[ScottGem]

There are good and bad points on both sides here.

One point I would like to refute was Iknow's contention that US govt backing of student loans removes any incentive to make good loans. How would a lender judge how good a student loan is? For the most part, students have not built any credit history so there is really nothing to make a judgement on. The rationale is that someone with a college education stands a better chance of getting a good job to pay the loan back.

But I still wonder what was the purpose in posting this originally?

[Iknowalotofstuff]

With all due respect. Loans are not made by people they are made by computers programmed with complex formulas and algorythms. For example, if one applies online for a credit card or overdraft protection, do you think an actual person sits down and evaluates the validity of the request?
NOT!! A computer evaluates simple questions and responds in a few seconds in most cases. If more information is needed, it is provided, inputted, and the computer re-evalutes the application.

Just imagine the number of employees a credit card company, bank, sub prime lender, etc. they would have to have if a "person" processed every application. There are millions of student loan applications processed every year. Do not think that a person reviews every single application to determine whether the loan is in the best interest of the lender and the student. The student's input data is compared to the lending criteria which includes in non dischargability and loans are granted. If you think that the lender would make all of the loans that are made if they were dischargeable in some insolvency process, think again.

Credit is like an assembly line making tin cans. The maker of the cans has to make a certain number as order by his customers. At the rate of speed he makes cans, there are 8 dented ones. The manufacturer now has three choices with respect to these cans. He can attempt to hammer out the dents in an attempt to have 100% good cans. Not cost effective. Second, he can slow down production in the nope that there will be fewer cans. Bad choice as her will not be able to meet the demand for cans. Finally, he can accept that at this rate of production necessary to meet the demand, there are 8% dented cans and live that as a cost of doing business.

In the credit process, deliquency is a cost of doing business. It is a necessary cost of doing business. If you were to ask any lender if his goal is 0% delinquency, the answer would be NO. A lender who has no delinquency has lending restrictions that are to restictive. Lenders will continue to loosen the lending requirements until they reach what they believe is an acceptable amount of delinquency. Think about it. The delinquent customers are part of a pool of customers of which they are 8% leaving 92% of those risky customers paying and this is where the money is. Lenders do not want customers whose goal is to repay as fast as they can. There goal is to keep people perpetually in debt paying "rent" on the money every month.

What does a lender do with the delinquency? Just as the can company will attempt to do. They will try and "salvage" what they can with the goal of minimizing their loss on these accounts. They will not lose more money. That is why after a short period of delinquency, accounts go to colletction agencies, lawyers, credit counselling, or bankruptcy trustee. These groups will see that the lender gets whatever salvage there is at their expense not the lenders. The lender is taking a rish to make money not to be benevolent. Lenders are in the profit business.

A loan to a student is a loan to a person who would not otherwise qualify for the credit. The student does not usually possess the current ability to repay the debt. The lender gambles that the student might as a result of the education obtain employment sufficient to repay the loan. The lender does not evaluate the nature of the education, what the job prospects in that field of study might be, what the future income earning potential is relative to the cost of the education. The lender just knows that the student is enrolled and what the cost of the education is.

The impression I get from my American friends is that there is something noble about a lender who lends money to fund education. Student loan lenders are capitalists of the highest order. They see a market place where loans are the most common method of obtaining funding for education. They see that the cost of this education is increasing exponetially. They have lobbied congress to make these loans undischargable in bankruptcy. They have a captive market and they are making money. They do not have to negotiate or make concessions in time of trouble. Finacially troubled students will see the loan grow and grow and grow.

The US has some hardship provisions in its Bankrutpcy statutes as does Canada. Ours is a more objective process based on a criteria. In the US, it seems the process is more subjective. In Canada, two students regardless of status or location will be evaluated the same while in the US two people of similar economic status but in different locations could see courts or lenders view their applications differently.

My original post was to get people thinking and talking about student loans and their future impact on the borrower. We are not talking about the 90% of borrowers who repay their student loans but the 10% who cannot.

I have no sympathy for student loan borrowers who will not pay when they could. My concern is for the borrower who wants to pay but cannot as his /her income is insufficient to pay for the necessities of life.

A final comment. Assume I had a US student loan of $10000.00 and a credit card with a balance of $5000.00. I get a consolidation loan for $15000.00. I cannot repay this loan and make an assignment into bankruptcy. The loan is discharged under Chapter 7 or negoatiable under Chapter 13 as I have been lead to believe. It does not seem fair to the subsequent lender.

