Reply to WTF? Govt rewarding bad behavior Part II

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[quote=Anonymous][quote=Anonymous][quote]A study needs to occur to find out which majors cause the most amount of defaults. Free market allows for the lending institution to charge interest based on the risk of the loan defaulting. No other loan type blindly lends out money without assessing the risk of repayment. This would solve a majority of the problems. What its wrong work this idea, explain to me why every other loan evaluate s default risk except for student loans.[/quote]

The word you're looking for is underwriting, and it isn't really necessary because student loans are not dischargable in bankruptcy, so there is virtually no risk of full default.  It may take longer for the lenders to get their money, but they still get the vast majority of it.  And underwriting costs money, and why spend if you don't have to?  These are basically risk-free loans.  Also, many private lenders, which loan an increasing amount of student loan debt, often offer lower interest rates if there are co-signers (mostly parents) - so now there are two people on the hook.  And still no available bankruptcy protection.

FWIW, majors don't "cause" defaults.  Defaults occur well after majors are selected.  What you''ve identified is a potential correlation.  And - stop me if you've heard this before - correlation =/= causation.  [/quote]

the proposals include loan forgiveness and bankruptcy discharge. If someone screwed themself by picking a non employable major they couldn't bitch and moan about their student loan debt being unpayable.[/quote]

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