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America's pensions can't beat Vanguard but they can close a hospital

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Re: America's pensions can't beat Vanguard but they can close a hospital

#161

Post by disgruntledphd2 »

mschuster91 wrote: post #143
codexb wrote: post #68

Earlier quoted context omitted.

Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them. The solution is to allow judges the discretion to default them in bankruptcy…

That's not a solution at all, because it will price out way too many students. The solution is to do what Germany and most of the EU does - pay universities with tax money and do not charge students anything at all (or maybe a few hundred to thousand euros).

> The solution is to do what Germany and most of the EU does - pay universities with tax money and do not charge students anything at all (or maybe a few hundred to thousand euros).

This is a totally fine system, but would change US tertiary education massively. Much of the state university increases in tuition since the GFC have been driven by exactly the opposite behaviour (cut state funding, make it up in tuition).

Re: America's pensions can't beat Vanguard but they can close a hospital

#162

Post by palmotea »

codexb wrote: post #68
jazz9k wrote: post #45

Earlier quoted context omitted.

I disagree about student loans. The entire system needs to be dismantled. Universities don't care if their majors will result in a job and the student loans are a source of risk-free money. They need to start taking on the risk of all student loan, not me, the tax payer.

Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them. The solution is to allow judges the discretion to default them in bankruptcy…

> The solution is to allow judges the discretion to default them in bankruptcy after X number of years after graduation. Lenders need to accept the risk. With no risk, they can loan as much as they want and have guaranteed repayment. This drives tuition higher and higher.

This. The whole student loan mess is a direct result of their special treatment during bankruptcy.

> It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them.

I wouldn't be opposed to some kind of tuition claw-back from schools, when a student loan goes into default (but only by the government, not private lenders). The universities need more skin in the game to keep tuition under control.

Re: America's pensions can't beat Vanguard but they can close a hospital

#163

Post by Ekaros »

downrightmike wrote: post #118
codexb wrote: post #68

Earlier quoted context omitted.

Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them. The solution is to allow judges the discretion to default them in bankruptcy…

Student loans currently carry no risk. They can't be discharged. Interest is the payment to the lender to accept risk. There is no risk in the current state of student loans. Therefore they should never-ever charge interest. Also schools need to be reigned in, if GA et al can pay each student athlete $40,000 a month, they MUST be held accountable for burdening the students and the state with unscrupulous debt.

They should charge rate. But rate should be similar to say interbank rate. Maybe plus something like 0.5%. This is how standard loaning often operates. You have risk free lending so you get loan from somewhere else and then take some margin.

Re: America's pensions can't beat Vanguard but they can close a hospital

#164

Post by SilverElfin »

nradov wrote: post #14
OGEnthusiast wrote: post #2

I don't understand why we don't just ban private equity. Seems like zero value-add to the actual real economy.

Ban companies from owning other companies? How would that work exactly? Private equity is a convenient whipping boy for ignorant, low-information HN users who don't understand the basics of how finance works. You can certainly find examples of destructive or unethical behavior if you dig deep enough. What you don't see in the news are all the cases where PE saved companies that would have otherwise gone bankrupt.

> Private equity is a convenient whipping boy for ignorant, low-information HN users who don't understand the basics of how finance works. You can certainly find examples of destructive or unethical behavior if you dig deep enough. What you don't see in the news are all the cases where PE saved companies that would have otherwise gone bankrupt.

This is an unnecessarily aggressive comment and not appropriate.

But also, your own comment is information-free. Why don’t you share actual examples and we can determine if those are significant enough to erase the anecdotal evidence from the other side. Virtually all examples of PE I’ve seen are extractive. They don’t result in a better product. They are instead just lazy arbitrage relying on the power of capital, vendor lock-in, switching costs, and the limited capital of their abused customers.

As for “how would that work exactly” - like anything else. We can come up with ways to classify companies as private equity and enact enormous taxes on them. Or pass other types of regulations into law.

Re: America's pensions can't beat Vanguard but they can close a hospital

#165

Post by zeroonetwothree »

downrightmike wrote: post #118
codexb wrote: post #68

Earlier quoted context omitted.

Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them. The solution is to allow judges the discretion to default them in bankruptcy…

Student loans currently carry no risk. They can't be discharged. Interest is the payment to the lender to accept risk. There is no risk in the current state of student loans. Therefore they should never-ever charge interest. Also schools need to be reigned in, if GA et al can pay each student athlete $40,000 a month, they MUST be held accountable for burdening the students and the state with unscrupulous debt.

Around 6% of student loans are defaulted on. Some of those end up never being repaid while others are delayed substantially.

Also interest is payment for the combination of losing use of money + risk + inflation.

Re: America's pensions can't beat Vanguard but they can close a hospital

#166

Post by trothamel »

downrightmike wrote: post #118
codexb wrote: post #68

Earlier quoted context omitted.

Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them. The solution is to allow judges the discretion to default them in bankruptcy…

Student loans currently carry no risk. They can't be discharged. Interest is the payment to the lender to accept risk. There is no risk in the current state of student loans. Therefore they should never-ever charge interest. Also schools need to be reigned in, if GA et al can pay each student athlete $40,000 a month, they MUST be held accountable for burdening the students and the state with unscrupulous debt.

Interest also compensates for the other things that money could be doing. If I didn't loan it to you (or a student), then I would be doing something else with the money, even if just buying a government bond.

Re: America's pensions can't beat Vanguard but they can close a hospital

#167

Post by disgruntledphd2 »

zeroonetwothree wrote: post #159
mschuster91 wrote: post #143

Earlier quoted context omitted.

That's not a solution at all, because it will price out way too many students. The solution is to do what Germany and most of the EU does - pay universities with tax money and do not charge students anything at all (or maybe a few hundred to thousand euros).

How many German universities are ranked top 40 globally? How many American?

> How many German universities are ranked top 40 globally? How many American?

University rankings are mostly nonsense. They generally over-weight English speaking universities because most of the "high impact" journals are in English. The UK also does well by these metrics, but fundamentally academic research and teaching are very different things, and incentivising high output research institutions to focus on the research breaks the social purpose of universities which is to turn out educated undergraduates.

The German model is to focus more on teaching, which is a more sustainable approach than chasing the finite research dollars.

Re: America's pensions can't beat Vanguard but they can close a hospital

#168

Post by fwip »

downrightmike wrote: post #118
codexb wrote: post #68

Earlier quoted context omitted.

Ok, but forgiving student loans doesn't do that. It signals to borrowers that they don't have to repay high loans if their career can't support it. It tells borrowers that they can make risky loans without a chance of default. It tells universities that they can keep charging exorbitant tuitions because kids can still get loans to pay them. The solution is to allow judges the discretion to default them in bankruptcy…

Student loans currently carry no risk. They can't be discharged. Interest is the payment to the lender to accept risk. There is no risk in the current state of student loans. Therefore they should never-ever charge interest. Also schools need to be reigned in, if GA et al can pay each student athlete $40,000 a month, they MUST be held accountable for burdening the students and the state with unscrupulous debt.

One downside is that money lent for a student loan cannot otherwise be invested. If paid back later with no interest, the money will likely have lost value to inflation in the meantime.

I think I agree with your broader point - just quibbling, here.

Re: America's pensions can't beat Vanguard but they can close a hospital

#169

Post by horsawlarway »

TimorousBestie wrote: post #148
Aurornis wrote: post #123

Earlier quoted context omitted.

I’m always surprised that student loan forgiveness appeals to anyone who should otherwise be able to think about all of the bad second order effects. The more we inject money into the education system, the higher prices go. Setting a precedent that the government will just pay off your loans if you don’t pay them off only encourages more people to take out loans without thinking about paying them back. There are so m…

What are the second-order effects of a subclass of citizens permanently encumbered by debt that (with rare exceptions) cannot be discharged through bankruptcy? Perhaps your analysis of second-order effects is not thorough and complete? Have you really considered all of them?

Not really sure why this is getting downvoted.

I don't really think we need to forgive student loans - I think they should absolutely be dischargeable through bankruptcy, though.

Bankruptcy isn't a "get out of jail free" card - it puts a huge burden on a student relatively soon after graduating that makes it harder to start a family or buy a home. So it incentives are still aligned for the students taking the loans.

But the option that a student defaults brings some real light and transparency into a loan system that just feels wildly disconnected from reality right now. If a student can't pay the loan back with the job options in the field and is like to default... don't issue the loan.

I think it's absolutely abusive that student debt can't be discharged, and is pretty heinous as policy.

Re: America's pensions can't beat Vanguard but they can close a hospital

#170

Post by onlyrealcuzzo »

jazz9k wrote: post #45
epistasis wrote: post #24

> Larry Summers warned against “moral hazard lectures” and demanded SVB depositors be made whole immediately in 2023, months after calling student loan relief inflationary and unfair. Moral hazard for borrowers, bailouts for banks. Not lost on the public. I can't believe I'm about to say something that could be construed as a defense of Larry Summers, but here goes: bank depositors are not engaging in risky behavior,…

I disagree about student loans. The entire system needs to be dismantled. Universities don't care if their majors will result in a job and the student loans are a source of risk-free money. They need to start taking on the risk of all student loan, not me, the tax payer.

The German model is pretty good. Tuition prices are reasonable. If you're studying something statistically considered a good investment - you get free tuition. If not, you pay for it.

The American model is terrible. The tuition prices are insane because no one pays for it now, and there's endless appetite to lend because your borrower is a systemically non-financially literate CHILD who is signing away their future wages with no right to default EVER.

No one would ever lend to the majority of these at these insane tuition prices. We'd quickly end up with reasonable tuitions like in Germany. And then most of the problem goes away.

Suddenly schools and degrees that WEREN'T good investments become good investments again.

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