What a Student Loan 'Bubble' Bursting Might Look Like

Post by nopriorarrests » Wed, Jan 02, 2019, 10:29 PM UTC

dragonwriter wrote: post #4

number_six wrote: post #3

The fact that people can't ever discharge their loans makes it hard to imagine it "bursting" in the way that the housing market did in 2008. The whole notion of bursting is people collectively realizing their folly and everyone scrambling as quickly as possible to make out with whatever they've got left - like a run on a bank. In this case there is no bank to run on - people will just continue to have their wages/ben…

> The fact that people can't ever discharge their loans They can, it just has a higher bar of unaffordability before it can be discharged even in bankruptcy. OTOH, the higher the ratio of student loan debt to income becomes for typical borrowers, the more likely it is that there would be a wave of discharges. Even without discharges, though, you can have an escalating problem of loans becoming worthless to those with…

Post by ep103 » Wed, Jan 02, 2019, 10:41 PM UTC

jointpdf wrote: post #13

ep103 wrote: post #8

Aggregate student loan repayment should be capped as a percentage of yearly income. This should have been included as part of the same legislation that made student loans non-dischargable by bankruptcy. If you make 100k / year, and the rate is set at 10% (random number), 10k is the maximum amount you pay on your loans, regardless of the total amount you loans you have accrued. Currently, there is no downward pressure…

This exists—income based repayment plans. There are different types [1], but basically you pay a maximum 10% or 15% of your income, and the remaining balance is discharged after 20 or 25 years. AFAIK, it’s open to everyone—but you have to apply. It would probably help a lot of people avoid default if everyone was auto-enrolled in IBR. Also, there’s the public service loan forgiveness program (10 yrs public service jo…

Post by acover » Wed, Jan 02, 2019, 10:55 PM UTC

nopriorarrests wrote: post #12

dragonwriter wrote: post #4

Earlier quoted context omitted.

> The fact that people can't ever discharge their loans They can, it just has a higher bar of unaffordability before it can be discharged even in bankruptcy. OTOH, the higher the ratio of student loan debt to income becomes for typical borrowers, the more likely it is that there would be a wave of discharges. Even without discharges, though, you can have an escalating problem of loans becoming worthless to those with…

>On the federal side, increasing defaults mostly reduce the difference between loans and grants Interesting tidbit here is that half (yes, half) of the US government's financial assets are student loans. It was discussed here previously -- https://news.ycombinator.com/item?id=16136330 . Something I find very hard to comprehend, tbh.

Post by beefalo » Wed, Jan 02, 2019, 11:01 PM UTC

closetCS wrote: post #15

I don't see this here, but could a student debt bubble result not in a wave of defaults but as a contributing factor in a market slowdown or recession because the average borrower will have less disposable income to spend on other goods and products due to the insane debt payments? A wave of defaults most likely won't hurt any major institution except the federal government, but the lack of consumer spending seems li…

Post by sys_64738 » Wed, Jan 02, 2019, 11:07 PM UTC

JamesBarney wrote: post #7

Summary of what a student loan bubble bursting would be from the article. The government would guarantee less student loans. This would be means some for profit institutions might shut down.