Just as the sun rises in the East, certain immutable facts about our government are these; No one spends other peoples’ money as wisely or as carefully as they spend their own money, and abundance leads to profligacy, they can get by with less if pushed.
I have always subscribed to the Roman Empire model of good governance; a strong military to keep the Visigoths at the border, maintain the roads and aqueducts, and occasionally throw in a religious festival where free bread is passed out at the Coliseum. The rest is left up to the local communities who understand their own problems better than a central authority. A minimalist government requires only minimalist taxation. Along with smaller government, an important factor is a strong work ethic embraced by the masses (You don’t work, you don’t eat), the freedom to plot your own course in life, and the understanding that with great freedom comes great responsibility (balancing risk/reward, and accepting either) and you have what I consider a pretty tolerable society.
But sadly, I think I’m in the minority. People want more and greater services, more social programs, more help, and essentially more free lunches. And for many such as the almost 50% of those that don’t pay the taxes that fund these programs, there is a disconnect as to where this money comes from;
In a well-functioning democracy, the people articulate their desires and grievances, and their elected officials shape these sentiments into sustainable policies. With this division of labor between citizens and representatives, democracy can be both responsive and responsible.
Like the citizens of many other democracies, Americans have recently signaled that they are tired of austerity and eager for more government action. Last April a Pew Research poll showed that for the first time in eight years, Americans favored a larger government offering more services over a smaller government providing fewer services. In the NBC/Wall Street Journal poll last month, 58% of Americans—the highest share ever recorded—agreed that “government should do more to solve problems and help meet the needs of people,” compared to only 38% who thought that “government is doing too many things better left to businesses and individuals.” Americans favoring a more active government included majorities of all age groups, races, ethnicities and education levels. (Those favoring less-active government included 63% of Republicans, 65% of Trump voters, and 51% of white men without a college education.)
Although few will admit it, many Trump supporters found his big government dream appealing. Trump campaigned on building up the military, funding massive infrastructure projects, and leaving the biggest tax revenue crushers as is with no change; Medicare, Medicaid, Social Security. And he talked about a tax cut, always popular with conservatives, although these same conservatives abhor the national debt, square that circle.
Another aspect of this “gimme stuff” mentality is the national push to forgive student debt. Despite the US government being the largest holder of student debt and that this student debt dwarfs all credit card debt held by US consumers, there is a move afoot to negate these contracts, binding or otherwise.
While folks want more spending on social services, scientific research, space exploration, environmental studies, and job training, they care less about accumulating deficits. Spend now/pay later (with somebody else’s money)- the new mantra of the day.
We are currently reaching debt limits not seen since WW2. Despite those big spenders who say debt is a good thing, we are beyond the conditions which prompted Hamilton to embrace debt , “Because if the government saw that there was a debt and it needed repaid, it would motivate the government to work hard, and collect taxes from the people to pay it off. It would also boost other country’s trusting of the new nation”. Those debt lovers also point to Great Britain, a nation in debt for the last three hundred years, but this is hardly apples to apples.
They also forget the consequences of carrying such debt;
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Lower national savings and income
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Higher interest payments, leading to large tax hikes and spending cuts
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Decreased ability to respond to problems
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Greater risk of a fiscal crisis
You can bet that when Uncle Sam is looking under seat cushions for nickels, and shaking the taxpayer down for spare change, it’s your freedoms which will certainly suffer; the freedom to enjoy the fruits of your own labor.
31 comments
You should be able to declare bankruptcy on at least some student loan debt. I’m all for limiting student loans, or offering them to trade schools, or the government intervening in runaway school tuition if they’re the biggest customer of it . However, please name one other walk of life in this world where you can’t declare bankruptcy on ANY of a debt?
Not even the private loans. You could do that up to 2005 but congress passed a bill (where it wasn’t even warranted or asked for) to declare private student loans a haven from bankruptcy protection. Not just the loans from 2005 forward but the ones previous to that date too. Yep, they retroactively covered a loan from bankruptcy.
Not that these loans can’t be written down by the holder of the debt or that these loans aren’t insured against default, they can’t ever be erased in bankruptcy either:
Something you and I agree on. I think this has played a part in the stratospheric rise in higher education costs.
