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The Student Loan Bubble is Starting To Burst

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Re: The Student Loan Bubble is Starting To Burst

#151

Post by twoodfin »

muzz wrote: post #62
asmithmd1 wrote: post #18

Huge difference between student loans and mortgages - the only pain felt will be by the students and taxpayers who will (again!) make the lenders whole on their bad bets: Student loans cannot be discharged even if you declare bankruptcy - while home owners could walk away and hand the keys to the bank. Student loans are guaranteed by the government - the issuers just file for compensation. The sickening part is that…

Taxpayers no longer subsidize private lenders. That ended in 2010.

Sure: Now they're funding the loan program directly. At the moment it's profitable, but if there are ever losses they'll come directly from the taxpayers' pockets.

And there are indirect losses, too: Imagine the government started running a program to pay people $20K+/year (think grants + loans) not to work for four years, provided they paid some of it back at low, capped interest rates. Surely a lot of people would take the government up on that offer, and instead of being productive taxpayers, contributing to the economy and to the treasury, they'll sit around playing XBox. Maybe it turns out that the average college degree program is a better investment than this, even accounting for the lost GDP and tax revenue. But there's no way to be sure, since there's no market at work.

Re: The Student Loan Bubble is Starting To Burst

#152

Post by waps »

skylan_q wrote: post #140
muzz wrote: post #48

Earlier quoted context omitted.

Not sure you apply that definition at all. Education is not an asset-- it can't be transferred ie sold like a house can. Along the same lines, there is no incentive or ability to buy an extra degree in Vegas, Phoenix, or Miami, just because prices are going up there.

When there's a decrease in the loans going out, there's a decrease on the payments coming in at a future date. When there's a decrease in the loans going out, there's a decrease in the demand for education services causing a reduction in the quantity available. Repossession isn't a necessary condition for something to be in a bubble. Pulling demand forward and using laws/regulations/programs to funnel money into cert…

Exactly. Plus you can change the ground rules. In this case it can apparently even be done without changing the law :

Student loans are not excluded from discharge if excluding the debt would "impose an undue hardship on the debtor and the debtor's dependents".

So it only requires a small attitude change of judges for the bank's assumption that non-repayment is impossible to blow up. Given the attitude changes towards student debt that are occurring in the papers, can this really be that far behind ?

Re: The Student Loan Bubble is Starting To Burst

#155

Post by consonants »

slg wrote: post #51
msandford wrote: post #16

It's really too bad that the laws surrounding student loans make them artificially cheap. You can't get rid of college debt through bankruptcy so you're basically saddled for life. Normally the interest you pay is the combination of three things: 1. The (inherent) time value of money 2. Expenses the lender incurs to keep up with the debt 3. The average default risk of those taking the loans Student loans only price i…

Playing devil's advocate, isn't it fair to remove the ability to discharge student loan debt and in term the default risk due to the fact that there is no collateral? Unlike a car loan or a mortgage, a bank can't repossess your education.

No. Also, I believe they can garnish wages and repossess property to pay off loans if it looks like the client won't ever be able to pay the debt back.

In carrying out its fiduciary duty the firm that issued the loan came to the conclusion that the person would be reasonably able to pay the loan back with interest. Of course, since the risk of default is off the table with student loans, why not hand out a bunch of money that will get paid back with some accrued interest before it is discharged, if it ever is at all?

In a world where fake private schools didn't accelerate the loan bubble, and one that probably treats student loans like any other debt, it would be a different story. Boils down to whether or not they think the prospect of their client finding gainful employment after school is worth taking on the risk of the client defaulting.

Re: The Student Loan Bubble is Starting To Burst

#156

Post by waps »

muzz wrote: post #100
prostoalex wrote: post #92

Earlier quoted context omitted.

I think the headline here implies that the said middleman is unsure about the viability of the market, so any savings figure is dependent on low loan default figure.

No, JP Morgan is NOT a middleman. These were cut out in 2010, and JP Morgan is lending directly now. Their loans are not subsidized nor backed by taxpayer money, and they are free to decide to stop lending, which is what appears to be happening now.

