Seeking Profit in Student Loans

The New York Times has an informative, if somewhat obtusely written, article on the kind of sleazy tactics that the federal government uses to collect student loans.  The TL;DR version is basically:

  • Back in 1990, the default rate on student loans was very high.
  • So the government basically said that bankruptcy doesn’t apply to student loans.
  • Unless you had some kind of special hardship exemption.
  • But the government also contracts out work to a non-profit which, among other things, takes would-be-defaulters to court to argue they don’t deserve hardship exemptions.
  • And so now the government is doing things like suing cancer patients to get them to pay back their student loans.

And, really, there aren’t any especially good answers here.  Is the government being too aggressive in looking for student loan payback?  Maybe!  But it probably needs to do something — there have to be reasons why you don’t just take a multi-hundred-thousand-dollar loan and say, “Fuck it, I’m just going to ignore this.”  But then you create all kinds of perverse incentives where the government does things like say, “You can’t declare bankruptcy to discharge student loans,” and pretty soon you end up suing cancer patients.

This hits some themes that this blog is fond of mentioning.  First, the government seeks profit too.  You don’t get into the magical land of kindness and greatness by taking corporations out of any particular mix.  Of course there are people whose job it is to recover the government’s loan, and equally of course their performance is largely determined on the basis of how much they recover.

Second, complex rules are hard.  When the government is enormous and in the business of everything, when there’s a gigantic bureaucracy, you can’t just write some rules and it will all be fair and equitable.  And democratic oversight is weakened the bigger the government is (because the public has a limited attention for watchdogging the government).

I don’t have any particular answers here.  But these are real costs whenever we expand the size of government, and I don’t think that many people contemplate them.

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