It’s a bad business decision papered over with even worse legislative bullying. We came out of the housing crisis faster than this and the education debacle is still ongoing. The difference here is people could default out of the home loans and they could repair their credit, which many did. These zombie student loans are still kicking around for the benefit of no one but shady debt collection agencies. Sallie Mae and any private lender wrote the debt off the books long ago, collected insurance and/or got the tax breaks.
It’s time to turn the page and move forward.
OK, let’s talk about bankruptcy protections for student loans, but first, let’s stipulate that a student loan is a binding contract. Both parties agree, with no gun to their heads, that the lender will lend money to the student to pay for an education and in return the student will pay all that money back with interest once she has secured a job and is able to make payments.
First, the Dept. of Education agrees with you that some exceptions need to be made in this area;
http://wtvr.com/2018/02/22/betsy-devos-may-make-it-easier-for-student-loan-borrowers-in-bankruptcy/
But as always, the devil is in the details. Before I tell you what I think is reasonable, let’s here your thoughts. What hoops must someone jump through in order for their student debts to be expunged?
Well, of course a student loan is a binding agreement to be lent money and in turn repay the loan with interest. That’s not different than any other loan, in almost any walk of life except for two details: 1.) the repayment term of the loan begins the day you graduate (not when you get a job) and 2.) unlike any other loan in the history of this country there is no way to declare bankruptcy on the note.
Just so we’re clear here. In addition there are TWO types of student loans, which have varying degrees of leniency with regards to repayment. 1.) is the federally backed student loan, which is originated by sallie Mae or a small list of federally approved lenders. The government owns this note, and can provide Income based repayment and/or deferment under unsuitable economic decisions. 2.) is a privately held note, from a private lender. Sallie Mae might service this loan but it’s a loan under a completely unique set of rules, and at the whim of the lender.
You can’t write off either loan in bankruptcy, but the federally back loans offer some more leniency on repayment, mostly if you can show how much money you make to determine how much you can afford to pay each month. On the private loans there’s no leniency. You can only defer or default, no matter your economic condition. The only caveat of the private loans is they are subject to a statute of limitations on default guided by your state of origination and the state you reside in. They can be removed from a credit score, but they still exist. They can be reaffirmed like any other debt, but you can’t declare bankruptcy on them.
My opinion is to keep the federally based loan structure the way it is; pay the money back, defer them, or calculate the payment based on income. Get what you can out of them in return.
The private loans should be protected no more than any other private loan in the market, should have no shelter from bankruptcy protection, and should come off the books completely after the statute of limitations is reached.
But it’s not really a “whim” if both parties agree to the terms prior to signing, correct?
My link said that if you can prove “undue hardship”, then yes, it can be written off in bankruptcy, are you saying this is wrong? It also said that the DOE is willing to broaden the definition of undue hardship, thus making it easier for bankruptcy relief.
Do you know what the statute of limitations are, how many years?
My link I thought gave good guidelines;
If these conditions are met then yes, they should be afforded bankruptcy protections.
How do you feel about the Public Service Loan Forgiveness Program, if you have an opinion?
it really seems that this push for more student loans was more to fill the coffers of Collages, universities and lending companies, rather than to help young people get educated..
I think you should look up a little case law on how this has been treated in bankruptcy court. “Undue hardship” has mostly been met in cases of permanent illness, or physically crippling physical disabilities. In almost any other definition of this legal term it’s never been met. Hop to it!
As for the “whim” comment do you consider loans under threat of extortion, physical bodily harm or trickery to also be legally binding? Even if they are do you think that the lending party should hold all the chips in the bet? A loan has always been a Risk to the lender, until these loans were conceived of.
Am I to believe that the person lent the money should be offered no protection under the government but the lending entity should be shielded from risk with no exception? Where’s the “small government” in that? What you’re implying here is the banking industry gets the full throated support of a big government and the person taking the money is just shit out of luck.
It should at least be even handed in approach. If you’re stupid enough to make a risky loan you should be made to accept the consequences. In no other money lending adventure in this nation, not even venture capitalism is so much protection afforded to a party by the government you say you want to clip the nuts off of.
So, do you want to clip the government’s nuts or not?
The guy making the statement of requirements that I linked to is a bankruptcy judge who hears these cases, are you saying he doesn’t know what he is taking about?
While hoping, I found this;
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/bankruptcy
It says exactly what my other link said, “In some cases, you can have your federal student loan discharged after declaring bankruptcy”, and then it lists the requirements.
