Market Forum

[gwuorbust]

But guaranteed and loaned directly would work very differently, no? If they're guaranteed, then any shortfalls are repaid and so asset-backed securities based on those loans don't experience a shortfall. If they're direct loaned, why would we assume that the government would print money to remedy the shortfall to itself?

very valid point.

I think what everyone is missing are the long-term implications. while ppl graduating right now may be unemployed for a little while, maybe even default, long term our generation WILL replace the older generation(s). they physically cannot last forever. so someone defaulting right now at 25 y/o, that is w/e. but 15 years from now he will have some kind of job. and if he hasn't paid those loans back, then he will still be paying. like the IRS, the Department of Education is not going to forget.

[Renzo]

Yes, but even if every single person in America did this, the debt is guaranteed (or loaned directly) by the government. So, unless you think it would bankrupt an institution that can literally print money, the bubble can't burst.

But guaranteed and loaned directly would work very differently, no? If they're guaranteed, then any shortfalls are repaid and so asset-backed securities based on those loans don't experience a shortfall. If they're direct loaned, why would we assume that the government would print money to remedy the shortfall to itself?[/quote]

Ok, so they run a deficit. But in any case, the government bears the loss. There's no private counter party that expects the loans to perform, and who will be made poor when the loans underperform (other than taxpayers, and that expectation is trivial). Even if you want to say that it's a "bubble," when the bubble pops, the loans will just turn into a transfer payments like farm subsides and TANF, and won't have any real knock-on effects on the broader economy.

[AreJay711]

People realize that there is virtually no way the govt can lose money on student loans right? They are borrowing money at 3-4% and loaning at 8%. Nearly half of the outstanding debt would have to be in default before the profit is gone and even then it isn't like the govt needs that money for any other obligations like a bank does so it is no biggie if half of the loans are in default (other than the fact that the economy is obviosly fucked if that is happening).

[Kohinoor]

Yes, but even if every single person in America did this, the debt is guaranteed (or loaned directly) by the government. So, unless you think it would bankrupt an institution that can literally print money, the bubble can't burst.

But guaranteed and loaned directly would work very differently, no? If they're guaranteed, then any shortfalls are repaid and so asset-backed securities based on those loans don't experience a shortfall. If they're direct loaned, why would we assume that the government would print money to remedy the shortfall to itself?

Ok, so they run a deficit. But in any case, the government bears the loss. There's no private counter party that expects the loans to perform, and who will be made poor when the loans underperform (other than taxpayers, and that expectation is trivial). Even if you want to say that it's a "bubble," when the bubble pops, the loans will just turn into a transfer payments like farm subsides and TANF, and won't have any real knock-on effects on the broader economy.

Wouldn't the private market in student loan asset-backed securities that expects the loans to perform be the bubble that crashes?

[Kohinoor]

People realize that there is virtually no way the govt can lose money on student loans right? They are borrowing money at 3-4% and loaning at 8%. Nearly half of the outstanding debt would have to be in default before the profit is gone and even then it isn't like the govt needs that money for any other obligations like a bank does so it is no biggie if half of the loans are in default (other than the fact that the economy is obviosly fucked if that is happening).

Isn't this assuming that they're defaulting on the interest but repaying the principal? I think that most defaulters just stop paying entirely.

[AreJay711]

People realize that there is virtually no way the govt can lose money on student loans right? They are borrowing money at 3-4% and loaning at 8%. Nearly half of the outstanding debt would have to be in default before the profit is gone and even then it isn't like the govt needs that money for any other obligations like a bank does so it is no biggie if half of the loans are in default (other than the fact that the economy is obviosly fucked if that is happening).

Isn't this assuming that they're defaulting on the interest but repaying the principal? I think that most defaulters just stop paying entirely.

Yeah it assumes they start paying sometime on aggregate rather than 50% just saying fuck it an never earing any wages to be garnished but that's probably realistic.

[Renzo]

Yes, but even if every single person in America did this, the debt is guaranteed (or loaned directly) by the government. So, unless you think it would bankrupt an institution that can literally print money, the bubble can't burst.

But guaranteed and loaned directly would work very differently, no? If they're guaranteed, then any shortfalls are repaid and so asset-backed securities based on those loans don't experience a shortfall. If they're direct loaned, why would we assume that the government would print money to remedy the shortfall to itself?

Ok, so they run a deficit. But in any case, the government bears the loss. There's no private counter party that expects the loans to perform, and who will be made poor when the loans underperform (other than taxpayers, and that expectation is trivial). Even if you want to say that it's a "bubble," when the bubble pops, the loans will just turn into a transfer payments like farm subsides and TANF, and won't have any real knock-on effects on the broader economy.

Wouldn't the private market in student loan asset-backed securities that expects the loans to perform be the bubble that crashes?

Those securities are called US Treasury bonds. If that bubble crashes, we'll all be living in cave man times.

[stayway]

FYI: http://www.economist.com/blogs/schumpet ... _education

[Renzo]

FYI: http://www.economist.com/blogs/schumpet ... _education

I really enjoyed that article, and I agree wholeheartedly. But, the bubble is in the worthless degrees and certificates from worthless schools, not in the loans that paid for them. I am all for some government action to shutter worthless for-profit schools, and to try and make sure students aren't being fleeced into taking loans that won't pay off for them. I am just saying that an education bubble and a student loan bubble aren't to be conflated.

[Stanford4Me]

This makes me feel good. My contracts professor asked us to speculate about the net bubble and I threw out tuition and she very quickly dismissed me.

[AreJay711]

This makes me feel good. My contracts professor asked us to speculate about the net bubble and I threw out tuition and she very quickly dismissed me.

Who controls your grade, bro?

[Stanford4Me]

This makes me feel good. My contracts professor asked us to speculate about the net bubble and I threw out tuition and she very quickly dismissed me.

Who controls your grade, bro?

Took the class last semester. I'm covered d00der.

[Renzo]

This makes me feel good. My contracts professor asked us to speculate about the net bubble and I threw out tuition and she very quickly dismissed me.

I think if you'd have said "for profit colleges" she might not have dismissed you so quickly. It's the same idea, but takes less explaining.