Rescind The Student Lender’s Bankruptcy Protection Law

(Study Tips, Dealing With Stress, Maintaining a Social Life, Financial Aid, Internships, Bar Exam, Careers in Law . . . )
User avatar
Borhas
Posts: 4862
Joined: Sun Sep 27, 2009 6:09 pm

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby Borhas » Tue Aug 23, 2011 3:54 pm

I don't think your idea sucks

User avatar
PDaddy
Posts: 2073
Joined: Sat Jan 16, 2010 4:40 am

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby PDaddy » Tue Aug 23, 2011 10:06 pm

nymario wrote:
Renne Walker wrote:I certainly agree with your idea of re-defining "undue hardship."

As a lender, I would be unwilling to loan money to 45,000 law students knowing only 30,000 jobs existed. Thus, less loan money would be available. Fewer law students flooding the market is a win-win for both the student and the lender. However, without redefining “undue hardship,” every year there will be 15,000 students on the hook unable to repay their loan, with no escape from dunning lenders.

From my perspective, the real upside of creating a new “undue hardship” policy: If the lender only has a 50:50 shot of collecting their loan back from a third of the borrowers, the practice of flooding the market with law students should greatly decease.


This assumes that lenders will compensate for increased risk by somehow ascertaining which students present a higher risk and refusing to lend to them (or pricing them out individually with increased interest rates). This also allows for a certain level of moral hazard, because students with nothing to lose are now incentivized to take a gamble on BigLaw or bust, knowing that if they fail, they'll be able to walk away with lessened repercussions.

Lenders can "discriminate" based on your credit score -- a mechanism that as highly objective and has been used in the industry for ages. They aren't going to be able to determine whether you are a good risk. That means they'll be compensating by increasing interest rates for EVERYONE.

So while you *might* succeed in reducing overall enrollment (though this is a point I don't concede; I think you'll just end up with even less qualified lawyers as previously unadmitted applicants will step up to take the place of the price sensitive applicants who forego law school), this suggestion will only serve to make the situation even more dire for those who remain.

So the effects:
1. Higher interest rates for students leading to a lower quality of life for attorneys
2. Lower quality of attorneys as strong applicants are priced out and choose a next-best option career choice
3. No change for the banks since they'll reprice their products in light of the new rules


There is absolutely no support for much of this, even though it is a well-sounded "theory".

What bases do you have for making these extrapolations?

I think you overlook the posts above showing that we are aware of the potential incentive for defaults. However, I have stated that there are potential safeguards against the fashin of taking out excessive loans and filing bankruptcy, one of which you support already. Stringent credit requirements, loan limits that not only deter excessive borrowing but might lower tuition (or at least stem the tide of outrageous increases), and better financial education, might do the trick.

The bar associations could give more weight to credit considerations upon application for the bar - no admission until 50% of the loans are paid off, bankruptcy or not. The government could also stipulate that student loans are dischargable only under Chapter 13, as opposed to Chapter 7, forcing students to repay at least part of the loan funds.

There are too many safeguards available. The government should never have barred wholesale the discharge of student loans back when the laws were changed in the first place. The measure was just too drastic.

User avatar
PDaddy
Posts: 2073
Joined: Sat Jan 16, 2010 4:40 am

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby PDaddy » Tue Aug 23, 2011 10:11 pm

IAFG wrote:It's a neat thought experiment: if lenders didn't have the guarantee of being repaid and only gave loans to people who they thought would be able to repay, what would happen to tuition? To TTTs? To the over-supply of lawyers?


TITCR. Exactly!! Tuition would be reduced, or the tide of increase would be stemmed, and many students who deserved better would be saved the humilation of repaying loans based on fraudulent claims by the schools. I also suspect that many lower performing schools would close due to a dearth of students. The bailouts were so easy to approve3 for the Wall Street crooks, but when it's students who only seek an education and good jobs nobody wants to discuss bailouts. A revamping of the bankruptcy law to allow the discharge of student loans would be a step in the right direction. Just as long as we put the proper controls in place to prevent abuse.

