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As a US citizen, I see the US debt bomb ending it two different ways 1. Sanders/Warren get elected and somehow forgive 1.5 trillion in student loans and make e

As a US citizen, I see the US debt bomb ending it two different ways 1. Sanders/Warren get elected and somehow forgive 1.5 trillion in student loans and make education free going forward. 2. 2008 level crisis with (2) is the more probable I think universities tuition is way too expensive in our country, but I'm against (1) currently because I don't think retroactively forgiving debt is a good policy. The students took those loans out, signed the docs, and knew (or should have known) what they were getting themselves into. I think forgiving all of the debt would be obviously ridiculously expensive (1.5 trillion is a lot of money) but also possibly creates moral hazard. I would be more supportive of (1) if the government took more of a "Canadian pharma industry" approach and just said "this is how much we will pay for this citizen to go to Harvard, take it or leave it". I have no faith that any of the current presidential candidates will be able to negotiate and pass that type of law, so I currently cant support (1). Is my line of thinking wrong here? I think education should be more affordable but have no faith we have leaders that can get us there.

fortran77 7y ago
I'm completely against forgiving student loans. I want to solve the problem, which means no more Government backed student loans. (I'm all for the Government building more low-cost public Universities, though.) But if they are going to forgive them, certainly the students who prided themselves on being the best and the brightest should have known better! Therefore, anyone in the top 10% of SAT scores or at the top 100 schools should not be eligible for discharge. If you're smart enough to get into Chicago or Harvard, you're smart enough to know how loans work.
- mc3 7y ago
  In addition, forgiving loans is probably not practical - where is all the money going to come from? More tax or less spending on some other service.
- asdfman123 7y ago
  I would be angry because I lived in the cheapest apartment I could and biked as much as I could until I paid everything off. Had I been less responsible, I would get more money under debt forgiveness. The incentives are inverted. I'm all for wealth redistribution but messing with incentives is shown over and over again to be a bad idea. Also, my perspective as the kind of frugal guy that everyone else calls cheap is that we live in the most rampantly consumerist society that has ever existed on the planet earth and we think we need all kinds of things that we really don't. I just can't stomach the idea of throwing money to people who knew what they signed up for but then decided paying back what they owed was too hard.
  - jetpks 7y ago
    Because you suffered, everyone in perpetuity must also suffer?
    - asdfman123 7y ago
      Why do people think this is a good argument whenever I bring that up? Because I signed an agreement that I must pay back my loans, I paid back my loans. For the record, I didn't suffer. I felt fine and did plenty of fun things. I think the biggest mistake Americans make as a society is confusing convenience with happiness. I would in fact be in favor of free college for everyone, but I hate this victim mindset floating around, and I think the largest benefits should go to the most prudent and responsible, instead of taxing people who withheld in their younger years to pay for people who didn't.
    - buboard 7y ago
      If this argument is made in public, people will never support debt forgiveness. not only it breaks the social contract with severe entitlement, it's also very hard to accept that people who can afford harvard or stanford "suffer" populist emotional arguments are good when there is the populus to empathize with it. the vast majority of people won't care for such "plight".
      - asdfman123 7y ago
        You have to realize a lot of kids who went to Harvard and Stanford were just smart kids from normal suburban families and middle class homes. And many of them have middle class jobs, just like people with similar SAT scores who went to state schools instead. Be wary of populist urges to tear down people you perceive to be "better" than you because maybe they're really not, or they're not the cause of the problem. Do things that will improve society, not just satiate your urge for blood.
        erikpukinskis 7y ago
        What’s the endgame though? You have the federal government pay UChigago $100k a year times however many kids? And then when UChicago raises the price to $120k, the federal government pays that? Where does it end? I’m not against free college, or debt forgiveness, but sometimes even if you have a goal there’s no regulatory framework that can meet it. If I wanted to prohibit abortions, while discouraging birth control, and ensuring victims of abuse get to control their bodies... well, sorry. There’s just no regulatory framework that can achieve that. Doesn’t matter what I think is “right”.
- war1025 7y ago
  I think I'd be in favor of discounting them / forcing the interest rate down to ~0% so that they get eaten by inflation over time. I don't think it's right to let people who sacrificed go high and dry while the people who abused the system get a break, though that is often how it plays out. But it seems like there would be ways to lessen the burden for people who did take big loans without it being a complete handout.
- fzeroracer 7y ago
