Tell the ABA how to fix our Profession Forum

[beepboopbeep]

The real problem is that the risk has no relationship to the price. (interest rates) I read that the Federal Government made something like $50 billion dollars last year on student loans. There's money to be made here. Why the fuck does a loan for a degree in Chemical Engineering from MIT have the same interest rate as a loan for Cooley? That's some dumb shit.

1) Student loans should be dischargeable in bankruptcy.

2) Interest rates should be based on default risk.

3) Not all degrees should qualify for student loans.

I would love it if loan companies had good enough information to build reliable actuarial tables for this stuff, but they don't. I agree in principle, but good luck.

The government also has a mandate to encourage social mobility, and pricing student loans by risk profile ends college for low-income families. This is one of those situations where the current situation is untenable, but the most theoretically logical solution is worse in practice.

[MKC]

The real problem is that the risk has no relationship to the price. (interest rates) I read that the Federal Government made something like $50 billion dollars last year on student loans. There's money to be made here. Why the fuck does a loan for a degree in Chemical Engineering from MIT have the same interest rate as a loan for Cooley? That's some dumb shit.

1) Student loans should be dischargeable in bankruptcy.

2) Interest rates should be based on default risk.

3) Not all degrees should qualify for student loans.

I would love it if loan companies had good enough information to build reliable actuarial tables for this stuff, but they don't. I agree in principle, but good luck.

The government also has a mandate to encourage social mobility, and pricing student loans by risk profile ends college for low-income families. This is one of those situations where the current situation is untenable, but the most theoretically logical solution is worse in practice.

I'm talking about risk-profile pricing based on the risk of the degree/school combo, not the individual. It shouldn't be that difficult to create actuarial tables for this purpose.

[tractal]

1) Student loans should be dischargeable in bankruptcy.

2) Interest rates should be based on default risk.

3) Not all degrees should qualify for student loans.

This. Student loans should be set by market and made bankruptcy dischargable. After that things would fix themselves. Very weak schools would either cut tuition or die.

"The government also has a mandate to encourage social mobility, and pricing student loans by risk profile ends college for low-income families. This is one of those situations where the current situation is untenable, but the most theoretically logical solution is worse in practice."

Nice point, but the status quo isn't actually helping these students. The kids taking on objectively unreasonable debt are getting screwed anyway, and usually end up worse off than if debt just wasn't an option.

There's no way to get around the fact that a rich kid is going to have more options. If the actuarials say this kid isn't going to be able to pay it off letting him take on non-dischargable debt isn't a kindness.

[buddyt]

The problem can be fixed at a single point: remove schools' access to federal dollars.

No lender on planet earth is going to give someone $200k to go to a TTTT degree mill. The market already has a system in place for assessing risk. It's no mystery that new car loans have lower interest rates than used ones. In fact, if the car is old enough, you're going to have a hard time getting financing from anywhere at all. Why? Because when the car stops running, you stop paying. No lender on planet earth is going to loan even market value against a 1999 Chevrolet Cavalier. But they'll beat down your door to get your business with a 2013 Honda Civic.

Now you don't need to impose any artificial restrictions on LSAT or bar passage rates or anything else. Certainly the DROVES that would otherwise head to Cooley and other abortions like it would have a tough time financing their idiocy. And the taxpayers don't get screwed when everyone defaults or has their loans forgiven or does IBR or PAYE or whatever.

Already anticipating the angry reactions to this. Can't say I haven't heard them before. I'm amazed that so many TLSers can act so confused at the cognitive dissonance they feel when they are directly impacted by policies like guaranteed federal student loans.

[ph5354a]

I'd like to consign buddy's post. Hopefully it would encourage people to pay more attention to their financial health (credit report) before taking out loans as well.

[MKC]

Alternative solution:
Keep the federal funding for loans, but have the school issue the loans. Combine this with dischargeable debt. If you do that, the school is on the hook for their useless degrees, and if they can't cover the payments to the fed, they go under. What say you guys?

[North]

Copy and paste these posts into a word document and send them to the Task Force. Only two TLSers have sent something in so far. These are solid proposals that are underrepresented so far in the comments from everybody else. They need to hear this stuff from you guys. You know, the next generation of lawyers and all.

[beepboopbeep]

Nice point, but the status quo isn't actually helping these students. The kids taking on objectively unreasonable debt are getting screwed anyway, and usually end up worse off than if debt just wasn't an option.

There's no way to get around the fact that a rich kid is going to have more options. If the actuarials say this kid isn't going to be able to pay it off letting him take on non-dischargable debt isn't a kindness.

