the student loan bubble

[John_doe]

http://finance.yahoo.com/news/student-d ... 53849.html


If this thing pops (which it most likely will), watch out. At least everyone is well educated.

[RTPMarine]

What is clear, though, is that any increase in Treasury rates from current near-record lows will only increase the fiscal burden of student-loan debt.

I swim upstream on this issue. I think increasing interest rates will only help. Sure, it might mean a longer repayment term for future borrowers, but it will provide much needed inflation for everyone trying to pay off current or past loans.

The bottom line here is that too many students are using these debts to acquire a quasi-useless liberal arts degree. So the nation's debt is increasing without any reasonable increase in GDP.

[John_doe]

What is clear, though, is that any increase in Treasury rates from current near-record lows will only increase the fiscal burden of student-loan debt.

I swim upstream on this issue. I think increasing interest rates will only help. Sure, it might mean a longer repayment term for future borrowers, but it will provide much needed inflation for everyone trying to pay off current or past loans.

The bottom line here is that too many students are using these debts to acquire a quasi-useless liberal arts degree. So the nation's debt is increasing without any reasonable increase in GDP.

this is under the assumption that everything remains constant and there is consumer spending. if there are bank runs or people jumping out of the dollar then this would be innaccurate assumption. it is likely people will jump out of the dollar to avoid the inflationary effects of quantitative easing.


while I like the scenario you laid out better, I just don't see it as a viable reality.

[RTPMarine]

Yeah I don't mean to say that higher interest rates will improve the economy. Bernanke knows what he is doing and I give him the benefit of the doubt keeping them down.

My point was just that inflationary effects would greatly assist people trying to pay down student loans--especially people who pay the same amount every month.

[John_doe]

What is clear, though, is that any increase in Treasury rates from current near-record lows will only increase the fiscal burden of student-loan debt.

I swim upstream on this issue. I think increasing interest rates will only help. Sure, it might mean a longer repayment term for future borrowers, but it will provide much needed inflation for everyone trying to pay off current or past loans.

The bottom line here is that too many students are using these debts to acquire a quasi-useless liberal arts degree. So the nation's debt is increasing without any reasonable increase in GDP.

also, the only way to offset the debt to gdp ratio is through strategic currency floats. those people jumping out of the dollar are jumping into these floating positions in order to keep their buying power in tact. this serves to compound the problem rather than solve it. it is a detrimental scenario regardless of the path choosen.


the moral of the story is live within your means.

[RTPMarine]

the moral of the story is live within your means.

YES!!!! If you take on $50,000 in debt to get a liberal arts degree, you deserve to be homeless!

[John_doe]

the moral of the story is live within your means.

YES!!!! If you take on $50,000 in debt to get a liberal arts degree, you deserve to be homeless!

or have a good work ethic, save the money, and then go to college when it makes financial sense to do so.

[John_doe]

Yeah I don't mean to say that higher interest rates will improve the economy. Bernanke knows what he is doing and I give him the benefit of the doubt keeping them down.

My point was just that inflationary effects would greatly assist people trying to pay down student loans--especially people who pay the same amount every month.

low interest rates are great, but these rates are artificial. this is a microeconmic solution for something played out on a macroeconomic scale.

[John_doe]

what good is a college degree if the job market is tanked?


if this bubble bursts, expect a recession at the very least.

[RTPMarine]

The difference is that there is no "burst" that can happen. There will always be demand for college degrees, so the worst that can happen is a default/bailout which would lead to increased spending elsewhere. That seems to be all we can do as a country--spend spend spend!

[shinnosuke]

Bernanke knows what he is doing and I give him the benefit of the doubt keeping them down.

I'm not trying to pick a fight here so don't get excited. Bernanke, better known as the ChairSatan, is destroying our country along with the ultra-elite who rule him. Yes, he knows what he is doing and he is doing it intentionally. You've got to study about the Fed Reserve and its origins. The Fed is an abomination and to think otherwise places you and your finances in peril.

