3 ms·

In what sense is it a bubble? What assets are being bid up by enthusiastic investors and could suddenly collapse in value?

trsohmers 9y ago
The fact that private lenders are incentivized to give out more and more leads to universities charging more and more. Even with all the money being spent, the same (or in some cases less) level of education is being provided. On top of that, how do you repossess someones education in the case of default? You can't, so the government can do one of three things: 1.Pay off the loan holders (by printing money, huge inflation) 2.Allowing indentured servitude 3.Debt forgiveness (now all the lenders are out of money) Sadly, I think the 3rd option is the best one, but is by no means actually a good one.
- bradleyjg 9y ago
  Private lenders are tiny part of the market in student loan originations, even a smaller part in undergradatute loans. The federal government is the overwhelmingly dominant player and they set the terms by fiat rather than any kind of market. The “lenders” are the USG, and the cost of capital is only the imputed inflationary effect of transforming a loan into spending. Given the experience of the last decade those inflationary pressures may well be smaller than we had thought.
NegativeK 9y ago
In the same sense that the mortgage industry was a bubble. For mortgages, the investor lent money to home buyers and expected a long-term payment schedule. The houses were being bid up. If you assume student loans are a bubble: the long-term earnings potential of students is being bid up (and will collapse, leaving the government with lower worth/worthless assets.)
deleted 9y ago
[deleted]
branchless 9y ago
This usd has entered the economy via universities. The inflation is already out there. The issue comes when the loss is chrystalized. As in 2008 the state is filling in a hole not building a hill.
deleted 9y ago
[deleted]

trsohmers 9y ago

The fact that private lenders are incentivized to give out more and more leads to universities charging more and more. Even with all the money being spent, the same (or in some cases less) level of education is being provided. On top of that, how do you repossess someones education in the case of default? You can't, so the government can do one of three things: 1.Pay off the loan holders (by printing money, huge inflation) 2.Allowing indentured servitude 3.Debt forgiveness (now all the lenders are out of money) Sadly, I think the 3rd option is the best one, but is by no means actually a good one.

bradleyjg 9y ago
Private lenders are tiny part of the market in student loan originations, even a smaller part in undergradatute loans. The federal government is the overwhelmingly dominant player and they set the terms by fiat rather than any kind of market. The “lenders” are the USG, and the cost of capital is only the imputed inflationary effect of transforming a loan into spending. Given the experience of the last decade those inflationary pressures may well be smaller than we had thought.

NegativeK 9y ago

In the same sense that the mortgage industry was a bubble. For mortgages, the investor lent money to home buyers and expected a long-term payment schedule. The houses were being bid up. If you assume student loans are a bubble: the long-term earnings potential of students is being bid up (and will collapse, leaving the government with lower worth/worthless assets.)

deleted 9y ago

[deleted]

branchless 9y ago

This usd has entered the economy via universities. The inflation is already out there. The issue comes when the loss is chrystalized. As in 2008 the state is filling in a hole not building a hill.

deleted 9y ago

[deleted]