I get what you're saying, but this still screws over students from low-income backgrounds going to schools with good placement. My family has literally nothing that could be used as collateral for my impending 120k-ish worth of loans for Columbia. Even though I have good credit now, if a lender would fund me under a risk-based system, I don't want to think about what the interest rates would be.

Alternative solution:
Keep the federal funding for loans, but have the school issue the loans. Combine this with dischargeable debt. If you do that, the school is on the hook for their useless degrees, and if they can't cover the payments to the fed, they go under. What say you guys?

I'm much more inclined to agree with this proposal; I just doubt any school would go for it

[buddyt]

My family has literally nothing that could be used as collateral for my impending 120k-ish worth of loans for Columbia. Even though I have good credit now, if a lender would fund me under a risk-based system, I don't want to think about what the interest rates would be.

You're getting a JD from Columbia. The odds of repayment on your loan are good, therefore your interest rate would be low.

[beepboopbeep]

My family has literally nothing that could be used as collateral for my impending 120k-ish worth of loans for Columbia. Even though I have good credit now, if a lender would fund me under a risk-based system, I don't want to think about what the interest rates would be.

You're getting a JD from Columbia. The odds of repayment on your loan are good, therefore your interest rate would be low.

Sorry to harp on this point at risk of derailing the thread, but I see no way to avoid lenders factoring in credit/collateral in a major way if student loans become dischargeable. You'll see a lot more defections from law if educational debt can be discharged through bankruptcy, and at that point, the only mitigation is what the lender can get through lien.

I just can't really stomach people casually throwing out suggestions of making student loan debt dischargeable through bankruptcy, as much as I agree that it's a problem; since educational lending has no built-in collateral, it's basically the only way to keep rates manageable.

[tractal]

My family has literally nothing that could be used as collateral for my impending 120k-ish worth of loans for Columbia. Even though I have good credit now, if a lender would fund me under a risk-based system, I don't want to think about what the interest rates would be.

You're getting a JD from Columbia. The odds of repayment on your loan are good, therefore your interest rate would be low.

Sorry to harp on this point at risk of derailing the thread, but I see no way to avoid lenders factoring in credit/collateral in a major way if student loans become dischargeable. You'll see a lot more defections from law if educational debt can be discharged through bankruptcy, and at that point, the only mitigation is what the lender can get through lien.

I just can't really stomach people casually throwing out suggestions of making student loan debt dischargeable through bankruptcy, as much as I agree that it's a problem; since educational lending has no built-in collateral, it's basically the only way to keep rates manageable.

We're running in circles a little bit here, because while you're right to point out that financing the 250k without loans would be brutal, endless federal finance is a big part of the reason tuition costs got that high in the first place.

Still, there needs to be some mechanism in place to encourage upward mobility. The trick is we want to do it without allowing people to make objectively poor financial decisions. After some thought I think probably the best way to do this would be to implement some kind of affirmative action policy for the less affluent. An AA like bump would get the students in need better options (less risky schools) as well as better scholarships, and it would do it without allowing any individual student to make terrible decisions.

NOT trying to turn the discussion to AA, that's just the only thing I could think of that would address beepboopbeep's concerns while solving existing problems.

[eric922]

My family has literally nothing that could be used as collateral for my impending 120k-ish worth of loans for Columbia. Even though I have good credit now, if a lender would fund me under a risk-based system, I don't want to think about what the interest rates would be.

You're getting a JD from Columbia. The odds of repayment on your loan are good, therefore your interest rate would be low.

Sorry to harp on this point at risk of derailing the thread, but I see no way to avoid lenders factoring in credit/collateral in a major way if student loans become dischargeable. You'll see a lot more defections from law if educational debt can be discharged through bankruptcy, and at that point, the only mitigation is what the lender can get through lien.

I just can't really stomach people casually throwing out suggestions of making student loan debt dischargeable through bankruptcy, as much as I agree that it's a problem; since educational lending has no built-in collateral, it's basically the only way to keep rates manageable.

We're running in circles a little bit here, because while you're right to point out that financing the 250k without loans would be brutal, endless federal finance is a big part of the reason tuition costs got that high in the first place.

Still, there needs to be some mechanism in place to encourage upward mobility. The trick is we want to do it without allowing people to make objectively poor financial decisions. After some thought I think probably the best way to do this would be to implement some kind of affirmative action policy for the less affluent. An AA like bump would get the students in need better options (less risky schools) as well as better scholarships, and it would do it without allowing any individual student to make terrible decisions.

