Full Recourse Student Loans --- How to financially cripple an entire generation

Here is an interesting story on student loan repayment avoidance.


I never did understand why lenders would even want to get the laws changed such that more loans, especially student loans, became full recourse. Sure, the person in this story was exceedingly foolish to borrow so much money. But what the hell are lenders thinking? Lifetime indentured servitude? Debtor's prisons? I can see why a lender would want to grab a student with loans requiring the same time and money commitment of a small house with 30 year mortgage. Good business under the current conditions: borrower has to pay a lot of money for a very long time, and the lenders get these people before they acquire a mortgage.

Socially, what a disaster.

Might as well repeal usury laws and reinstitute debtor's prisons.

Seriously, what can these lenders really do if someone refuses to pay? Garnish their pay? Then the borrower has no incentive to work. It's ridiculous and unsupportable. This student would have been better charging all his school expenses to credit cards, then defaulting on those after graduating. The law should be changed such that bankruptcy clears all student loans.

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[Update] After reading through several hundred comments on the article, several things seem pretty clear:

1. Lending agencies are pretty much legally protected from default. That is, it really is in their best interest to loan as much as possible to anyone who will sign the papers, because they will be first in line to garnish paychecks. The borrower's ability to repay is almost inconsequential.
   



2. The logical end game here is criminalizing default. Yes, that means imprisoning people for not paying their debts. There really is no other result this path can take.



3. House prices are going to have to come down a long, long way if the current generation of student loan debtors is ever going to be able to buy. And with such horrible experiences with borrowing money, I personally would not bet on them paying the house premiums common in the last 15-20 years.



4. People commenting that the borrower should pay everything back no matter what don't understand that in a truly free market, lenders would not make loans as colossally risky as student loans for most LA degrees. Lenders would instead take a look at the degree being sought, and the near and far term demand for such degrees. They would then lend appropriately instead of lending for government supported, legally guaranteed profits. Frankly, I don't really much care myself whether people pay off their student loans. They didn't borrow from me, and I don't have any stock in lending institutions, so why should I care whether people pay their loans?



5. The current student loan system is legalized loan sharking. My student loan was purchased by Nelnet from Suntrust about a year ago. My only attempt to pay ahead on the principle resulted in Nelnet applying more than $237 of a $250 payment to the interest, about a $2.50 payment on principle. I was absolutely stunned and furious, so I cut them a check for the balance. They could have made several thousand dollars more from me over the next several years, but they had to be greedy. Jerks. (As an aside, I am happy to see Wachovia nee NCNB go essentially bankrupt. They fine-printed me into a rule-of-78s loan for a truck once. When I went to trade up, I was informed I had no principle on my loan. That cost Toyota a sale of a brand new truck during the 1991 recession. Jerks.)