[John_doe]

The difference is that there is no "burst" that can happen. There will always be demand for college degrees, so the worst that can happen is a default/bailout which would lead to increased spending elsewhere. That seems to be all we can do as a country--spend spend spend!

this is exactly the same thing that econmist art laffer (financial consultant to the reagan administration) said about the housing bubble. guess what, it popped anyways.

there is a constant demand for housing also, the bubble popped and it caused one of the worst recessions in us history. so your default arguement (while it seems rosey and great on the surface), is a fallacy. these things can AND WILL happen if something is not done to correct the problem.


also a default is artificial. the money will have to come from somewhere. this money (or in this case, lack thereof) does not just vanish.

[68Camaro]

a) I don't recall Laffer saying the 200x housing bubble couldn't pop. Please educate me.

b) Low interest rates are something to be taken advantage of if you can - I'm not going to look a gift horse in the mouth if it presents itself, but frankly those same rates are actively destroying the middle class. 401K savings, pension funds, general savings accounts of the elderly - all are trashed because of the Fed policy. All the promises and agreements made during the last several decades were made assuming availability of a stable interest rate for income, of which the worst case but most fiscally "conservative" would be government bonds paying 5+%. All that is now trashed. Yes, the bernank knows what he's doing - he knows he's destroying independent banks, he knows he's destroying lifetimes of accumluated savings, and he knows that his purposeful money-printing inflating will relieve the debt crisis created by the large multi-national banks and the Western politicians who crave welfare and entitlement programs for the masses for the purpose of vote buying to support their power-mad egos.

c) Of course the bernank is not Satan - that would be silly, as well as giving him too much credit... He's merely a tool of Satan.

[John_doe]

a) I don't recall Laffer saying the 200x housing bubble couldn't pop. Please educate me.

b) Low interest rates are something to be taken advantage of if you can - I'm not going to look a gift horse in the mouth if it presents itself, but frankly those same rates are actively destroying the middle class. 401K savings, pension funds, general savings accounts of the elderly - all are trashed because of the Fed policy. All the promises and agreements made during the last several decades were made assuming availability of a stable interest rate for income, of which the worst case but most fiscally "conservative" would be government bonds paying 5+%. All that is now trashed. Yes, the bernank knows what he's doing - he knows he's destroying independent banks, he knows he's destroying lifetimes of accumluated savings, and he knows that his purposeful money-printing inflating will relieve the debt crisis created by the large multi-national banks and the Western politicians who crave welfare and entitlement programs for the masses for the purpose of vote buying to support their power-mad egos.

c) Of course the bernank is not Satan - that would be silly, as well as giving him too much credit... He's merely a tool of Satan.

glad to......

http://www.youtube.com/watch?v=LfascZSTU4o


p.s. im not so sure peter got his penny.......

[RTPMarine]

The difference is that there is no "burst" that can happen. There will always be demand for college degrees, so the worst that can happen is a default/bailout which would lead to increased spending elsewhere. That seems to be all we can do as a country--spend spend spend!

this is exactly the same thing that econmist art laffer (financial consultant to the reagan administration) said about the housing bubble. guess what, it popped anyways.

there is a constant demand for housing also, the bubble popped and it caused one of the worst recessions in us history. so your default arguement (while it seems rosey and great on the surface), is a fallacy. these things can AND WILL happen if something is not done to correct the problem.


also a default is artificial. the money will have to come from somewhere. this money (or in this case, lack thereof) does not just vanish.

With all due respect, sir, I think that comparing educational debt to housing debt is an indication that you're not entirely clear on where the "bubbles" come from.

The housing bubble occurred because homes were too expensive, so people took loans that they could not afford. They did this because they believed in the value of their homes backing their bad loans. Once home prices plummeted, they found it more prudent to ditch the home than take the financial loss. This left the banks on the hook for the difference, and eventually a bailout was required.

In the case of student loans, there are indeed some similarities. Tuition and the costs associated with it are skyrocketing, so people are again taking loans that they cannot afford. The difference is that the loan here is not represented by a home or any other tangible asset--the loan is represented by the college degree. So even if the cost of tuition is suddenly cut in half, college degrees will still be valued the same. A Computer Science degree will still be a Computer Science degree. A Humanities degree will still be a Humanities degree. So the value underlining the loan (i.e. the degree) will not change the way that the value underlining a mortgage changes with the price of the home.

