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Joined: Feb 2010
Posts: 2,640 Likes: 2
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Joined: Feb 2010
Posts: 2,640 Likes: 2 |
I predict we'll see student debt securitized by major and class, with differential rates of return by area of study, region. I support this, but such lending is crowded out by the current system of government-guaranteed loans, which charges all students the same rates and effectively gives the largest subsidies (the difference between a market interest rate and the government interest rate) to the worst students who study the most impractical subjects. I don't see how financing student debt at significantly higher interest rates is a practical solution to excessive education costs. Artificially low mortgage interest rates contributed to a housing bubble. Raising student loan interest rates to a level reflecting their credit risk would exert downward pressure on college costs, since many people would not be able to borrow as much.
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Joined: Sep 2007
Posts: 3,299 Likes: 2
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Artificially low mortgage interest rates contributed to a housing bubble. Raising student loan interest rates to a level reflecting their credit risk would exert downward pressure on college costs, since many people would not be able to borrow as much. Perhaps, but I think the real problem there was that credit was too easy to get. This situation led to too many people buying a house, and the effects on pricing were predictable. But of course, that's not a problem with a college education. It's not like this society encourages everyone to go to college and hands out loans like they were lollipops. Oh, wait....
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Joined: Dec 1969
Posts: 272
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Joined: Dec 1969
Posts: 272 |
Hello everyone - just a reminder to please keep it respectful in this thread.
Best,
Mark
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Joined: Feb 2011
Posts: 5,181
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Joined: Feb 2011
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I predict we'll see student debt securitized by major and class, with differential rates of return by area of study, region. I support this, but such lending is crowded out by the current system of government-guaranteed loans, which charges all students the same rates and effectively gives the largest subsidies (the difference between a market interest rate and the government interest rate) to the worst students who study the most impractical subjects. You do know that the cap on government-backed student loans is just 11K annually, for a combination of student (Stafford) and parent (PLUS) loans, right? And that you're into "unsecured debt" territory already as soon as you are borrowing to cover what an institution THINKS you can write a check for rather than considers "need" for your household... Remind me what tuition is up to at Stanford, again? How about out of state tuition at UW? The students who wind up (or their parents do) with 50, 60, or 100K in debt didn't get there with government subsidy.
Schrödinger's cat walks into a bar. And doesn't.
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Joined: Jul 2011
Posts: 2,007
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Perhaps, but I think the real problem there was that credit was too easy to get. This situation led to too many people buying a house, and the effects on pricing were predictable. Standard issue credit bubble. Fortunately, we were able to mitigate the fallout by poofing a bajillion dollars into existence. Law schools certainly aren't being backstopped by the Fed and demand is collapsing.
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Joined: Oct 2011
Posts: 2,856
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Artificially low mortgage interest rates contributed to a housing bubble. Raising student loan interest rates to a level reflecting their credit risk would exert downward pressure on college costs, since many people would not be able to borrow as much. There's minimal risk to the lender, because educational debt cannot be discharged in a bankruptcy. That makes this an attractive can't-miss investment opportunity. Any (minimal) risks can be offset by insurance and default swap purchases. Plus, tuition can only go up! Sound familiar?
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Joined: Jul 2011
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There's minimal risk to the lender, because educational debt cannot be discharged in a bankruptcy. That makes this an attractive can't-miss investment opportunity. Any (minimal) risks can be offset by insurance and default swap purchases.
Plus, tuition can only go up!
Sound familiar? You cannot properly apply the topography of a stock market, housing, credit, or tulip bubble to higher education. Why? Because it is not a commodity that can be traded and bid up. There is some sort of inane illogical economic topography in higher education, but it is not that of a bubble. This mechanism has already reversed for law school, which may or may not be a bellwether for the rest of the higher education system. The decline in law school applications was caused by a recognition by an increasing number prospective law students that law school is not a good investment, partially due to an increase in actual transparency regarding employment prospects. The supply of credit for law school remains effectively infinite.
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Joined: Oct 2011
Posts: 2,856
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Joined: Oct 2011
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Well, naturally. You could have found prior evidence that housing costs can decline, too, you just wouldn't have heard that very often in 2005. Most economists are so caught up in crunching abstruse numbers, searching for predictive power in indices, benchmarks, and test levels, that they forget that they're actually trying to predict the completely unpredictable, because at the very base of its nature the market is made up of people, and therefore has a psychology, so sometimes it just goes bleeping nuts. Two things that people are often unprepared to shop for in a rational way are medical care and their children's futures. Not coincidentally, the prices on those two things are currently running out of control.
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Joined: Oct 2011
Posts: 2,856
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You cannot properly apply the topography of a stock market, housing, credit, or tulip bubble to higher education.
Why?
Because it is not a commodity that can be traded and bid up. No, an education cannot be traded. A loan, on the other hand, can be bought, sold, traded, and for extra fun, securitized.
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