I consider terms that both parties agreed to before the consummation of the contract as legally binding. Now if the lender later operates outside the terms of the agreement, that to me (a non lawyer) sounds like a breach of that contract.
Not even close to what I said. You have said more than once that the borrower can’t have the student loan discharged under bankruptcy protection. All my links indicate otherwise.
If it’s all the same to you I think I would prefer to stay away from everone’s nuts 🙂
Rich, I don’t care what student loan dot gov says about discharging student loan debt in bankruptcy. They can say whatever the fuck they want to because what they say doesn’t matter. What matters is how the court Find “Undue hardship” to be met successfully enough to be discharged. It’s a legal term frought with peril because “undue” means almost no decision made in your life meets this definition. What the courts have Held In these cases, for the most part, is “undue” has been through no fault of your own, which has mostly been cases of irreparable physical damage that’s prevented you from working. In all other cases, the lender’s attorneys say something to the effect of “hey, we’re not evil, let’s restructure the debt!” So, what typically happens is the court can then ask the petitioner what they can afford to pay a month and the dance starts all over again. In addition, if you walk into bankruptcy court without representation (like a person who is belly up can afford an attorney) what the petitioner runs the risk of doing is getting a court ordered payment judgement AND reaffirms the debt, resetting the clock on the statute of limitations.
Didn’t you see the last paragraph at the bottom? It tells you what to expect if you lose your petition to discharge the debt in bankruptcy proceedings. Voila! They have restructured debt repayment plans (like why couldn’t you just negotiate that before going to court? Hmmmm….).
As far as “both parties agreed to the terms, so it’s binding.” Well, that’s why I asked you under what the threshold do you consider things legally binding in a contract. You’re trying to corner this debate into “you know jimmy Conway, you took his money now pay the man back!” Like the scene out of goodfellas. Mauri was under almost the same terms of the loan he received too. The only way out of the debt was death or repayment there too. Should jimmy Conway have been able to walk into court with a paper mauri signed in blood that existed way outside of the realm of the law and had that debt reaffirmed and upheld in court?
I’d hope you say no to that, and that is EXACTLY what these student loan debts are. The government gave more loan money away to people who couldn’t afford houses and STILL let them go bust when it didn’t work out. Why not student loans?
I did not see Goodfellas so I’m at a disadvantage. Look, it appears we are talking at cross purposes so I will leave you with this. I provided a link where an actual bankruptcy judge says that yes, student loans can under certain circumstances, be discharged. You don’t believe him. I provided a link which says that the DOE is sympathetic to the plight of the student who is having trouble paying back her loans and wants to broaden the definition of “undue hardship”, to offer her some relief. But you say it doesn’t matter because in the real world the hurdle of “undue hardship” is to high to meet. Folks that do this for a living tell me one thing but you tell me another, OK, I can’t prove to you that the actual bankruptcy judge or the author of the DOE link is telling the truth, so here we are.
And as for the conflation of housing loans being the same as student loans, it’s not quite the same thing. With a house the lender actually gets the house back, it can recoup some of the value since it is a tangible asset. With a student loan, the lender is offered no collateral. If the conditions are met and the student gets this loan discharged in bankruptcy court, the lender gets nothing. Yes, the lender knows what the risks are going in, but the risks do exist and we should acknowledge that.
WHAT? WTF? It’s on Netflix. See it this weekend. That movie is perfect.
https://abovethelaw.com/2012/09/can-you-show-undue-hardship-on-your-student-loans-you-may-be-surprised/
Here’s an example for you to look at. I think you’re under the mistaken impression that after reading a couple of websites it’s just easy as pissing in the San Francisco public streets to declare bankruptcy out of student loan debt. Even if we apply the garage engineer’s solution to this scenario, why don’t people just do it more? It’s just so easy, right? Just declare bankruptcy and scofflaw your way to wealth from debt forgiveness. Sign me up!
Well, that’s not how it works in application, Rich. “Undue hardship “ in legal terms has meant “certainty of hopelessness” which means to qualify you essentially turn your pockets inside out and tell a judge it will never get any better. That’s why you see the rare examples of people prevailing in these cases are old (50s or 60s) and they’re able to explain to the courts they’re completely destitute and at the peak of their earning potential.
A guy who’s 30 can’t just walk into court with this argument. All the defense needs to do is tell the court there’s still the possibility of an upside and the debt gets reaffirmed. So, websites be damned the reality is not a click away.
