This just seems completely irrational. Do lenders imagine they're more likely to recover their money this way? This article needs more information to explain how something so completely irrational-sounding could arise.
Questions I still have after reading this article:
* Are we specifically talking about loans by the government, or student loans in general?
* If the latter, does the lender have any say in this, or does the government just do this unilaterally?
* How the hell did this happen? Yes, it was part of a bundle of "aggressive collection tactics" but... really, more information is needed here. Is this, like, a case of the government having the wrong incentives, needing more to look tough than to actually recover their money? If this applies to private loans, what did private lenders have to say about this at the time? Etc.
Gamblers are under a very autonomous incentive structure: they want to gamble, and they can be scared into not doing so by consequences that would befall them personally.
Student loans don't work like this, I think, because most kids going to college aren't doing so because they want to. Instead, they think they need to, either because their parents demand it, or society demands it.
When you think you need to do something (i.e. there are no other options/routes to not-dying), adding risks to it doesn't have any effect on the math.
Sure, but that's the mob, and I see two important differences between this case and the mob. (Well, one important difference, and one thing that might be, I'm not sure.) As the article points out, there's any number of other things you could do in case of default, that won't so adversely affect the borrower's ability to later repay. But (difference number one) I suspect those things will largely rely on the courts and so not be available to the mob. (That's the one I'm not sure about; the mob might have other equivalents.)
I mean, yes, the basic reasoning makes sense, but like... were any actual calculations done? Any comparison to alternatives? While it's not impossible this is the best way for the government to get its money back, it seems pretty unlikely.
It particular it seems stupid because, consider -- we're reading a news article about it! What's that mean? It means I didn't already know, you didn't already know, enough people didn't already know that the newspaper thought it would be a good idea for an article. And that's the real kicker; a deterrent -- and this is purely a deterrent, it is in fact giving up direct moneymaking ability to achieve this deterrent -- can only work if people know about it! The mob can scare people into paying up because everyone knows they'll kill or cripple you if you don't pay them back. But the government, apparently, doesn't have the mob's publicity, and without that, the whole scheme falls to pieces, and clearly can't do any good. This started in in 1990, going by the article. That's 30 years of a "deterrent" that hardly anybody knows they have to avoid. (That, obviously, is the difference I'm more certain of. :P )
Doesn't matter to the lenders, they've already written off the loan and reassigned it to government student loan debt collection at SLM.
This licensing thing is something the government can do when the loan gets reassigned to it during collections. They do other stuff, too. If you have property, they can put a tax lien on it. They can seize your tax refunds or any cash benefits disbursed by federal government programs, like Social Security. Pretty much, if there's something "government" can do to screw you over because you can't afford your loans, they do.
"This just seems completely irrational. Do lenders imagine they're more likely to recover their money this way?"
In theory this punishment can increase the total number of loans paid, even if the individuals who default and lose their jobs won't be able to pay their loans back. Why? Perhaps the fear of the punishment incentives loaners to not default.
I mean, yes, I understand that line of reasoning, but like... were any actual calculations done? This just seems like such a bad idea when (as is pointed out in the article) there are plenty of other things you could do in such a case that won't so adversely affect your ability to recover your money.
>Do lenders imagine they're more likely to recover their money this way?
Who knows. But if grad students would act like even half-way decent business men and women then they would pass their costs on to their customer (i.e. their boss).
Just because costs go up doesn't mean your rate of return needs to fall.
Assuming a competitive market you can't pass costs on, you charge what your customer is willing to pay, whether your costs are zero or high. If costs are higher than what customers will pay, you don't have a business.
> Is this, like, a case of the government having the wrong incentives, needing more to look tough than to actually recover their money?
The government (to some extent) expresses the will of the people In the US and Canada, most people have expressed strong support for such debtors prisons. Largely in the belief that it will never happen to them.
This is an exceptional case of cruelty - imagine spending years learning a craft (and spending thousands and thousands of dollars for it) and one fine day, not being able to use it anymore. It is even more worse in cases of healthcare professionals, as the aging population needs all the help it can get. No-one benefits at the end. I really wish we put common sense and compassion before commerce.
Questions I still have after reading this article:
* Are we specifically talking about loans by the government, or student loans in general?
* If the latter, does the lender have any say in this, or does the government just do this unilaterally?
* How the hell did this happen? Yes, it was part of a bundle of "aggressive collection tactics" but... really, more information is needed here. Is this, like, a case of the government having the wrong incentives, needing more to look tough than to actually recover their money? If this applies to private loans, what did private lenders have to say about this at the time? Etc.