In a recent posting, I noted offhand:
Since we live in a Capitalist society, there are lenders who will lend money to people with less-than-perfect credit scores. As in any mathematical model, you can adjust the cost of the loan based on the factors above - the credit score, the collateral, and so forth. Since a group of such "sub-prime" loans will have a higher default rate, the interest rate (and fees) will be correspondingly higher. The borrowers are, in effect, paying for the malfeasance of their fellow sub-prime borrowers who do default.
The next time you hear some deadbeat blather on about how "unfair the banks are" and how he's defaulting on his loan, reconsider your sympathy. You are paying, almost directly, for his irresponsible behavior. The bank doesn't pay, you do. And no, the bank isn't being "unfair" to him, either.
But the punishment aspect of it should - at least in theory - discourage people from taking on frivolous or high-interest debts, or taking on debts they have no intention of repaying. That was the theory anyway - carrot and stick, with a lot of stick to shake around. Whether this theory has worked out is debatable.
Of course, you as the consumer still have a lot of choices in this area - and you do have these choices. Looking back on my own life, I can tell you that most, if not all, of the debt I incurred in life (other than commercial debt) was not for things I needed but rather for things I wanted. Moreover, my spending money on wants often meant that I ended up borrowing money for needs.
1. Credit card debt sneaking up over time.2. Student loan debt with no way to pay it off.3. Previous bankruptcy or bad credit rating.
Bankruptcy can at least give a person a chance to start over, that is, if they are willing to really change their way of life. The relief can be very brief, however, if the debtor decides to take on a slew of new debt, at even more onerous rates. Even with bankruptcy reform, it is still possible to obtain relief through bankruptcy, and the terms are still relatively generous, if you are smart about it. Things like retirement plans are protected in bankruptcy, so that you can emerge without losing one of your major assets - that is, if you have a retirement plan.
The problem for some folks, particularly students who over-borrowed, is that they took on a debt that they might not realistically ever pay back. Now, I am talking over $100,000 in debt, at high interest rates and with default penalties added in. These are far above the national average debt about about $35,000 which can be paid back, over time, if a person chose to make sacrifices in their lives which of course, few are willing to do.
Sadly, after having made these poor choices, many are compounding this by making more poor choices. One fellow opines that he can walk away from a $15,000 student loan debt (now $25,000 with interest) if he just waits until 25 years have elapsed, at which point the unpaid part is forgiven. However at that point, he will owe income tax on a $100,000 windfall. Perhaps it is a perverse strategy that might work. The problem is, he is spending the best earning years of his life with a shitty credit score - which makes it hard to get a job, rent an apartment, or buy a house. He will spend the part of his life that most do buying their first home, getting married, getting a job, and raising kids - living with friends or roommates and owning little or nothing. All to escape a debt that could be paid off even on a minimum-wage job delivering pizzas. I suspect drugs are involved.
Was bankruptcy reform a good thing? In the end analysis it really doesn't matter. As we talk about a lot here, your personal choices outweigh the effects of national trends. You can protest student loans all you want, that still won't get them paid off. Whatever student loan relief Hillary pushes through likely won't forgive all your debts - or maybe any of it.
A better plan is to pick a degree that is worthwhile at a school that is affordable. Majoring in "whatever" and paying "whatever they charge" and then arguing it is "unfair" no one hires you is not really a good battle plan.