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Why wouldn't it be the responsibility of the students to not take out loans for stupid degrees? And also the responsibility of the banks for giving out the loan

Why wouldn't it be the responsibility of the students to not take out loans for stupid degrees? And also the responsibility of the banks for giving out the loans only for useful studies? I don't see any party here that needs rescuing by the government.

lotsofpulp 7y ago
Yes, the whole situation fixes itself by removing taxpayer guaranteed loans. If taxpayers want to assist in education, taxpayers should provide scholarships.
- xorfish 7y ago
  Or make it affordable. Tuition for ETH Zurich around 800 francs per semester.
  - tuukkah 7y ago
    What does that cover, or is it just a nominal tuition?
    - xorfish 7y ago
      tuition and obligatory contributions
foota 7y ago
It doesn't matter who is responsible for the situation, if it presents a large risk to the economy it should be mitigated.
- sokoloff 7y ago
  Alcohol, tobacco, obesity, and general unhealthy lifestyle likely underpins more risk to the economy than student lending. It’s perhaps more “priced in”, but otherwise seems much more serious. Drug abuse is less long-term priced in and likely also has higher aggregate risk as well.
  - foota 7y ago
    There's a difference between risk and harm. Risks are something that represent an unknown future harm to the economy, likely in the form of a potential recession. The things you list undoubtedly waste resources, both from loss of productivity and from spending resources that otherwise could have been utilized for something else, but they're known quantities. In a sense the things you list are kind of like the broken windows fallacy. The increase in healthcare spending shows up in our GDP, but isn't an efficient use of the resources. I also imagine that student loan debt could reduce local growth. If you have a graduate using most of their income on repaying loans, that's money that may have been spent locally and is instead sent to the bank. Of course the opposite is true before graduation, where inflated costs of education result in more money in the local economy. However due to interest it may be the case that the former outweighs the latter.
    - sokoloff 7y ago
      Isn’t student loan repayment harm rather than risk as well, then? It seems like they’re also well known quantities.
      - tbrownaw 7y ago
        The amount that's owed is known, but ability to repay can change. Suppose that someone invents a better version of ELIZA, and everyone in the psychotherapy business is suddenly out of work. Or slightly less absurdly, suppose that Intuit and H&R Block mess up their next round of lobbying, and the IRS implements that one-click tax payment we've all been asking for. And the accountant industry shrinks by a few percent and wages go down for the ones that are left. Either of those would be a significant shift in the job prospects of a large group of people, which could affect how many student loans actually get repaid. I think it might also count as a risk if it suddenly became fashionable to get degrees in, say, underwater basket weaving. As in, incoming students aren't perfectly rational with perfect information about what degrees have what job prospects, and I'm assuming the college loan system might not react quickly if something caused an overall shift towards less economically useful degrees. It does lack one "feature" that helps the bad mortgages cause problems, in that I don't think it would be self-reinforcing. From what I understand, subprime defaults were contagious in a way that I don't think this would be.
kortilla 7y ago
It’s not the bank’s responsibility because they aren’t at risk of a default on the loan for the student picking a useful degree. Remove that government backstop and banks are going to get awfully good at rejecting $200k loans for an out of state B.A. degree in Renaissance Era French Literature.
- vonmoltke 7y ago
  Banks already reject that, because they aren't getting a guarantee. The issue is the loans issued by the Department of Education, which are the non-dischargeable ones.
froindt 7y ago
We like to at least have the allusion that you can start anywhere on the socioeconomic scale and end up better (sometimes far better) than you started. Education has long been one of the best ways to increase your lifetime earning potential, and having the government backing allows someone who had little growing up to receive the same education as the kid whose parents are paying for everything, and to go as far in life as they possibly can. There are obviously holes in this narrative, but we like telling ourselves this can happen. While there's not enough value in 17th century art history for the US to graduate 200k scholars per year and expect in-field employment, there is value to society in general to not losing our history and learning more. Letting the banks decide who gets loans will instantly mean those who can't pay cash cannot pursue that education or need to go on cheaper routes for college. They may or may not be viewed as a comparable education and quality candidate. I'm not a fan of our current system, but a purely utilitarian system I see proposed seems likely to continue the spreading the social divides between the rich, middle class, and poor. I'm an advocate for cutting a lot of the unnecessary fluff and expenses from college. Administrative overhead is excessive. Dorms are way nicer than they need to be. Alas, other colleges have nice dorms, so a single college choosing to go cheap on the dorms will probably decrease admissions and thereby revenue.
prostoalex 7y ago
> I don't see any party here that needs rescuing by the government. Contrary to public perception, there's no robust investment market for student debt. US government ends up purchasing most of it through Treasury. In theory it's a great deal, as it gets to borrow at low Treasury rates and originate at higher rates. I don't have a link to the original source, but "In September 2018, the U.S. Treasury Department revealed in its annual report that student loans account for 36.8% of all U.S. government assets." https://www.investopedia.com/articles/personal-finance/081216/who-actually-owns-student-loan-debt.asp https://www.investopedia.com/articles/personal-finance/08121... Edit: here's a more updated analysis of the Treasury disclosures, which puts the figure at 51.2% as of September 2019 https://www.advisorperspectives.com/dshort/commentaries/2019/09/24/the-fed-s-financial-accounts-what-is-uncle-sam-s-largest-asset https://www.advisorperspectives.com/dshort/commentaries/2019... Devaluing those assets (which Treasury marks to market) would significantly dampen (if not destroy) US government's borrowing ability as well as make some government entitlement programs [at least temporarily] insolvent.