User avatar
Renne Walker
Posts: 546
Joined: Sat Jan 29, 2011 2:12 am

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby Renne Walker » Wed Aug 24, 2011 12:13 am

For those in agreement that either the right to bankrupt, or modify “undo hardship,”should be implemented, the question becomes, how can this be accomplished. Given that 2012 is a big election year, the goal would be to make this an important campaign issue.

Regarding the loan, here is a strategy that is a reach, but nevertheless, here goes. We will take $150K as the sample student loan. There are four parties involved with this loan. The government, the private lender, the school and the student. Six months after graduation, if the grad cannot secure gainful employment necessary to begin the loan payments the student is granted an additional six months.

If after one year the grad cannot secure employment to begin repaying the debt, here is what happens. The student is granted a “Student Loan Default” on three quarters of the loan. Meaning that the student is still liable for 25% of the loan ($37,500 in this scenario). The school rebates $37,500 back to the lender(s). In essence, 50% of the $150K loan is repaid. No entity totally loses, but everyone feels the pain.

Lenders would be less willing to make toxic loans, the school would be held responsible, as would the student (for either a mediocre grade performance or choosing a high risk law school). I realize there are gaps in this formula, but any compromise that does not include high risk school, seems plain wrong.
Last edited by Renne Walker on Wed Aug 24, 2011 12:20 am, edited 1 time in total.

shoeshine
Posts: 1241
Joined: Wed May 04, 2011 10:58 pm

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby shoeshine » Wed Aug 24, 2011 12:19 am

Renne, you are missing a big reality here.

There are no private lenders anymore. All federally backed loans are now issued through the department of education. Lenders can still issue education loans that can not be discharged through bankruptcy but they are on their own for the default.

Renzo
Posts: 4265
Joined: Tue Dec 02, 2008 3:23 am

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby Renzo » Wed Aug 24, 2011 9:01 am

shoeshine wrote:Renne, you are missing a big reality here.

There are no private lenders anymore. All federally backed loans are now issued through the department of education. Lenders can still issue education loans that can not be discharged through bankruptcy but they are on their own for the default.


I'm not sure this is technically true; the DOE might securitize the loans (I really don't know). But, you are right that the government originates all student loans, so taxpayers are going to eat 100% of the losses, because no one is going to buy the loans from the government on the terms that the government loans the money.

User avatar
Kendi
Posts: 97
Joined: Sat Jun 25, 2011 4:00 pm

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby Kendi » Thu Aug 25, 2011 11:54 am

I read a suggestion that law school should be shortened to two years, thus reducing tuition by a third. Their suggestion of eliminating the third year was substantiated by several interesting points. If law school was reduced to two years, does anyone see any negatives? Perhaps 3L students might have an interesting take on this.

User avatar
swc65
Posts: 1003
Joined: Wed Jul 22, 2009 11:27 am

Re: Rescind The Student Lender’s Bankruptcy Protection Law

Postby swc65 » Thu Aug 25, 2011 12:03 pm

Renzo wrote:
shoeshine wrote:Renne, you are missing a big reality here.

There are no private lenders anymore. All federally backed loans are now issued through the department of education. Lenders can still issue education loans that can not be discharged through bankruptcy but they are on their own for the default.


I'm not sure this is technically true; the DOE might securitize the loans (I really don't know). But, you are right that the government originates all student loans, so taxpayers are going to eat 100% of the losses, because no one is going to buy the loans from the government on the terms that the government loans the money.



With the healthcare law, private lenders were taken out of the mix. The guberment originates all new loans as of 2010. When c/o '13 cam into school as 1Ls there was a minor delay due to this. This is why a change in the bankruptcy law would have little to no effect on the issuance of new loans. The qualifications for these loans are statutory an separate from the bankruptcy qualification. So there will be no market response to the increased risk of nonpayment because the "market" is a statutory minimum after which everyone qualifies for unlimited amounts of money to attend whatever shithole they please.




Return to “Forum for Law School Students”

Who is online

Users browsing this forum: FrogLaw, ididntwantsalmon, pandapops and 3 guests