Question: Are student loan payments tax deductibe in the US. They are in Canada. Is their a loan forgiveness program for students who complete their education in good standing? There is in Canada. Is their an interest relief program designed to assist new graduates so that their loans do not escalate when the first enter the workforce. There is in Canada? What other debts are not discharged in the US? In Canada, fines from a court, civil judgments arising from sexual assault or great bodily harm, acts of false pretense / fraudulent misrepresentation, fraud, breach of fiduciary duty, shild support /spousal support . Maintenance plus government legislated student loans are not discharged. How long is a person in bankruptcy in the US? What does bankruptcy cost in the US? How long is Chapter 7 or Chapter 13 reported in a credit bureau report.

[tomder55]

A loan to a student is a loan to a person who would not otherwise qualify for the credit. The student does not usually possess the current ability to repay the debt. The lender gambles that the student might as a result of the education obtain employment sufficient to repay the loan. The lender does not evaluate the nature of the education, what the job prospects in that field of study might be, what the future income earning potential is relative to the cost of the education. The lender just knows that the student is enrolled and what the cost of the education is.

The impression I get from my American friends is that there is something noble about a lender who lends money to fund education.

I guarantee that if it became a common practice for students to default on these loans ,the loan availability would dry up for other students who have legitimate needs for them. What you are advocating is screwing up a good process to fund advanced education.

Like it or not ;we as a society fulfill our responsibilities to a child's education when they leave secondary school.

However still many of the loans are subsidized by the taxpayers and by your own admission the lenders are waving many of the rules they would apply to someone asking for a similar loan for other purposes. Yeah a predatory bunch of folks those lenders be!

[ScottGem]

First, your synopsis of the lending process is correct and doesn't contradict anything I said. I really don't uinderstand why you went through it. In fact, you agreed with what I said when you posted; "A loan to a student is a loan to a person who would not otherwise qualify for the credit."

I'm not sure where you are getting this; "The impression I get from my American friends is that there is something noble about a lender who lends money to fund education." What's considered "noble" is the fact that the government backs and guarantees these loans to make higher education more available. Student loan lenders are in a win-win situation. They earn interest as well as gain a market (students are more apt to bank where they have their student loans). But they are indemnified against loss.

And yes, Student Loan interest is tax deductible.

As for your loan consolidation scenario, given the favorable interest rates and payback options for student loans, someone would be foolish to consolidate it with other debt. And if they were doing it so they could disharge the debt in bankruptcy, they are probably in such financial trouble that they couldn't get it done.

[Iknowalotofstuff]

Issue 1: In Canada, defaulted student loans oftern end up in private collection agencies where payment in full is often demanded as an alternative to legal action. These collection agencies are unmerciful in there aggressive collection. SL debtors often resort to consolidation loans to get the agency off their back or to reduce the combined contractual payments. The average interest rate on a student loan in Canada is between 7 and 8%.

Issue 2:
While Canada and the US charge their students a tuition and other fees to attend institutions of higher learning, other nations such as Australia, France, Belgium, etc. provide this type of education free of charge.

Both the country and the individual obtain a benefit from the higher education. If the populace is better educated, the work force is better educated, the work force is more competetive. The more educated worker will usually pay more taxes. This additional tax could pay for the education.

My real concern about student loans started in 1996-97 when Ontario elected Mike Harris premier. He reduced the amount that a single parent with dependent children received on social assistance by 20%. At the same time, the social workers at welfare began to convince these mother to go back to school. The benefit for the province was that the amount of the student loans included the amount of welfare that they would other wise ge entitled to. For example, a mother with one child receives $1200.00 per month on assistance. So she goes to school, is disqualified from assistance but lives on a $20000.00 student loan. School is for 3 years.
She now owes $60000.00. She is granted about $20000.00 of loan forgiveness because she graduated. This person has a degree as a personal support worker. Her income assuming she can find a job is about $1600.00 net per month. In order to work, she requires day care which will cost here about $400.00 per month. Shelter and utilities assuming she qualifies for geared to income housing is about $700.00 per month. Food, Insurance and transportation are about $500.00 leaving no money to repay the student loan. She qualifies for interest relief which is no payments for up to five years with the government paying the bank the interest on the debt which stays the same for five years. The only hope she has is that the father of the child pays child support. If he works in a similar wage job, his support payments would be about $250.00 per month which might cover Christmas, birthdays, clothing, school expenses and a little bit of entertainment. Still no money to pay the student loans. She would probably qualify for Child Tax Beneft and the Universal Child Tax benefit of about $350.00 per month to cover the child's needs. This is the best case sceario. The worst case scenario is she is back on assistance with no money to pay the student loan. The support payments are part of her $1400,00 in social assitance / welfare as is a portion of her child tax benefit. Her child is 3 years old so she will qualify for this level of assistance for the next 15 years provide she cannot find a better job.
The idea of loaning mothers with dependent children their welfare entitlements and making that debt undischargable for 10 years is reprehensible but cosistent with the conservative mentality of the Harris government. I tend to view the discharge process through that lens.

Pardon me if I begin to ramble