4 ms·

Cheap capital raises prices everywhere- for homes, for equities, for land, and certainly for education. Student loans are cheaper than cheap, they are governme

Cheap capital raises prices everywhere- for homes, for equities, for land, and certainly for education. Student loans are cheaper than cheap, they are government subsidized and not even close to their appropriate cost.

GlenTheMachine 4y ago
...and always have been. So what changed?
- bumby 4y ago
  One theory is that competing priorities have shifted public funds towards entitlements, especially healthcare, and away from public university. Tuition is then raised to compensate for the budget reduction. It's interesting to hear some cite that healthcare costs are the only sector that is outpacing college costs, which would explain why budgets are shifted towards it. As with any complex system, I doubt we can point to a single, simple cause.
wahern 4y ago
> Student loans are cheaper than cheap, they are government subsidized and not even close to their appropriate cost. Interest rates on government-subsidized college loans aren't that cheap. Undergraduate loans are the cheapest. They were particularly cheap in the early 2010s and during the COVID pandemic. But over the past 20 years the rate has been ~4-5%, and generally greater than mortgage rates.[1][2][3] Subsidized graduate loans are in 6-7% territory (even 8+%), and always have been. Unsurprisingly, AFAIU the latter constitute a substantially disproportionate share of student debt--including, especially, debt that people are unable to climb out of due to compounding--relative to the number of students. [1] https://studentaid.gov/understand-aid/types/loans/interest-rates https://studentaid.gov/understand-aid/types/loans/interest-r... [2] https://educationdata.org/average-student-loan-interest-rate https://educationdata.org/average-student-loan-interest-rate [3] https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US
- AbrahamParangi 4y ago
  They're really cheap relative to what the market rate for that sort of loan would be in a free market. That the loans cannot be defaulted on is another form of subsidy.
- credit_guy 4y ago
  > and generally greater than mortgage rates Mortgages are secured by a real asset. You stop paying the mortgage, the bank gets the house. Student loans are unsecured.
imtringued 4y ago
From a macroeconomic theory perspective that is completely incorrect. There is zero empirical evidence for this. Interest rates have been zero in Japan for decades and the biggest effect they had was keep inflation near 0%. Cheap capital lowers the prices of all non-monopoly goods. Monthly payments on your mortgage are lower which reduces the cost of housing, it becomes cheaper to produce food or anything that can be produced in arbitrary quantities. It is only the monopolies that go up in price because they offer rent seeking revenue which is a direct result of their monopoly nature and actually distorts the market. Higher stock prices mean it becomes advantageous to start your own company.
- bumby 4y ago
  >Monthly payments on your mortgage are lower which reduces the cost of housing Just trying to understand your perspective, but this is based on an existing mortgage, correct? What does it do for the price of a new mortgage? I was under the impression that cheap capital tends to inflate home prices.
- AbrahamParangi 4y ago
  This is conflating prices consumers see with broader financial access to capital. We may trivially see that when consumers can access cheap capital too, prices for consumer goods rise (housing loans, auto loans, college loans, credit cards, BNPL).

GlenTheMachine 4y ago

...and always have been. So what changed?

bumby 4y ago
One theory is that competing priorities have shifted public funds towards entitlements, especially healthcare, and away from public university. Tuition is then raised to compensate for the budget reduction. It's interesting to hear some cite that healthcare costs are the only sector that is outpacing college costs, which would explain why budgets are shifted towards it. As with any complex system, I doubt we can point to a single, simple cause.

wahern 4y ago

> Student loans are cheaper than cheap, they are government subsidized and not even close to their appropriate cost. Interest rates on government-subsidized college loans aren't that cheap. Undergraduate loans are the cheapest. They were particularly cheap in the early 2010s and during the COVID pandemic. But over the past 20 years the rate has been ~4-5%, and generally greater than mortgage rates.[1][2][3] Subsidized graduate loans are in 6-7% territory (even 8+%), and always have been. Unsurprisingly, AFAIU the latter constitute a substantially disproportionate share of student debt--including, especially, debt that people are unable to climb out of due to compounding--relative to the number of students. [1] https://studentaid.gov/understand-aid/types/loans/interest-rates https://studentaid.gov/understand-aid/types/loans/interest-r... [2] https://educationdata.org/average-student-loan-interest-rate https://educationdata.org/average-student-loan-interest-rate [3] https://fred.stlouisfed.org/series/MORTGAGE30US https://fred.stlouisfed.org/series/MORTGAGE30US

AbrahamParangi 4y ago
They're really cheap relative to what the market rate for that sort of loan would be in a free market. That the loans cannot be defaulted on is another form of subsidy.
credit_guy 4y ago
> and generally greater than mortgage rates Mortgages are secured by a real asset. You stop paying the mortgage, the bank gets the house. Student loans are unsecured.

imtringued 4y ago

From a macroeconomic theory perspective that is completely incorrect. There is zero empirical evidence for this. Interest rates have been zero in Japan for decades and the biggest effect they had was keep inflation near 0%. Cheap capital lowers the prices of all non-monopoly goods. Monthly payments on your mortgage are lower which reduces the cost of housing, it becomes cheaper to produce food or anything that can be produced in arbitrary quantities. It is only the monopolies that go up in price because they offer rent seeking revenue which is a direct result of their monopoly nature and actually distorts the market. Higher stock prices mean it becomes advantageous to start your own company.

bumby 4y ago
>Monthly payments on your mortgage are lower which reduces the cost of housing Just trying to understand your perspective, but this is based on an existing mortgage, correct? What does it do for the price of a new mortgage? I was under the impression that cheap capital tends to inflate home prices.
AbrahamParangi 4y ago
This is conflating prices consumers see with broader financial access to capital. We may trivially see that when consumers can access cheap capital too, prices for consumer goods rise (housing loans, auto loans, college loans, credit cards, BNPL).