Several months ago I argued that we should allow student loans to be discharged through bankruptcy. Yesterday I realized another way to modify student loans to be more compatible with bankruptcy: allow lenders to effectively repossess degrees. This could make having student loans not survive bankruptcy more politically practical.
Sometimes people bring up the idea of repossessing degrees as a way of illustrating the absurdity of student loans, but it's actually pretty reasonable. A large majority of the benefit of getting a degree comes from having the credential as opposed to having learned skills: employers use "do they have a college degree" as a filter. If you took out a student loan to get a degree, and then later declared bankruptcy, the court could require you to no longer represent yourself as having a the degree as a condition of having your debt discharged.
I think the goal is that someone with a repossessed degree should look the same as someone who completed part of the degree but dropped out before finishing. Colleges would need to be part of this as well; one way for this to work is if as a condition of continued participation in the student loan system colleges would need to agree to revoke degrees if asked to do so by the bankruptcy court.
One way this could work poorly would be if people would just ignore the law and tell employers in person that they have a revoked degree? I think they mostly wouldn't: degrees are often used at an early stage of hiring screening, where if you don't have a degree you don't even get to the stage of being able to talk to an interviewer and explain the situation. Additionally, someone who decides to claim they went to Harvard after having their degree repossessed looks just like someone who's lying about having gone to college, or who dropped out.
This would probably need to be combined with some sort of waiting period, something like five years, to avoid the case where someone declares bankruptcy before finishing their degree when there's nothing to repossess, and then completes their degree later.
Implementing this in a way compatible with the first amendment seems tricky but doable. In a standard non-disclosure agreement you trade your right to share some information for something else you value more. That's what we're talking about here, so it seems like we're ok? But I'm just speculating.
This does change some of the incentives around education and hiring: students might try to learn valuable skills, and employers might try to evaluate people based on what they know and can do. But this would be a great outcome!
(Note that this is not compatible with my proposal that we prohibit employers from considering degrees entirely, and is a much less radical alternative.)
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In the usa, professional, drivers, and recreational licenses are revoked for non-payment of child support: https://www.ncsl.org/research/human-services/license-restrictions-for-failure-to-pay-child-support.aspx
It isn't a perfect analogy but it is 'revocation of a credential due to failure to pay a debt'. I hear it works awesome at getting people to pay child support, doesn't expand the prison population, and is on balance a good thing for society.
As I understand it, the initial purpose for student loans is to ensure that the professional classes with long training times are staffed with motivated indentured servants (if only the idle rich could afford to train as surgeons, they would not be able to have skilled surgeons attend to them during their idleness). This initial purpose has been perverted by the entrance into the education market of bad goods (useless degrees that do not actually provide a profession) as a way of exploiting unsophisticated buyers with access to cheap credit.
These unsophisticated buyers would probably respond to a degree repo with 'oh you mean I can't say I went to devry? Oh no... the horror...I guess when my buddy wants to hire me I'll have to tell him my degree got repod and that he'll have to placate HR in order to bring me on staff'.
In my experience, the degree got the first job, which got the second job, and has never gotten me any meaningful status boost after that.
Another possibly useful data point in this discussion: I spent 6 years working on my PhD before dropping out. On my resume I mention that I worked on a PhD but didn't receive it (to explain what I was doing for all those years of my life). Multiple things happen as a result of this:
I suspect that having a repossessed PhD would receive similar sorts of reactions to having dropped out before graduation.
This doesn't work, legally or practically speaking, because it's trying to restrict speech-acts between parties that both want the information to be shared. You can't legally stop people from truthfully disclosing that they have a reposessed degree, because of the first amendment. You can't practically stop people from truthfully disclosing that they have a repossessed degree because they will have left many archived traces of that information, for example copies of their resume in the Internet Archive, they have an incentive to leave those traces in place, and removing those traces is too difficult and involves too many third parties to be a legal requirement.
On the other hand it would work in cases where a degree is necessary to licensure. For example, degree repossession would be effective against professions who need a degree as part of their certification to practice. If it is not the case already, this could be made the case for doctors, nurses, lawyers, accountants, professional engineers, etc. such that there would be real impacts of loss of degree even if you could still tell people you had it because you wouldn't be allowed to practice your profession in the same capacity as before without your license.
(Whether or not licensing is a good policy is a separate question from the consideration of how the mechanism of degree repossession might work.)
The two of us could sign a contract where I pay you $100 and you agree not to disclose what you ate for breakfast this morning, and agree not to disclose the existence of the contract. That would be a reasonably standard non-disclosure agreement (NDA). Having a system where student loans normally survive bankruptcy, but can be discharged if you agree not to disclose that you ever had a degree seems similarly compatible with the first amendment?
