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> the government does not succeed if students are stuck in debt forever. Therefore when government gives the loans, incentives are aligned and lending goes dow

by bjt 6y ago

> the government does not succeed if students are stuck in debt forever. Therefore when government gives the loans, incentives are aligned and lending goes down. That's a double edged sword. Yeah, the government doesn't have the profit motive that predatory lenders do, but they also lack the incentive to say no to students who are borrowing money to study things that won't do much to help them pay it back. Politicians don't get re-elected on a platform of "let's reduce student loan amounts" or "let's give less money to students who are studying subjects that won't help them earn much". And the bureaucrats running the program don't have the power or the incentive to impose discipline here either.

quietbritishjim 6y ago
In a system of loans directly from the government, there is still some mild disincentive against lending to people that won't pay it back, even if it is tempered against some other incentives. What's more, a government body certainly can and surely would limit total loan amounts for affordability reasons. More to the point, the comparison here is against regular private lenders, but instead against private lenders with government guarantees. Those have no disincentive whatsoever to avoid people who can't pay money back or to limit the loan amount. In fact they have a very strong positive incentive: there's a guaranteed profit on every loan and it's proportional to loan amount. What's more, if you cap the loan amount then the "customer" might use a competitor with a higher cap, so you lose the whole of the loan.
- cmwelsh 6y ago
  > What's more, a government body certainly can and surely would limit total loan amounts for affordability reasons. Interesting in this regard - the macro picture shows that the majority of the USA’s assets are these loans. Let’s hope they can all pay us back!
- unishark 6y ago
  I believe private lenders require cosigners or else proof of income. I don't see how they can win here. You'd have them discriminate in giving loans based on some kind of lifetime prediction of someone's earnings? I'm sure that would go over well. Schools need to be the adults in the room, since they getting most of the money after all. And that will only be motivated by having them take the financial hit if students default.
- TuringNYC 6y ago
  In fact if private lenders enjoyed the guarantees, i can imagine them sponsoring entire schools with full easy-button applications and admissions just to take advantage of the lending profits. Anything to push volume.
TheOtherHobbes 6y ago
On that basis you might as well limit university education exclusively to hedge fund management. It pays better than anything else, so what's the problem? Never mind that some stupid math problem that only fifty people in the world ever cared about led to the creation of both crypto and computing. So presumably it would have been "discipline" to have Turing flipping burgers instead of going to college, because most administrators, voters, and politicians had no clue what he was doing, and fewer people cared. This is why we shouldn't make student loans justify themselves economically. In fact we shouldn't have student loans at all. Because it's really hard to make multi-decade predictions about which areas of interest will be financially viable - as anyone doing a CS degree today will discover in the next ten years or so.
jlebar 6y ago
If the private loans are guaranteed, what incentive do the private lenders have? That's my point.

by bjt 6y ago

quietbritishjim 6y ago

In a system of loans directly from the government, there is still some mild disincentive against lending to people that won't pay it back, even if it is tempered against some other incentives. What's more, a government body certainly can and surely would limit total loan amounts for affordability reasons. More to the point, the comparison here is against regular private lenders, but instead against private lenders with government guarantees. Those have no disincentive whatsoever to avoid people who can't pay money back or to limit the loan amount. In fact they have a very strong positive incentive: there's a guaranteed profit on every loan and it's proportional to loan amount. What's more, if you cap the loan amount then the "customer" might use a competitor with a higher cap, so you lose the whole of the loan.

cmwelsh 6y ago
> What's more, a government body certainly can and surely would limit total loan amounts for affordability reasons. Interesting in this regard - the macro picture shows that the majority of the USA’s assets are these loans. Let’s hope they can all pay us back!
unishark 6y ago
I believe private lenders require cosigners or else proof of income. I don't see how they can win here. You'd have them discriminate in giving loans based on some kind of lifetime prediction of someone's earnings? I'm sure that would go over well. Schools need to be the adults in the room, since they getting most of the money after all. And that will only be motivated by having them take the financial hit if students default.
TuringNYC 6y ago
In fact if private lenders enjoyed the guarantees, i can imagine them sponsoring entire schools with full easy-button applications and admissions just to take advantage of the lending profits. Anything to push volume.

TheOtherHobbes 6y ago

On that basis you might as well limit university education exclusively to hedge fund management. It pays better than anything else, so what's the problem? Never mind that some stupid math problem that only fifty people in the world ever cared about led to the creation of both crypto and computing. So presumably it would have been "discipline" to have Turing flipping burgers instead of going to college, because most administrators, voters, and politicians had no clue what he was doing, and fewer people cared. This is why we shouldn't make student loans justify themselves economically. In fact we shouldn't have student loans at all. Because it's really hard to make multi-decade predictions about which areas of interest will be financially viable - as anyone doing a CS degree today will discover in the next ten years or so.

jlebar 6y ago

If the private loans are guaranteed, what incentive do the private lenders have? That's my point.