education via restricting access to easy money.

Bankruptcy eligibility for all student loans, government as well as private, is the starting point. To encourage government loans to the neediest students, government loans could be protected by ineligibility for discharge in bankruptcy during the first 5 or 10 years of repayment. Private lenders could, and do currently, require co-signers.

Additionally, government funding & government guarantees need to be limited, possibly as outlined in Professor Tamanaha's NYT editorial.

Filing personal bankruptcy entails serious consequences with regard to obtaining jobs, mortgages & other loans as well as security clearances.

[flem]

The goal is to reduce the cost of higher education via restricting access to easy money.

Bankruptcy eligibility for all student loans, government as well as private, is the starting point. To encourage government loans to the neediest students, government loans could be protected by ineligibility for discharge in bankruptcy during the first 5 or 10 years of repayment. Private lenders could, and do currently, require co-signers.

Filing personal bankruptcy entails serious consequences with regard to obtaining jobs, mortgages & other loans as well as security clearances.

Bro, just cut that shit off at the source instead of trying this round-about method to wake the government up into change.

[CanadianWolf]

I understand the appeal of forbidding all government involvement in the student loan business. It might cause a collapse of the higher education industry in its current form. Plus, the neediest students would suffer the most if government involvement in higher education loans were eliminated. Government involvement in the form of GI benefits, loans & guarantees make up too much of the current system to completely take them out of the game.

[CanadianWolf]

Universities' ability to use law schools as cash cows needs to be curtailed. Easy loan money is fueling the exhorbitant tuitions that produce significant profits which are often siphoned off to fund other areas of the universities. Unlike revenue generating sports teams, individual students are the source of law school revenues. Maybe law school "profits" above a certain margin should be returned to those paying the tuition & fees. Bankruptcy eligibility is just a starting point to stopping the seemingly limitless rise of tuition & number of law school seats. Government regulation as suggested by Tamanaha is also a move in the right direction akin to gas mileage requirements for new cars. Something needs to be done because too many law students are taking on too much non-dischargeable debt---much of which may never be repaid. Unlike a bankruptcy discharge which typically affects one for 7 to 10 years, the current system makes student loan debt permanent unless paid in full.

As a sidenote: The only worse financial system are the foreclosure laws in Spain where one loses the house but keeps the debt.

[sunynp]

Universities' ability to use law schools as cash cows needs to be curtailed. Easy loan money is fueling the exhorbitant tuitions that produce significant profits which are often siphoned off to fund other areas of the universities. Unlike revenue generating sports teams, individual students are the source of law school revenues. Maybe law school "profits" above a certain margin should be returned to those paying the tuition & fees. Bankruptcy eligibility is just a starting point to stopping the seemingly limitless rise of tuition & number of law school seats. Government regulation as suggested by Tamanaha is also a move in the right direction akin to gas mileage requirements for new cars. Something needs to be done.

So true. Law school tuition should support the law school and should be much lower than it is now. Also schools like Cooley need to be stopped.

[DaftAndDirect]

I think that you underestimate the effect of allowing student loans to be, once again, dischargeable in bankruptcy. The US Government will react (Tamanaha's proposals outlined in the NYT editorial, for example, offer a couse of action) . Private lenders will fill any void & tighten lending standards.

The government will react by tightening lending standards. The thing is, the government doesn't need to first make student loan debt dischargeable in bankruptcy in order to tighten lending standards. It can just...tighten lending standards.

[flem]

The government will react by tightening lending standards. The thing is, the government doesn't need to first make student loan debt dischargeable in bankruptcy in order to tighten lending standards. It can just...tighten lending standards.

And what incentive would they have to do that when payments are guaranteed? It's a cash cow for them.

[CanadianWolf]

Discharge in bankruptcy is needed, in my opinion. There needs to be a method for one to get a fresh start financially. Even those with stellar credit can experience hardship that affects more than just the individual borrower.

[DaftAndDirect]

The government will react by tightening lending standards. The thing is, the government doesn't need to first make student loan debt dischargeable in bankruptcy in order to tighten lending standards. It can just...tighten lending standards.

And what incentive would they have to do that when payments are guaranteed? It's a cash cow for them.

You're right, it is a cash cow for them. The same was true of mortgages in the years before the 2008 financial crisis. Back then, government guaranteed mortgages caused prices in the housing market rise above their true market value. The market eventually corrected itself and sent home values crashing within the span of a few months.

Government guaranteed student loans are threatening to cause similar economic woes. Instead of underwater mortgages, young people will be the owners of underwater degrees. The government's incentive should be to avoid this.

[flem]

You're right, it is a cash cow for them. The same was true of mortgages in the years before the 2008 financial crisis. Back then, government guaranteed mortgages caused prices in the housing market rise above their true market value. The market eventually corrected itself and sent home values crashing within the span of a few months.

Government guaranteed student loans are threatening to cause similar economic woes. Instead of underwater mortgages, young people will be the owners of underwater degrees. The government's incentive should be to avoid this.

Except - get this dude - you can walk away from a house and declare bankruptcy.