NOT trying to turn the discussion to AA, that's just the only thing I could think of that would address beepboopbeep's concerns while solving existing problems.

The big problem with this would be determining who qualifies for this bump. I'm sure there are a lot of people, myself included, whose family makes pretty good money, but couldn't come to paying sticker at most law schools. The only ones who can are the independently wealthy and they don't need any help.

[beepboopbeep]

We're running in circles a little bit here, because while you're right to point out that financing the 250k without loans would be brutal, endless federal finance is a big part of the reason tuition costs got that high in the first place.

Still, there needs to be some mechanism in place to encourage upward mobility. The trick is we want to do it without allowing people to make objectively poor financial decisions. After some thought I think probably the best way to do this would be to implement some kind of affirmative action policy for the less affluent. An AA like bump would get the students in need better options (less risky schools) as well as better scholarships, and it would do it without allowing any individual student to make terrible decisions.

NOT trying to turn the discussion to AA, that's just the only thing I could think of that would address beepboopbeep's concerns while solving existing problems.

Right, agreed again. This is one of those issues where if someone else were making my posts, I'd be making y'all's.

I realize I'm becoming the king of taking-this-thread-off-topic, but the interesting thing about proposing an "affirmative action policy for the less affluent" is that part of the reason - aside from federal loan eligibility - that tuition rates are so high is that high tuition coupled with need-based aid lets schools engage in price discrimination, effectively subsidizing low-income students' enrollment through wealthier students' tuition. No real point to this remark other than to note how fucked the whole thing is.

[eric922]

We're running in circles a little bit here, because while you're right to point out that financing the 250k without loans would be brutal, endless federal finance is a big part of the reason tuition costs got that high in the first place.

Still, there needs to be some mechanism in place to encourage upward mobility. The trick is we want to do it without allowing people to make objectively poor financial decisions. After some thought I think probably the best way to do this would be to implement some kind of affirmative action policy for the less affluent. An AA like bump would get the students in need better options (less risky schools) as well as better scholarships, and it would do it without allowing any individual student to make terrible decisions.

NOT trying to turn the discussion to AA, that's just the only thing I could think of that would address beepboopbeep's concerns while solving existing problems.

Right, agreed again. This is one of those issues where if someone else were making my posts, I'd be making y'all's.

I realize I'm becoming the king of taking-this-thread-off-topic, but the interesting thing about proposing an "affirmative action policy for the less affluent" is that part of the reason - aside from federal loan eligibility - that tuition rates are so high is that high tuition coupled with need-based aid lets schools engage in price discrimination, effectively subsidizing low-income students' enrollment through wealthier students' tuition. No real point to this remark other than to note how fucked the whole thing is.

Actually, I think this is backwards. I read somewhere, I think on Campos's blog, most schools only give merit aid and it is usually more wealthy people who get the merit aid so the lower income students are actually helping pay for the scholarships of wealthier students.

[laotze]

The problem can be fixed at a single point: remove schools' access to federal dollars.

If you're referring to all school access to federal dollars and not just law school (I'm uncertain by your wording), this would be a disaster of catastrophic proportions, sparking an exponential explosion in our already untenable wealth inequity and social immobility. You cannot simply "cut" federal funding for higher education - thus barring a massive percentage of lower- and middle-class income candidates from any chance at a decently-paying job - and not expect riots and/or revolution.

I mean, I get that we're being hypothetical here, but isn't it better to keep our proposals at least remotely within the realm of feasibility?

Unless you were referring solely to law schools. In which case I think my counterpoint still somewhat applies.

[buddyt]

The problem can be fixed at a single point: remove schools' access to federal dollars.

If you're referring to all school access to federal dollars and not just law school (I'm uncertain by your wording), this would be a disaster of catastrophic proportions, sparking an exponential explosion in our already untenable wealth inequity and social immobility. You cannot simply "cut" federal funding for higher education - thus barring a massive percentage of lower- and middle-class income candidates from any chance at a decently-paying job - and not expect riots and/or revolution.

I mean, I get that we're being hypothetical here, but isn't it better to keep our proposals at least remotely within the realm of feasibility?

Unless you were referring solely to law schools. In which case I think my counterpoint still somewhat applies.

I was referring to all higher education, and especially law schools. I fail to see how removing federal dollars bars anyone from being able to get a decently-paying job. Lenders would salivate at the opportunity to loan to high school graduates wanting to pursue a bachelor's in computer science, undergrads wanting a JD from Columbia, or any other degree that is actually worth a crap.