  What you're asking for is a solution in 10-15 years for a problem that's rearing it's head now. If you were to remove government backed loans, you would be locking a significant amount of the US population out of higher education. Without a higher educated workforce, where do you think workers for various jobs are going to come from if we decide to go full protectionist and reduce immigration potential? Low cost universities don't just pop out of thin air and neither do the professors that staff them.
threeisoneis 7y ago
Do you believe the same thing about medical debt? Why or why not?
- misiti3780 7y ago
  Yes, and no Yes, because I dont want to live in a world or a country where someone can go bankrupt and/or end up in poverty because of medical problem - this is still possible in the US unfortunately (though I suspect vastly over stated), Regardless, I would never support forgiving of debts for elected/vanity surgeries. No because I would not want to just forgive all medical debt without fixing the system, which currently seems impossible in the US, politically. Because of lobbying, big pharma, etc. , free heath care would just be too expensive to implement. Obama changed some things, Trump repealed some things. It's a political hot potato. Fixing our system is like trying to turn the titanic at this point, and any changes we make alienate a large portion of the population.
  - sjg007 7y ago
    The majority of bankruptcies are because of medical debt.
rhino369 7y ago
Student debt isn't likely to cause a 2008 crisis since the vast majority of it is held by (or backed by) the government.
- jackcosgrove 7y ago
  Also student loans cannot be discharged in bankruptcy, so there will not be a dramatic crisis triggering writedowns. The digestion of bad loans will take decades.
  - dragonwriter 7y ago
    > Also student loans cannot be discharged in bankruptcy Yes, they can, though it's harder than other unsecured debt.
    - jackcosgrove 7y ago
      It's such a rare event that it wouldn't happen at the scale to trigger a financial crisis.
- xzel 7y ago
  So I actually have a question wrt to the fact the government backs most tuition loans: what is really the difference if the US starts a forgiveness program or everyone defaults and the government pays back the lenders? Aren't the tax payers paying something similar both ways?
  - skinnymuch 7y ago
    Isn’t defaulting on student loans and not having the money garnished incredibly hard? If so, it wouldn’t be possible for more than a small fraction to do it.
buboard 7y ago
if (2) is possible, what's the difference if (1) happens? Someone will have to pay that debt eventually (the taxpayer).
- to11mtm 7y ago
  Scenario (2) more likely indicates that before (1) happens, a number of colleges would have to go bust in rapid succession. TBF my biggest problem with scenario 1 happening would be if scenario 2 DIDN'T happen first. Colleges have too long been promoting degrees that they knew students would never be able to pay off reasonably.
akhilcacharya 7y ago
Harvard is a weird example to use. I think we should stop offering government backed loans to all institutions that aren’t in-state public. Then, tie them to a graduation period. The moral hazard of taking out hundreds of thousands of debt that may never be paid back is (Ideally) gone. Is there an issue to doing this?
ip26 7y ago
There's a few other options, such as it levels off. But something must change, whether social or governmental or economic. At the current rate of growth, by the time my kids are of age, four years at many colleges is going to cost a good deal more than my house- each. Which is not to say that can't happen- but if it did, it would go hand-in-hand with a cultural return to the days of college as a finishing school for the aristocrats, and not something normal people do anymore.
paulddraper 7y ago
> somehow forgive 1.5 trillion in student loans A more plausible outcome is that the law changes to allows student to end after bankruptcy. Maybe lenders are made whole by the government; maybe not. That provides relief to extreme cases, while not shifting an entire $1T+ of debt.
warmind99 7y ago
Hi, quant here (in Uni). I have some obligation to respond to (2), because I know something about it and you've mischaracterized it alot. We have around $1.5T in student debt currently, at its peak in 2008, there was around $12.7T in housing debt (there's more now, interestingly). Like 2008 era mortgages, student debt is securitized and sold in the form of SLABS (Student Loan Backed AssetS; [1]). However, to my knowledge, there are no derivative securities trades on these SLABS, whereas in 2008, nth derivative securities were trades on mortgage-backed securities (MBSs; when I say nth, I mean derivatives were traded on derivative were traded on derivatives, increasing leverage). In Q2 '08, around 4.5% of mortgages were "seriously deliquent" (i.e. were over 90 days past due). This figure jumped to over 21.0% in July '08 [3]. In contrast, serious delinquency for SLABS is around 0.254% [4]. This is different by a full two orders of magnitude (a little less) from the crisis levels. While I get why you might be led to believe that (2) is possible, the data doesn't back it up at all. Remember that almost everyone takes out a mortgage, but only around 50% of relatively young people take out student loans. [1]: https://www.salliemae.com/investors/asset-backed-securities/ https://www.salliemae.com/investors/asset-backed-securities/ [2]: https://www.federalreserve.gov/pubs/feds/2008/200859/200859pap.pdf https://www.federalreserve.gov/pubs/feds/2008/200859/200859p... (pages 2 and 3, use ctrl+F and "delinquent") [3]: https://www.federalreserve.gov/pubs/feds/2008/200859/200859pap.pdf https://www.federalreserve.gov/pubs/feds/2008/200859/200859p... (page 5) [4]: https://www.salliemae.com/assets/investors/asset-backed-securities/2019-b/DistRpt19-B_20191015.pdf https://www.salliemae.com/assets/investors/asset-backed-secu... (page 4; I'm taking this security to be representative, sue me)