lotsofpulp 7y ago

Yes, the whole situation fixes itself by removing taxpayer guaranteed loans. If taxpayers want to assist in education, taxpayers should provide scholarships.

xorfish 7y ago
Or make it affordable. Tuition for ETH Zurich around 800 francs per semester.
- tuukkah 7y ago
  What does that cover, or is it just a nominal tuition?
  - xorfish 7y ago
    tuition and obligatory contributions

foota 7y ago

It doesn't matter who is responsible for the situation, if it presents a large risk to the economy it should be mitigated.

sokoloff 7y ago
Alcohol, tobacco, obesity, and general unhealthy lifestyle likely underpins more risk to the economy than student lending. It’s perhaps more “priced in”, but otherwise seems much more serious. Drug abuse is less long-term priced in and likely also has higher aggregate risk as well.
- foota 7y ago
  There's a difference between risk and harm. Risks are something that represent an unknown future harm to the economy, likely in the form of a potential recession. The things you list undoubtedly waste resources, both from loss of productivity and from spending resources that otherwise could have been utilized for something else, but they're known quantities. In a sense the things you list are kind of like the broken windows fallacy. The increase in healthcare spending shows up in our GDP, but isn't an efficient use of the resources. I also imagine that student loan debt could reduce local growth. If you have a graduate using most of their income on repaying loans, that's money that may have been spent locally and is instead sent to the bank. Of course the opposite is true before graduation, where inflated costs of education result in more money in the local economy. However due to interest it may be the case that the former outweighs the latter.
  - sokoloff 7y ago
    Isn’t student loan repayment harm rather than risk as well, then? It seems like they’re also well known quantities.
    - tbrownaw 7y ago
      The amount that's owed is known, but ability to repay can change. Suppose that someone invents a better version of ELIZA, and everyone in the psychotherapy business is suddenly out of work. Or slightly less absurdly, suppose that Intuit and H&R Block mess up their next round of lobbying, and the IRS implements that one-click tax payment we've all been asking for. And the accountant industry shrinks by a few percent and wages go down for the ones that are left. Either of those would be a significant shift in the job prospects of a large group of people, which could affect how many student loans actually get repaid. I think it might also count as a risk if it suddenly became fashionable to get degrees in, say, underwater basket weaving. As in, incoming students aren't perfectly rational with perfect information about what degrees have what job prospects, and I'm assuming the college loan system might not react quickly if something caused an overall shift towards less economically useful degrees. It does lack one "feature" that helps the bad mortgages cause problems, in that I don't think it would be self-reinforcing. From what I understand, subprime defaults were contagious in a way that I don't think this would be.

kortilla 7y ago

It’s not the bank’s responsibility because they aren’t at risk of a default on the loan for the student picking a useful degree. Remove that government backstop and banks are going to get awfully good at rejecting $200k loans for an out of state B.A. degree in Renaissance Era French Literature.

vonmoltke 7y ago
Banks already reject that, because they aren't getting a guarantee. The issue is the loans issued by the Department of Education, which are the non-dischargeable ones.

froindt 7y ago

We like to at least have the allusion that you can start anywhere on the socioeconomic scale and end up better (sometimes far better) than you started. Education has long been one of the best ways to increase your lifetime earning potential, and having the government backing allows someone who had little growing up to receive the same education as the kid whose parents are paying for everything, and to go as far in life as they possibly can. There are obviously holes in this narrative, but we like telling ourselves this can happen. While there's not enough value in 17th century art history for the US to graduate 200k scholars per year and expect in-field employment, there is value to society in general to not losing our history and learning more. Letting the banks decide who gets loans will instantly mean those who can't pay cash cannot pursue that education or need to go on cheaper routes for college. They may or may not be viewed as a comparable education and quality candidate. I'm not a fan of our current system, but a purely utilitarian system I see proposed seems likely to continue the spreading the social divides between the rich, middle class, and poor. I'm an advocate for cutting a lot of the unnecessary fluff and expenses from college. Administrative overhead is excessive. Dorms are way nicer than they need to be. Alas, other colleges have nice dorms, so a single college choosing to go cheap on the dorms will probably decrease admissions and thereby revenue.

prostoalex 7y ago

> I don't see any party here that needs rescuing by the government. Contrary to public perception, there's no robust investment market for student debt. US government ends up purchasing most of it through Treasury. In theory it's a great deal, as it gets to borrow at low Treasury rates and originate at higher rates. I don't have a link to the original source, but "In September 2018, the U.S. Treasury Department revealed in its annual report that student loans account for 36.8% of all U.S. government assets." https://www.investopedia.com/articles/personal-finance/081216/who-actually-owns-student-loan-debt.asp https://www.investopedia.com/articles/personal-finance/08121... Edit: here's a more updated analysis of the Treasury disclosures, which puts the figure at 51.2% as of September 2019 https://www.advisorperspectives.com/dshort/commentaries/2019/09/24/the-fed-s-financial-accounts-what-is-uncle-sam-s-largest-asset https://www.advisorperspectives.com/dshort/commentaries/2019... Devaluing those assets (which Treasury marks to market) would significantly dampen (if not destroy) US government's borrowing ability as well as make some government entitlement programs [at least temporarily] insolvent.