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I think calling it a "bubble" is a way to put it into immediately recognizable terms for people. And according to your definition of what a bubble is, it could

I think calling it a "bubble" is a way to put it into immediately recognizable terms for people. And according to your definition of what a bubble is, it could be an apt description. From wikipedia: "It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future," which to me sounds a lot like the current student loan situation. The tuition costs covered by these loans do not seem to be based on their future value in any meaningful way.

muzz 13y ago
Not sure you apply that definition at all. Education is not an asset-- it can't be transferred ie sold like a house can. Along the same lines, there is no incentive or ability to buy an extra degree in Vegas, Phoenix, or Miami, just because prices are going up there.
- dnautics 13y ago
  who says assets have to be transferrable. Is life insurance not an asset, even though, obviously, it's not transferrable?
  - muzz 13y ago
    Life insurance can be collected upon. How does one cash in a degree?
    - RougeFemme 13y ago
      You can't directly, but a lot of people hope to get a reasonable rate of return on their degree, career-wise.
  - pessimizer 13y ago
    Life insurance is transferable. Frequently lost in divorce settlements. Think of it as a Life-Default Swap.
- Rimpinths 13y ago
  It's an asset from the point of view of the bank or institution that made the loan. And they can transfer those assets from one investor to another. And the value of those assets can be based on unrealistic expectations about future default rates, so in that sense, student loans certainly can be a "bubble". The real damage done to the economy by the mortgage bubble wasn't all of the people who lost money on homes when prices collapse. The most damage was due to the effect it had on banks' balance sheets when their assets (the value of debt-backed securities) lost value, which meant they had to call loans and restrict credit to make up for the difference. In that sense, a bursting of the student loan "bubble" could also have damaging effects on the economy.
- skylan_q 13y ago
  When there's a decrease in the loans going out, there's a decrease on the payments coming in at a future date. When there's a decrease in the loans going out, there's a decrease in the demand for education services causing a reduction in the quantity available. Repossession isn't a necessary condition for something to be in a bubble. Pulling demand forward and using laws/regulations/programs to funnel money into certain parts of the economy is what causes bubbles.
  - waps 13y ago
    Exactly. Plus you can change the ground rules. In this case it can apparently even be done without changing the law : Student loans are not excluded from discharge if excluding the debt would "impose an undue hardship on the debtor and the debtor's dependents". So it only requires a small attitude change of judges for the bank's assumption that non-repayment is impossible to blow up. Given the attitude changes towards student debt that are occurring in the papers, can this really be that far behind ?
  - BrandonMarc 13y ago
    And, as has been discussed in another area of this thread, repossession of a college degree is possible. I'm not advocating it, but it would have a definite effect on incentives on both sides when making decisions about which college to attend, what degree to study, how much debt to borrow, and whether or not to repay it. If student loan debt were bankrupt-able, and the degree revoke-able, I can see how that might remove some current problems (not that it wouldn't introduce others).

muzz 13y ago

Not sure you apply that definition at all. Education is not an asset-- it can't be transferred ie sold like a house can. Along the same lines, there is no incentive or ability to buy an extra degree in Vegas, Phoenix, or Miami, just because prices are going up there.

dnautics 13y ago
who says assets have to be transferrable. Is life insurance not an asset, even though, obviously, it's not transferrable?
- muzz 13y ago
  Life insurance can be collected upon. How does one cash in a degree?
  - RougeFemme 13y ago
    You can't directly, but a lot of people hope to get a reasonable rate of return on their degree, career-wise.
- pessimizer 13y ago
  Life insurance is transferable. Frequently lost in divorce settlements. Think of it as a Life-Default Swap.
Rimpinths 13y ago
It's an asset from the point of view of the bank or institution that made the loan. And they can transfer those assets from one investor to another. And the value of those assets can be based on unrealistic expectations about future default rates, so in that sense, student loans certainly can be a "bubble". The real damage done to the economy by the mortgage bubble wasn't all of the people who lost money on homes when prices collapse. The most damage was due to the effect it had on banks' balance sheets when their assets (the value of debt-backed securities) lost value, which meant they had to call loans and restrict credit to make up for the difference. In that sense, a bursting of the student loan "bubble" could also have damaging effects on the economy.
skylan_q 13y ago
When there's a decrease in the loans going out, there's a decrease on the payments coming in at a future date. When there's a decrease in the loans going out, there's a decrease in the demand for education services causing a reduction in the quantity available. Repossession isn't a necessary condition for something to be in a bubble. Pulling demand forward and using laws/regulations/programs to funnel money into certain parts of the economy is what causes bubbles.
- waps 13y ago
  Exactly. Plus you can change the ground rules. In this case it can apparently even be done without changing the law : Student loans are not excluded from discharge if excluding the debt would "impose an undue hardship on the debtor and the debtor's dependents". So it only requires a small attitude change of judges for the bank's assumption that non-repayment is impossible to blow up. Given the attitude changes towards student debt that are occurring in the papers, can this really be that far behind ?
- BrandonMarc 13y ago
  And, as has been discussed in another area of this thread, repossession of a college degree is possible. I'm not advocating it, but it would have a definite effect on incentives on both sides when making decisions about which college to attend, what degree to study, how much debt to borrow, and whether or not to repay it. If student loan debt were bankrupt-able, and the degree revoke-able, I can see how that might remove some current problems (not that it wouldn't introduce others).