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An argument for federal student loans being a significant driver of inflation all on their own is pretty strained. I'd want to see numbers. But regardless, th

by ajross 3y ago

An argument for federal student loans being a significant driver of inflation all on their own is pretty strained. I'd want to see numbers. But regardless, this isn't even true on issues of fact. Federal student loans are still in forbearance, and will be until October.

somenameforme 3y ago
As an aside here, it's not the federal loans that are an issue, but the federal protections against all student loan dismissal that's the problem. It gives lenders a major incentive for reckless lending. Lenders aren't as motivated to ensure the success of those they lend to, because in the worst case scenario they have essentially have a lien on people themselves. And the later it's called in, the higher the cost will be. In a world without these protections the interests of student loan lenders and students would be strongly aligned. And the greater restraint in lending would also likely drive down education costs, as well as help push students from poor families more towards majors that can help them become successful adults - a push those students might not otherwise get from their families or even school councilors. As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree.
- ajross 3y ago
  What fraction of student loans are not done under federal guarantee programs? Again the numbers don't add up here. The complaint that lender incentives are broken with guaranteed loans is true enough, but it's not remotely a new effect. These banks have been issuing high risk loans (students almost literally can't fail to qualify) for decades without being an inflation driver. Arguing that they are now, just because it confirms your priors about a (now receding) burst of transient inflation is magical thinking.
  - somenameforme 3y ago
    There were some pretty recent multiplicative exponential effects going on. You had education costs increasing far faster than inflation, an increasing number of people obtaining degrees, and an increasing chunk of people obtaining degrees unlikely to meaningfully contribute to their ability to make good on those loans. This caused total debt figures to increase at an exponential rate. You can see the data quite clearly here [1]. I do wish the data went further back, but it's clear enough as is. In 2006 the total debt from student loans was less than $500 billion. Today it's $1.7 trillion. That's a huge chunk of money which is going to have meaningful economic effects. On the plus side, the numbers have finally slowed but it remains to be seen if that was just an effect of COVID. [1] - https://fred.stlouisfed.org/series/SLOAS https://fred.stlouisfed.org/series/SLOAS
    - ajross 3y ago
      > In 2006 the total debt from student loans was less than $500 billion. Today it's $1.7 trillion. That's a huge chunk of money which is going to have meaningful economic effects. "Meaningful" seems irrefutablely vague, but certainly not "significant". The numbers you point may look big as single sums, but they come out to ~$70B of spending per year. That's noise. It's absolutely not causing "inflation". Also the numbers fail to show the "recent multiplicative exponential effects" at all. The slope of that curve has been dropping (because of covid, obviously). We issued fewer loans in 2020-22 than we did previously! Again, it doesn't work. Your conclusion is wrong. You need to revisit your priors about why you're so sure about inflation and student loan assistance.
      - somenameforme 3y ago
        Quoting myself back at the beginning, to avoid needless repetition: "As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree." What I was alluding to there is that lending tends to increase both monetary velocity, and the monetary supply. This is what makes lending so much different than normal spending.
- deleted 3y ago
  [deleted]
Auracle 3y ago
A significant driver? Maybe not. Keeping a pause on them and trying to cancel a significant portion of debt while inflation was high just to buy votes? The media should have absolutely ripped into him on that. It certainly didn't help.
loeg 3y ago
The point is — Biden had it in his power to resume student loan payments, and did not.

by ajross 3y ago

somenameforme 3y ago

As an aside here, it's not the federal loans that are an issue, but the federal protections against all student loan dismissal that's the problem. It gives lenders a major incentive for reckless lending. Lenders aren't as motivated to ensure the success of those they lend to, because in the worst case scenario they have essentially have a lien on people themselves. And the later it's called in, the higher the cost will be. In a world without these protections the interests of student loan lenders and students would be strongly aligned. And the greater restraint in lending would also likely drive down education costs, as well as help push students from poor families more towards majors that can help them become successful adults - a push those students might not otherwise get from their families or even school councilors. As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree.

ajross 3y ago
What fraction of student loans are not done under federal guarantee programs? Again the numbers don't add up here. The complaint that lender incentives are broken with guaranteed loans is true enough, but it's not remotely a new effect. These banks have been issuing high risk loans (students almost literally can't fail to qualify) for decades without being an inflation driver. Arguing that they are now, just because it confirms your priors about a (now receding) burst of transient inflation is magical thinking.
- somenameforme 3y ago
  There were some pretty recent multiplicative exponential effects going on. You had education costs increasing far faster than inflation, an increasing number of people obtaining degrees, and an increasing chunk of people obtaining degrees unlikely to meaningfully contribute to their ability to make good on those loans. This caused total debt figures to increase at an exponential rate. You can see the data quite clearly here [1]. I do wish the data went further back, but it's clear enough as is. In 2006 the total debt from student loans was less than $500 billion. Today it's $1.7 trillion. That's a huge chunk of money which is going to have meaningful economic effects. On the plus side, the numbers have finally slowed but it remains to be seen if that was just an effect of COVID. [1] - https://fred.stlouisfed.org/series/SLOAS https://fred.stlouisfed.org/series/SLOAS
  - ajross 3y ago
    > In 2006 the total debt from student loans was less than $500 billion. Today it's $1.7 trillion. That's a huge chunk of money which is going to have meaningful economic effects. "Meaningful" seems irrefutablely vague, but certainly not "significant". The numbers you point may look big as single sums, but they come out to ~$70B of spending per year. That's noise. It's absolutely not causing "inflation". Also the numbers fail to show the "recent multiplicative exponential effects" at all. The slope of that curve has been dropping (because of covid, obviously). We issued fewer loans in 2020-22 than we did previously! Again, it doesn't work. Your conclusion is wrong. You need to revisit your priors about why you're so sure about inflation and student loan assistance.
    - somenameforme 3y ago
      Quoting myself back at the beginning, to avoid needless repetition: "As for where the now literally trillions of dollars of lending is having an impact on inflation, it'd depend on what that money was doing beforehand and what it would have done if not lent. Inflation comes down to monetary velocity, which is largely (though not inherently) driven by monetary supply. If trillions of dollars in student loans are increasing these factors then it will drive inflation, the only question being to what degree." What I was alluding to there is that lending tends to increase both monetary velocity, and the monetary supply. This is what makes lending so much different than normal spending.
deleted 3y ago
[deleted]

Auracle 3y ago

A significant driver? Maybe not. Keeping a pause on them and trying to cancel a significant portion of debt while inflation was high just to buy votes? The media should have absolutely ripped into him on that. It certainly didn't help.

loeg 3y ago

The point is — Biden had it in his power to resume student loan payments, and did not.