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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 bro

by 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.
    - ajross 3y ago
      Since you like FRED, here's the M2 money supply: https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL You can clearly see it rocket upwards in 2020 due to the all the covid assistance (of which student loan forbearance was one item), and then begin to fall as the inflation stabilizes. The crest of the peak is six trillion dollars higher than the pre-pandemic starting point. Sorry, but a mere $70B loan program just doesn't figure in that enormous signal. It doesn't. It's not doing what you think it's doing. I'm begging you to take off the political/ideological glasses and look at the real numbers here.
      - somenameforme 3y ago
        A $70B loan program would have small, though measurable, effect on the economy. The issue is that those loans are not just being given to people who cannot repay them, resulting in a wide array of accumulating economic issues. So we're not looking at the impact of one small event, but an avalanche in slow motion now amounting a $1.8 trillion one. As one other aside, inflation doesn't drive monetary supply. It's the other way around.

by ajross 3y ago

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.
  - ajross 3y ago
    Since you like FRED, here's the M2 money supply: https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL You can clearly see it rocket upwards in 2020 due to the all the covid assistance (of which student loan forbearance was one item), and then begin to fall as the inflation stabilizes. The crest of the peak is six trillion dollars higher than the pre-pandemic starting point. Sorry, but a mere $70B loan program just doesn't figure in that enormous signal. It doesn't. It's not doing what you think it's doing. I'm begging you to take off the political/ideological glasses and look at the real numbers here.
    - somenameforme 3y ago
      A $70B loan program would have small, though measurable, effect on the economy. The issue is that those loans are not just being given to people who cannot repay them, resulting in a wide array of accumulating economic issues. So we're not looking at the impact of one small event, but an avalanche in slow motion now amounting a $1.8 trillion one. As one other aside, inflation doesn't drive monetary supply. It's the other way around.