It also means that the government is now 1) the one making the laws 2) the organisation that would suffer if the assumptions ("guaranteed repayment") turn out less than perfect

So now we have : debt slavery where your debtor is actually the one making laws. This could be really good or really bad. Really good if it is decided that transferring the education debt to all taxpayers is deemed acceptable, really bad if the government gets into the business of debt collection from people with no assets (ie. actual slavery).

Re: The Student Loan Bubble is Starting To Burst

#157

Post by Daniel_Newby »

jsnk wrote: post #83
everettForth wrote: post #17

No, it's not. Not even close, and this is really terrible reporting. It's unfortunate that so many young people are carrying large amounts of student loan debt, but there is no sign of a "bubble" bursting any time soon. I don't even understand how the notion of a "student loan bubble" makes sense, since people don't "speculate" on college like they speculate on real estate. There are so many things wrong with the ide…

I think the notion of "bubble" simply comes from people's understand that the amount of money poured in for something doesn't amount to very much. For example, say you go to top elite 4-year liberal arts college and receive a degree in gender studies dropping $40k a year. Is that really worth $160k + interest for you? If the perceived value of the degree is substantially lower than expected, you mostly likely wouldn'…

The bubble aspect comes from the approaching brick wall for U.S. Treasury bonds. At some point the machine will stop handing out free money. Then the price of a gender studies degree will fall to historical work-your-way-through-college levels. There will be a lot of political pressure to reprice the principal on old student loans, which were only so expensive because the government blew a bubble.

Re: The Student Loan Bubble is Starting To Burst

#158

Post by noise »

ChrisBland wrote: post #94
RougeFemme wrote: post #77

Earlier quoted context omitted.

A lot of credit card debt has no collateral either, but that can be discharged in bankruptcy; why not student loans? And I suppose credit card companies could try to re-possess the goods purchased with credit cards (obviously not the services), but they don't. (And it makes sense not to; not worth it financially). FWIW, I have no student loan debt so I'm relatively neutral on this.

The issue is at the end of a normal Bankruptcy proceeding, assets are sold to repay the note. Lets say you go out and buy a rental property for $500k, if you never make a payment the bank can repossess the rental property and sell it to recover their loan. Your asset is gone, you have no way of making any kind of income from it after it has been repossessed. With student debt its different, if you went to undergrad a…

I'm not advocating this, but why couldn't they take your degree away? They can't take your education away, but the degree is just an agreement/contract that says you upheld your part of the bargain - passed tests, etc, and paid the university, and they in turn give you a certificate of achievement. If you default on the loan which was a substantial portion of the payment clause of that contract, why can't they revoke the degree?

I realize the loan in these cases is not directly from the university.

Re: The Student Loan Bubble is Starting To Burst

#159

Post by unono »

jlgreco wrote: post #146
unono wrote: post #144

Earlier quoted context omitted.

I think we'll keep disagreeing about this. I think your argument comes from the traditional 'liberal arts' education angle. I'm coming more from vocational type place. More of a rentacoder/odesk done more comprehensively. Anyway, adios

I'm not worried about liberal arts education. I couldn't care less about that. I'm just wondering how you think making an app would be the difficult part of teaching thermodynamics or fluid mechanics to people.

Khan got famous for explaining concepts really well. There were plenty of online stuff covering it already. He just did a superior product.

Same with the app. It needs to be excellent, something Steve Jobs would be proud of, and it will make dent in the universe.

This is big, heady, stuff, and we'll kill the ed business with it. I like nothing better than to see government jobs disappear.

Re: The Student Loan Bubble is Starting To Burst

#160

Post by fnordfnordfnord »

sliverstorm wrote: post #103
fnordfnordfnord wrote: post #85

Earlier quoted context omitted.

It is pretty impossible and probably unreasonable to expect your average college freshmen to have a good credit rating.

No one expects them to. The point is the credit card company accepts the risk of default on no-collateral loans in part because they have confidence (credit report) in the chances of being paid back, while a student typically has no such supporting evidence to back their case.

Those cards generate lots of fees. How can the CC have confidence in the credit report when they issue cards to people with virtually no credit. They are wildcatting.

https://en.wikipedia.org/wiki/Wildcatter

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