The full reason is that preventing bankruptcy is the only way to keep interest rates low and make the loans widely available.

If bankruptcy was allowed then the obvious play would be to take the loan, max out credit cards right before graduation, then declare bankruptcy before you get your first job.

Lenders would respond by increasing interest rates dramatically and restricting loans to those who had assets. This would basically turn into loans being for people with wealthy parents or having eye-watering interest rates.

That answer is still begging the question of why it matters that bankruptcy rates stay low.

It's obvious that bankruptcy costs the lender, but how that cost gets absorbed is very important here. A mortgage or a car loan are secured debts, where the lender can repossess and sell the collateral, to pay off most or all of the losses if the borrow defaults on the loan. A student loan is an unsecured debt, so any defaults have to come out of the interest of the rest of the borrowers serviced by that loan program.

The more borrowers default on their payments, the higher the interest rate is needed to cover the write-downs. Without any protections against defaulting, interest rates would have to be near those of credit cards, while limiting when student loans can be discharged limits how much needs to be written down, which keeps interest rates lower.

Higher interest rates would not only make student loans cost more, it would also reduce their availability and increase the default rate, which could create positive feedback, causing the rates to increase significantly faster than inflation. Combine that with incentivization for college attendance already causing tuition itself to increase significantly faster than inflation, which itself makes student loans increasingly necessary, allowing student loans to be discharged during bankruptcy could have compounding effects on the fragile system that currently props up college attendance rates.

That still leaves the question of why the government should incentivize a significant portion of their constituency to be in college, (more than 1 out of every 13 US adults are currently enrolled) but I'll have have leave that question for politicians or maybe even voters.

> it was to discourage students from immediately declaring bankruptcy upon graduation.

Yes, this was a thing in (IIRC) the late 70s / early 80s, and the fed crackdown on the non-dischargeability of school loans in bankruptcy was enacted very quickly in response.

I myself got my bachelors in '79 and read about this idea and did not try it cos it was so incredibly unethical (and it sounded risky). In the words of the infamous Vince Lombardi, "Nice guys finish last."

> There is no evidence that students were actually doing this in any significant numbers.

premature optimization is the root of all evil. Seems like we shouldve actually shown that kids would do that before putting it into law

You can't really tell people that they just can't be bankrupt though. What are they supposed to do if they have debts they can't pay but they're not allowed to declare bankruptcy because they pinky swore they wouldn't do it seven years ago?

You would have to prove that you are unemployable to achieve any meaningful reduction in debt. For degrees that are demanded by the job market you wouldn't be able to declare bankruptcy and you would first have to make a reasonable attempt at paying off your loan.

Basically proving the point that the loan shouldn't have been given out in the first place.

I feel the interests would rise to accommodate for all the bankruptcies that inevitably happen exactly 7 years after