fortran77 7y ago

I'm completely against forgiving student loans. I want to solve the problem, which means no more Government backed student loans. (I'm all for the Government building more low-cost public Universities, though.) But if they are going to forgive them, certainly the students who prided themselves on being the best and the brightest should have known better! Therefore, anyone in the top 10% of SAT scores or at the top 100 schools should not be eligible for discharge. If you're smart enough to get into Chicago or Harvard, you're smart enough to know how loans work.

mc3 7y ago
In addition, forgiving loans is probably not practical - where is all the money going to come from? More tax or less spending on some other service.
asdfman123 7y ago
I would be angry because I lived in the cheapest apartment I could and biked as much as I could until I paid everything off. Had I been less responsible, I would get more money under debt forgiveness. The incentives are inverted. I'm all for wealth redistribution but messing with incentives is shown over and over again to be a bad idea. Also, my perspective as the kind of frugal guy that everyone else calls cheap is that we live in the most rampantly consumerist society that has ever existed on the planet earth and we think we need all kinds of things that we really don't. I just can't stomach the idea of throwing money to people who knew what they signed up for but then decided paying back what they owed was too hard.
- jetpks 7y ago
  Because you suffered, everyone in perpetuity must also suffer?
  - asdfman123 7y ago
    Why do people think this is a good argument whenever I bring that up? Because I signed an agreement that I must pay back my loans, I paid back my loans. For the record, I didn't suffer. I felt fine and did plenty of fun things. I think the biggest mistake Americans make as a society is confusing convenience with happiness. I would in fact be in favor of free college for everyone, but I hate this victim mindset floating around, and I think the largest benefits should go to the most prudent and responsible, instead of taxing people who withheld in their younger years to pay for people who didn't.
  - buboard 7y ago
    If this argument is made in public, people will never support debt forgiveness. not only it breaks the social contract with severe entitlement, it's also very hard to accept that people who can afford harvard or stanford "suffer" populist emotional arguments are good when there is the populus to empathize with it. the vast majority of people won't care for such "plight".
    - asdfman123 7y ago
      You have to realize a lot of kids who went to Harvard and Stanford were just smart kids from normal suburban families and middle class homes. And many of them have middle class jobs, just like people with similar SAT scores who went to state schools instead. Be wary of populist urges to tear down people you perceive to be "better" than you because maybe they're really not, or they're not the cause of the problem. Do things that will improve society, not just satiate your urge for blood.
      - erikpukinskis 7y ago
        What’s the endgame though? You have the federal government pay UChigago $100k a year times however many kids? And then when UChicago raises the price to $120k, the federal government pays that? Where does it end? I’m not against free college, or debt forgiveness, but sometimes even if you have a goal there’s no regulatory framework that can meet it. If I wanted to prohibit abortions, while discouraging birth control, and ensuring victims of abuse get to control their bodies... well, sorry. There’s just no regulatory framework that can achieve that. Doesn’t matter what I think is “right”.
war1025 7y ago
I think I'd be in favor of discounting them / forcing the interest rate down to ~0% so that they get eaten by inflation over time. I don't think it's right to let people who sacrificed go high and dry while the people who abused the system get a break, though that is often how it plays out. But it seems like there would be ways to lessen the burden for people who did take big loans without it being a complete handout.
fzeroracer 7y ago
What you're asking for is a solution in 10-15 years for a problem that's rearing it's head now. If you were to remove government backed loans, you would be locking a significant amount of the US population out of higher education. Without a higher educated workforce, where do you think workers for various jobs are going to come from if we decide to go full protectionist and reduce immigration potential? Low cost universities don't just pop out of thin air and neither do the professors that staff them.

threeisoneis 7y ago

Do you believe the same thing about medical debt? Why or why not?