In practice I think this is unlikely to matter much for most people. If you're applying for a job, and the job asks for your resume, they're not going to go poking around dusty corners of the web looking to see if you had some other version with different contents. Someone willing to put in that much additional effort would probably just spend it on evaluating the candidate directly.
The relevant difference between this and an NDA is that this has the restriction on speech coming from a statute, rather than a contract between nongovernmental entities.
Actually, I expect this will be discovered with nearly 100% reliability by ordinary due diligence on hires. Bankruptcies are necessarily very public and there are APIs for finding out whether someone has declared bankruptcy, so you just check whether each candidate has declared bankruptcy, and if so, you take the resume-URL they gave you and check that URL on archive.org just prior to their bankruptcy.
An extension (or maybe just riff) on this idea that could work (but will never happen) is refundable degrees. Don't tie it to loans or financing, tie the price and value received together.
Make university (partly) refundable. If, within X years of getting a degree, you don't think it was worth it, you can give up the credits and accreditation and get a portion of your tuition back.
Of course, none of these ideas work if you think the primary value of university is NOT the accreditation. Peer effects, non-validated status by stating non-degree attendance, peer contacts, rapport with recruiters who know the school, etc. really can't be credibly revoked. Oh, nor can actual education (habits, knowledge, and skills).
It's instructive to consider the case of dropouts. A fair number of students take loans, attend a few years, but then something stops them from completing a degree. They still owe the money, and still got some value from their education. What they have is irrevocable - there's nothing official to take back.
I'm not sure this helps (nor the discharge in bankruptcy idea). The financial part of the problem is that bad credit risks (college attendees) are getting huge loans. This only works when they're regulated and backstopped by the government.
Discharge in bankruptcy makes it much nicer for those who really can't pay as well as those who could pay, but don't want to (because they'd rather eat or something). It makes it worse for the lenders, who don't get paid regardless for the just-can't case, but now don't get paid for the "bankruptcy is better than paying" group. And part of the availability and non-insane terms of payment is because it's the government which has special power in collecting, including not letting you out by bankruptcy. Without this special government power, most of the loans wouldn't happen at all. Note: this is my recommendation - just stop making such loans.
Repossessing collateral for a loan is unworkable for a different idea. If a bank repos your car or house, they recover some of the loss by selling it. They can't sell your degree, it's valueless to them. Thus this is JUST an indication that you're behind on payments, and employers who care can ALREADY get your credit report to see that.
What if they could? It's a piece of paper, that people pay a lot of money for. (This would create an incentive for universities to have attendees that don't later have their degrees get repossessed.)
No, it's a piece of paper, which people get for free after paying for a lot of classes, books, living arrangements, etc. for a few years. That piece of paper may be the reason people give for paying so much for these things, but they're confused - some classmates won't get the paper, and will pay just as much. And if the bank DID sell repo'd degrees, or the school sold the paper without the classes, the perceived value of the paper would drop to zero pretty quickly.
The paper is not the degree. It is a certificate of having the degree. The degree is the fact of having had the degree conferred. This is an objective historical fact that cannot be repossessed, short of 1984 with its memory holes and workers keeping records updated to agree with currently decreed official truth (that is, official lies). Even if the university is obliged to rescind the conferral, that merely adds another historical fact to the record. If an employer regards the recission as a penalty for defaulting on a student loan, they are free to take that as evidence of the student's financial standing but disregard it as evidence against their academic record.
Maybe the most actionable path is to try influencing employers. For example, Google doesn't require college degrees for some jobs, but there's still a difference between not requiring degrees (but still preferring candidates with degrees) and ignoring degrees. One phrase to watch for is "degree or equivalent work experience". I'd be happier if Google's hiring process officially ignored degrees, and the same for other tech companies. But I don't know if anyone's campaigning for that kind of thing.
I wonder if some form of garnishment agreement would be better. Still own on you student loan then the job applicant would be required to notify the employer of the outstanding debt and the employer agree to making the garnishment withholding.
We might want to set a some moratorium on interests -- put that on hold at some point (without any hidden accruals) and then once the person is employed give them a year or two before the interest kicks in again.
Garnishing wage income happens already. In the UK, that's the actual repayment mechanism for most. In this US, it's a collection option if the loan is in default.
Look, if prices are as ludicrously high as they are, and this is a loan rather than a subsidy, you can't make it less onerous without recovering that loss (for the lender; gain for the defaulting borrower) somehow (charging higher rates to those who DO pay, basically).