[timbs4339]

How old were you all in 2007? You have amazing faith in the restraint of lenders and the rationality of students.

[beepboopbeep]

Actually, I think this is backwards. I read somewhere, I think on Campos's blog, most schools only give merit aid and it is usually more wealthy people who get the merit aid so the lower income students are actually helping pay for the scholarships of wealthier students.

Yea, I was talking elite stuff mostly, and it's much more true for undergrad than graduate-level. You're definitely right for the bigger picture in law school, though (though there are exceptions, something I'm lucky enough to be evidence of).

How old were you all in 2007? You have amazing faith in the restraint of lenders and the rationality of students.

Students do pursue their interests rationally, but when the system is as fucked-up as it is now, "rational behavior" can be quite screwy.

[MKC]

I think I've figured out a way to prevent abuse of dischargeable debt. You're allowed to get out of the loans, but only if you can't use your degree. For people with JDs, this would be pretty easy to enforce. Say you graduate from Cooley 200k in the hole. Two years later, you finally figure out that no one wants your Cooley JD. You declare bankruptcy and forfeit your ability to practice law. A JD could act as a sort of collateral.

[rwhyAn]

I think I've figured out a way to prevent abuse of dischargeable debt. You're allowed to get out of the loans, but only if you can't use your degree. For people with JDs, this would be pretty easy to enforce. Say you graduate from Cooley 200k in the hole. Two years later, you finally figure out that no one wants your Cooley JD. You declare bankruptcy and forfeit your ability to practice law. A JD could act as a sort of collateral.

That will be very susceptible to abuse. It will allow the slackers to get a pass on paying back all that money by claiming that they can't get a legal job. Also, what about the people that get jobs outside the legal field after graduation? I have no problem and actually support the idea of having the loans dischargeable in bankruptcy, but the terms of getting bankruptcy should be a lot tougher than that. The schools should also be on the hook somewhat for these loans, as it will give them an incentive to make sure that these grads are getting jobs or else the schools won't be getting paid; this will also help to curb the tuition increases and may actually bring tuition down.

[timbs4339]

Actually, I think this is backwards. I read somewhere, I think on Campos's blog, most schools only give merit aid and it is usually more wealthy people who get the merit aid so the lower income students are actually helping pay for the scholarships of wealthier students.

Yea, I was talking elite stuff mostly, and it's much more true for undergrad than graduate-level. You're definitely right for the bigger picture in law school, though (though there are exceptions, something I'm lucky enough to be evidence of).

How old were you all in 2007? You have amazing faith in the restraint of lenders and the rationality of students.

Students do pursue their interests rationally, but when the system is as fucked-up as it is now, "rational behavior" can be quite screwy.

Where is your evidence for that? People are not rational actors generally (see, most of the posts in the Choosing a Law School forum), I don't see why students are any different.

[MKC]

Most people are completely and infuriatingly irrational. That doesn't mean you can't nudge them in the right direction through market-pricing information. By that I mean that maybe people will have second thoughts when their student loan interest rate to attend Cooley is 112% because of the default rate, and Columbia is .05%. I WISH I had that kind of interest rate information to compare schools with.

[timbs4339]

Most people are completely and infuriatingly irrational. That doesn't mean you can't nudge them in the right direction through market-pricing information. By that I mean that maybe people will have second thoughts when their student loan interest rate to attend Cooley is 112% because of the default rate, and Columbia is .05%. I WISH I had that kind of interest rate information to compare schools with.

Some 22 year olds may not even know what a fucking interest rate is, won't care as long as the lender shoves the paper in front of them, or they will get their idiot boomer parents to co-sign using their houses and 401Ks as collateral because people suffer from http://en.wikipedia.org/wiki/Optimism_bias.

[MKC]

Most people are completely and infuriatingly irrational. That doesn't mean you can't nudge them in the right direction through market-pricing information. By that I mean that maybe people will have second thoughts when their student loan interest rate to attend Cooley is 112% because of the default rate, and Columbia is .05%. I WISH I had that kind of interest rate information to compare schools with.

Some 22 year olds may not even know what a fucking interest rate is, won't care as long as the lender shoves the paper in front of them, or they will get their idiot boomer parents to co-sign using their houses and 401Ks as collateral because people suffer from http://en.wikipedia.org/wiki/Optimism_bias.

I'm going to go ahead and say that's just economic Darwinism, and you can't save everyone.

[20141023]

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