misiti3780 7y ago
Yes, and no Yes, because I dont want to live in a world or a country where someone can go bankrupt and/or end up in poverty because of medical problem - this is still possible in the US unfortunately (though I suspect vastly over stated), Regardless, I would never support forgiving of debts for elected/vanity surgeries. No because I would not want to just forgive all medical debt without fixing the system, which currently seems impossible in the US, politically. Because of lobbying, big pharma, etc. , free heath care would just be too expensive to implement. Obama changed some things, Trump repealed some things. It's a political hot potato. Fixing our system is like trying to turn the titanic at this point, and any changes we make alienate a large portion of the population.
- sjg007 7y ago
  The majority of bankruptcies are because of medical debt.

rhino369 7y ago

Student debt isn't likely to cause a 2008 crisis since the vast majority of it is held by (or backed by) the government.

jackcosgrove 7y ago
Also student loans cannot be discharged in bankruptcy, so there will not be a dramatic crisis triggering writedowns. The digestion of bad loans will take decades.
- dragonwriter 7y ago
  > Also student loans cannot be discharged in bankruptcy Yes, they can, though it's harder than other unsecured debt.
  - jackcosgrove 7y ago
    It's such a rare event that it wouldn't happen at the scale to trigger a financial crisis.
xzel 7y ago
So I actually have a question wrt to the fact the government backs most tuition loans: what is really the difference if the US starts a forgiveness program or everyone defaults and the government pays back the lenders? Aren't the tax payers paying something similar both ways?
- skinnymuch 7y ago
  Isn’t defaulting on student loans and not having the money garnished incredibly hard? If so, it wouldn’t be possible for more than a small fraction to do it.

buboard 7y ago

if (2) is possible, what's the difference if (1) happens? Someone will have to pay that debt eventually (the taxpayer).

to11mtm 7y ago
Scenario (2) more likely indicates that before (1) happens, a number of colleges would have to go bust in rapid succession. TBF my biggest problem with scenario 1 happening would be if scenario 2 DIDN'T happen first. Colleges have too long been promoting degrees that they knew students would never be able to pay off reasonably.

akhilcacharya 7y ago

Harvard is a weird example to use. I think we should stop offering government backed loans to all institutions that aren’t in-state public. Then, tie them to a graduation period. The moral hazard of taking out hundreds of thousands of debt that may never be paid back is (Ideally) gone. Is there an issue to doing this?

ip26 7y ago

There's a few other options, such as it levels off. But something must change, whether social or governmental or economic. At the current rate of growth, by the time my kids are of age, four years at many colleges is going to cost a good deal more than my house- each. Which is not to say that can't happen- but if it did, it would go hand-in-hand with a cultural return to the days of college as a finishing school for the aristocrats, and not something normal people do anymore.

paulddraper 7y ago

> somehow forgive 1.5 trillion in student loans A more plausible outcome is that the law changes to allows student to end after bankruptcy. Maybe lenders are made whole by the government; maybe not. That provides relief to extreme cases, while not shifting an entire $1T+ of debt.

warmind99 7y ago

Hi, quant here (in Uni). I have some obligation to respond to (2), because I know something about it and you've mischaracterized it alot. We have around $1.5T in student debt currently, at its peak in 2008, there was around $12.7T in housing debt (there's more now, interestingly). Like 2008 era mortgages, student debt is securitized and sold in the form of SLABS (Student Loan Backed AssetS; [1]). However, to my knowledge, there are no derivative securities trades on these SLABS, whereas in 2008, nth derivative securities were trades on mortgage-backed securities (MBSs; when I say nth, I mean derivatives were traded on derivative were traded on derivatives, increasing leverage). In Q2 '08, around 4.5% of mortgages were "seriously deliquent" (i.e. were over 90 days past due). This figure jumped to over 21.0% in July '08 [3]. In contrast, serious delinquency for SLABS is around 0.254% [4]. This is different by a full two orders of magnitude (a little less) from the crisis levels. While I get why you might be led to believe that (2) is possible, the data doesn't back it up at all. Remember that almost everyone takes out a mortgage, but only around 50% of relatively young people take out student loans. [1]: https://www.salliemae.com/investors/asset-backed-securities/ https://www.salliemae.com/investors/asset-backed-securities/ [2]: https://www.federalreserve.gov/pubs/feds/2008/200859/200859pap.pdf https://www.federalreserve.gov/pubs/feds/2008/200859/200859p... (pages 2 and 3, use ctrl+F and "delinquent") [3]: https://www.federalreserve.gov/pubs/feds/2008/200859/200859pap.pdf https://www.federalreserve.gov/pubs/feds/2008/200859/200859p... (page 5) [4]: https://www.salliemae.com/assets/investors/asset-backed-securities/2019-b/DistRpt19-B_20191015.pdf https://www.salliemae.com/assets/investors/asset-backed-secu... (page 4; I'm taking this security to be representative, sue me)