The full reason is that preventing bankruptcy is the only way to keep interest rates low and make the loans widely available.

If bankruptcy was allowed then the obvious play would be to take the loan, max out credit cards right before graduation, then declare bankruptcy before you get your first job.

Lenders would respond by increasing interest rates dramatically and restricting loans to those who had assets. This would basically turn into loans being for people with wealthy parents or having eye-watering interest rates.

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sethammons 2 hours ago | parent | next [-]

> The full reason is that preventing bankruptcy is the only way to keep interest rates low and make the loans widely available

"They are eating the dogs and cats." It simply isn't true. I got my student loans a quarter century ago. Back then the loans were dischargeable and low. My loans came in at like 4% interest at the time.

It is propaganda that it was a widespread problem and the "solution" was to legally protect banks from risk. Then rates exploded and regulatory capture kept people locked in.

	▲	AnthonyMouse 22 minutes ago \| parent \| next [-]
		If a non-negligible proportion of people would discharge their student loans in bankruptcy then the rates would have to increase by a non-negligible amount to make up for it. If a negligible proportion of people would discharge the loans as you suggest then the need to do it is the "eating the dogs and cats" in this case, since it doesn't matter a whole lot if nobody can do something nobody would have done anyway. So which one is it?
	▲	kentm 30 minutes ago \| parent \| prev [-]
		In 1978 loans were made non dischargeable for the first 5 years and extended to 7 years in 1990. In 1998 the waiting period was eliminated making them non dischargeable in perpetuity. Private loans were made non dischargeable in 2005. So while student loans were technically dischargeable approx 28 years ago there were some big caveats.

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AngryData 4 hours ago | parent | prev | next [-]

If that was an actual problem wouldn't people be doing it without the college already? When I was in my early 20s I got non-stop credit offers and I could have easily pulled out tens of thousands in crappy debt.

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throw2ih020 3 hours ago | parent | next [-]

> If that was an actual problem wouldn't people be doing it without the college already?

I see you haven't heard of /r/churning. Although it doesn't involve bankruptcy, because then the sheriff comes down and takes your property from you...

	▲	ashdksnndck 2 hours ago \| parent [-]
		Churning is not about taking out debt and not paying it off. It’s about signing up for credit cards and spending money to earn rewards points, and paying off the balance soon to avoid owing interest.

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reddozen 3 hours ago | parent | prev [-]

Ok. And the interest on unsecured debts like credit cards are like 25%. Sounds like the risk is properly priced in. What's your point?

	▲	AnthonyMouse 19 minutes ago \| parent [-]
		On top of that, the amount of unsecured credit you can get with no/bad credit history is more like $500 than $250,000.

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baq 4 hours ago | parent | prev [-]

…and in effect tuition would go down.