As for the home loan comparison, it’s only a comparison of the government federally backing a loan that the borrower may default on. Sure, there’s no tangible asset to hold in a student loan debt but there are co-signers, wage garnishment, asset forfeiture, and all kinds of other things the lenders can reclaim from assets. In addition, more often than not, you can KEEP your home in bankruptcy protection.
Square that circle. The government gave money away for people to buy homes, knowing the likelihood of bankruptcy meant they’d lose the asset for collateral and they still did it. But student loans operate outside of even a risk like that because they magically are not allowed to carry risk.
Rich – clearly the rules are not the same for student loan debt vs. regular debt. Do you think the protections afforded to the lenders of student loans is warranted? Why should it be any different from any other debt when it comes to bankruptcy?
While I would never recommend declaring bankruptcy (I think you should deal with the consequences of your bad decisions, and pay back debts), since bankruptcy is the law, all debts should apply to it equally.
There is no such thing as a free loan…
I know, I still haven’t seen that last Star Wars movie. it’s now on my to do list. Since it is a gangster movie,I assume the reference is that a transaction is made between a loan shark and some mope, where if the mope doesn’t pay up on time, he gets his leg broken. If Sally Mae is in the practice of leg breaking, I would love to hear about it.
The funny thing is that the student loan reference in my post had to do with blanket loan forgiveness, this was what I was opposed to. Having never had student loans I was not aware of the differences between these and other debts as discharged in bankruptcy court. I think the reasons it is harder to discharge student debt as opposed to say a home loan is for the reasons already mentioned, a home loan has equity, tangible assets, where a student loan does not. This why a 3 pronged test is administered;
If these can be met, then absolutely, discharge the debt, that seems fair to me.
JDPS, your own link (several years old BTW) says the same thing my link does, that bankruptcy courts use a 3 pronged test to determine eligibility. Not only that but it disputes your notion of that it is impossible;
And, for the nth time, my DOE link (more current) acknowledges the hardship and it is willing to broaden the definition. TBH, I don’t know what we are arguing about. You say it is hard, OK, agreed, thus the 3 pronged test, but shouldn’t all bankruptcy filings be “hard”?
I don’t really buy that. Someone can have $100,000+ in credit card debt, with nothing to show for it, and discharge it all via bankruptcy.
And I think that sucks. Maybe those trying to discharge credit card debt should abide by a 3 pronged test as well. Don’t misunderstand, I acknowledge that there exists different standards regarding different types of debt, we can certainly talk about these inequities. But again, my point in bringing up student debt had to do with the push for blanket student forgiveness.
Gee, and I thought the post was too boring for anyone to comment on, silly me.
This has been a great discussion, and I don’t disagree with JDPS or Zurvan about the wisdom of allowing student loan debt to be discharged through bankruptcy. I also want to say that the sooner you see Last Jedi, the better.
If I could though, I’d like to get back to the heart of the post. The government either holds student loan debt or it has such an incestuous relationship with the lenders that it’s managed to guarantee the current crisis.
Nevermind for a minute how hard it should be to declare bankruptcy on student loan debt. Shouldn’t it be harder to get student loans if you’re a college student who owns no assets? The government has gamed the rules in such a way as to enable more students to attend college.
On the subject of “how much government do you want?”, do you guys in the “burn the student loan records” group think that the government should be doing anything at all to encourage lenders to loan easy money to college students?
The post wasn’t boring, no. I really had no idea it was going to be a free-for-all on the intricacies of US bankruptcy law though. Jeez.
Now I know what NOT to bring up around here if I don’t want to get told what’s what.
Something I disagree with completely. If you were stupid enough to pay a school $150k for an under-grad in underwater basket weaving, with a masters in nose picking, you should have to pay back every penny out of your McDonald’s paycheck.
It’s the “natural gift” one. You’ll probably enjoy my upcoming post on Black Panther’s box office performance after this weekend’s numbers come in though. I’m giving it the Ghostbusters treatment.
When people talk about “bankruptcy” they should be specific about which type. You guys seem to be referring to Chapter 7, which basically says “fuck you” to your creditors and you walk away with a mostly clean slate other than the ten year turd on your credit report.
In Chapter 13 you pay back as much as you can, often 100% if you make enough money. All debt including mortgage arrears, car loans, some student loans and credit cards are paid back over 3 to 5 years through a trustee. Secured debts get paid first and the credit cards and collection agencies get the scraps. Student loans either get rolled into the plan or put in deferment while you pay other debt. It just depends on what the trustee will allow.
