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I'm highly critical of the current student loan situation. That said: > If people groaning under the weight of student loans simply said, “Enough,” then all th

I'm highly critical of the current student loan situation. That said: > If people groaning under the weight of student loans simply said, “Enough,” then all the pieties about debt that have become absorbed into all the pieties about higher education might be brought into alignment with reality. This would absolutely happen, but the first step towards that would be a 2008-like situation all over again, because banks would suddenly have to absorb massive unexpected losses (as they did in 2008), and all of these would cascade. And remember that, unlike mortgages and car loans, student loans aren't backed by any reclaimable asset - you can't repossess someone's degree! While foreclosures in 2008 were undeniably terrible for the people who lost their homes, the situation would have been even worse if the bank had no assets to repossess in any of the defaulted loans. Since the government bailout money has to come from somewhere, it will simply add to the national debt and (at some point) come out of future taxes. That's not really solving the issue. It's tantamount to replacing all private loans with the existing tax-subsidized federal loans, which doesn't solve the problem; it just kicks the can further down the road.

deleted 11y ago
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- chimeracoder 11y ago
  > Good! Should we just allow it to keep getting exponentially worse? Smaller correction now, or massive correction later? You're painting my comment as rather black-and-white. All I'm saying is that encouraging mass defaults on private loans is probably the most disastrous way to correct. In fact, encouraging mass defaults is letting things get exponentially worse; it forces the government to pick up the burden of these increasing costs without simultaneously addressing the reason that these costs are rapidly increasing. A correction will ultimately result in banks having to write off some of their loans, but forcing them to do so in a sudden and unpredictable way without addressing any of the other problems (inflated tuition costs, federal subsidies, etc.) simultaneously is putting the cart before the horse.
  - forthefuture 11y ago
    Not to mention the real solution to this problem is to not have so many people take loans they can't pay for an education that isn't worth what they're paying for it. It's a lot easier economically to just not go to college than it is to advocate everyone steal money to go to college.
jonknee 11y ago
> This would absolutely happen, but the first step towards that would be a 2008-like situation all over again, because banks would suddenly have to absorb massive unexpected losses (as they did in 2008), and all of these would cascade. Except student loans in America are almost nothing like regular loans. Until 2010 they were backed by the government which made issuing them as a bank as easy as printing money--you collect the interest while it's paid and then let Uncle Sam take the losses when someone defaults. (Even in this article notice that it's the DOE that's coming for the loan. ) Post 2010 the loans are issued by the government so you cut out the middleman taking all the profit. Either way there won't be a 2008-like situation.
- muzz 11y ago
  > Until 2010 they were backed by the government The same kind of loans-- not all loans, but the same kind as were before-- are still backed by the federal government. What happened in 2010 was that the government took out the middleman ie the banks, saving taxpayers around ~$7B/year.
  - jonknee 11y ago
    Yes, hence why I said: > Post 2010 the loans are issued by the government so you cut out the middleman taking all the profit.

deleted 11y ago

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chimeracoder 11y ago
> Good! Should we just allow it to keep getting exponentially worse? Smaller correction now, or massive correction later? You're painting my comment as rather black-and-white. All I'm saying is that encouraging mass defaults on private loans is probably the most disastrous way to correct. In fact, encouraging mass defaults is letting things get exponentially worse; it forces the government to pick up the burden of these increasing costs without simultaneously addressing the reason that these costs are rapidly increasing. A correction will ultimately result in banks having to write off some of their loans, but forcing them to do so in a sudden and unpredictable way without addressing any of the other problems (inflated tuition costs, federal subsidies, etc.) simultaneously is putting the cart before the horse.
- forthefuture 11y ago
  Not to mention the real solution to this problem is to not have so many people take loans they can't pay for an education that isn't worth what they're paying for it. It's a lot easier economically to just not go to college than it is to advocate everyone steal money to go to college.

jonknee 11y ago

> This would absolutely happen, but the first step towards that would be a 2008-like situation all over again, because banks would suddenly have to absorb massive unexpected losses (as they did in 2008), and all of these would cascade. Except student loans in America are almost nothing like regular loans. Until 2010 they were backed by the government which made issuing them as a bank as easy as printing money--you collect the interest while it's paid and then let Uncle Sam take the losses when someone defaults. (Even in this article notice that it's the DOE that's coming for the loan. ) Post 2010 the loans are issued by the government so you cut out the middleman taking all the profit. Either way there won't be a 2008-like situation.

muzz 11y ago
> Until 2010 they were backed by the government The same kind of loans-- not all loans, but the same kind as were before-- are still backed by the federal government. What happened in 2010 was that the government took out the middleman ie the banks, saving taxpayers around ~$7B/year.
- jonknee 11y ago
  Yes, hence why I said: > Post 2010 the loans are issued by the government so you cut out the middleman taking all the profit.