You have to live either unemployed or at the poverty level for at least six months prior to attempting Ch7. Most people go Ch13 and pay a portion of their debt, even if it is just <10%. A person could declare bankruptcy, pay every spare dime he has to the trustee and still wind up with a large student loan obligation, Credit cards often get next to nothing.
Often Ch13 bankruptcy is just a way to save a home from foreclosure after a period of financial hardship. As long as you can clear up the arrears and pay the mortgage over the course of the plan, you can keep the home.
IMO student loans do not deserve special status in bankruptcy. They should be treated as any other unsecured debt. Instead, we should start giving our kids the options for lower cost college degrees. A generic bachelor's degree can be gotten for far less than 100K and would serve its purpose in a job search or entrance to a graduate program. It can even be in underwater basket weaving, as degrees often don't list majors. Most jobs don't require specialized degrees, only a reference to BA or BS on the resume.
If you want to be a doctor or astronaut, you might have to spend some money, but you would be more likely to get a job that will pay the loans.
I don’t know, if I had a degree in underwater basket weaving, I’d eat at better restaurants, for sure. Thanks Pfluffy for that break down.
IIRC, you are in law enforcement. Does that require a BA or BS these days? Could a basic degree get a young whippersnapper into the profession?
Was, I’m just an old tennis bum now, long retired. Each city/state has it’s own requirements. A 2 year degree will get you into 95% of all agencies, FBI/Secret Service/Justice all require B.A’s. Education is great but character, maturity, and good judgement is more valuable. If you know anyone considering that profession I can certainly give you some tips.
Not at the moment. My son has the “just the facts” personality and can do a hell of a sketch artist impression if he wants to get into forensics. Just spitballing options for him.
The question about big or small Government is misleading, as it assumes that everything the Government does is of equal value. It also means that liberals can point to the military and call conservatives hypocrites, and conservatives can point to mass surveillance and call the liberals hypocrites.
The real question is ‘in what areas is it useful to have an overarching federal framework of regulation or support’. Gun rights/control is a good example. Or environmental regulation. Iowa can pass all the gun restraints and environmental protections it wants – but it’s beholden to what Illinois, Missouri and Wisconsin want to do.
So it’s not that liberals want ‘big’ Government and conservatives want ‘small’ – both want Government at the appropriate size, they just differ on what for. Speaking for my kind (hackey sacks, free love and bleeding hearts and all) it’s not about ‘gimme stuff’. For example, the ‘free education’ issue isn’t just about giving stuff away for free. It’s about making sure that we don’t waste the potential of the kids that aren’t born into a family that can afford college. A country with more highly educated doctors, teachers, engineers etc is going to do better for everyone, so it’s worth the investment.
And yes, built into the liberal model is that a certain number of people are going to take advantage and be freeloaders. But that’s the cost of doing business in building a society that is more highly educated. It costs more but it’s worth it – not for the feels, but for the increased productivity and economic growth of a more educated society.
Hey Cress, is hackey sacks still a thing?
Who assumes that? I sure don’t. Do you really think the NHA is of equal value to say the Pentagon, or that the NLRB is of equal value to Homeland Security?
Why do we need national gun laws? Does the 10th Amendment mean anything at all? Each state has different conceal and carry policies, aren’t they able to decide their own gun policies?
But if you look at how liberals view the role of government, then do the same for conservatives, it’s more binary then not.
Look at the chart in this link;
https://www.wsj.com/articles/why-america-is-going-broke-1519254875
Military spending, the conservative’s sacred cow, has been at the same relative percentage of GDP growth for 50 years, where as the cost of entitlements, the liberal’s sacred cow, has pointed straight up on the chart.
How cosmopolitan of you:) I’m thinking of about half a dozen college drop outs (Gates, Groove, Jobs, Zuckerberg) who changed the world. Why does everyone need a college degree to be successful? Why do you think everyone even wants to go to college? Do you really think only rich people go to college? And why should I have to pay higher taxes (higher than I already do) to pay for your kids ( I know, you don’t live here, rhetorical) going to college? Yes, it is better for a society when it’s members are producers (paying taxes)and not consumers (needing public assistance), but you don’t need a degree to work. Why should I care (or pay for) if your kid get’s a prestigious degree at a super duper university and now goes out a makes a million bucks?
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