Another thing to consider is that when you take out a mortgage, the loan can only be used to purchase the house. When you take out a student loan, you can use it for whatever you want. So even if tuition costs were magically cut in half, people would still be taking out just as much student loans because what we have in America is a "spending problem". The implication here is that even if prices eased (as with what happened to housing), the demand for student loans would still be there in full force.

[John_doe]

The difference is that there is no "burst" that can happen. There will always be demand for college degrees, so the worst that can happen is a default/bailout which would lead to increased spending elsewhere. That seems to be all we can do as a country--spend spend spend!

this is exactly the same thing that econmist art laffer (financial consultant to the reagan administration) said about the housing bubble. guess what, it popped anyways.

there is a constant demand for housing also, the bubble popped and it caused one of the worst recessions in us history. so your default arguement (while it seems rosey and great on the surface), is a fallacy. these things can AND WILL happen if something is not done to correct the problem.


also a default is artificial. the money will have to come from somewhere. this money (or in this case, lack thereof) does not just vanish.

With all due respect, sir, I think that comparing educational debt to housing debt is an indication that you're not entirely clear on where the "bubbles" come from.

The housing bubble occurred because homes were too expensive, so people took loans that they could not afford. They did this because they believed in the value of their homes backing their bad loans. Once home prices plummeted, they found it more prudent to ditch the home than take the financial loss. This left the banks on the hook for the difference, and eventually a bailout was required.

In the case of student loans, there are indeed some similarities. Tuition and the costs associated with it are skyrocketing, so people are again taking loans that they cannot afford. The difference is that the loan here is not represented by a home or any other tangible asset--the loan is represented by the college degree. So even if the cost of tuition is suddenly cut in half, college degrees will still be valued the same. A Computer Science degree will still be a Computer Science degree. A Humanities degree will still be a Humanities degree. So the value underlining the loan (i.e. the degree) will not change the way that the value underlining a mortgage changes with the price of the home.

Another thing to consider is that when you take out a mortgage, the loan can only be used to purchase the house. When you take out a student loan, you can use it for whatever you want. So even if tuition costs were magically cut in half, people would still be taking out just as much student loans because what we have in America is a "spending problem". The implication here is that even if prices eased (as with what happened to housing), the demand for student loans would still be there in full force.

i'm very clear on where the bubble comes from. it's the people borrowing the money that don't know where the bubble comes from, and if they did im not so sure they would be borrowing it. im not attacking you or anyone else who has student loans for that matter (they are doing a good enough job of doing that to themselves), im merely making an observation, in hope that there will be a solution to the problem in the future. I just don't see how creating debt on a global scale will fix debt on a local level.


the interest rates are low, because the money is being borrowed from foreign entities. how on earth can the united states create credit domestically when the debt to gdp ratio is so out of whack. IT IS IMPOSSIBLE.

[RTPMarine]

But default is not the same as a bubble pop. Will there be a default on US student debt? Probably. Is it going to be that bad? No.

Total US student debt is somewhere around a trillion dollars. That doesn't even come close to matching our federal deficit. And the debt that would be defaulted on is probably less than $100 billion or so.

I think, honestly the demand for college degrees can only go up. It seems like a requirement to even get interviews nowadays. The housing bubble was created because $250,000 homes dropped to become $125,000 homes. I just don't see college degrees ever being worth less than they are now (i.e. businesses will never choose to hire high-school graduates over college graduates).

We may see tuition prices go down (or be forced down), but again I think people will just continue to soak up the subsidized loans to increase their spending habits.

[RTPMarine]

The United States does not create credit. The banks create credit. And they can do so as long as they have reserves of something valuable (USD, gold, diamonds, flying pigs, etc). I'd even go as far as to argue that we can create credit indefinitely so long as the Fed has the power to print money so the banks can pay debts with cheaper dollars.

[John_doe]

But default is not the same as a bubble pop. Will there be a default on US student debt? Probably. Is it going to be that bad? No.

Total US student debt is somewhere around a trillion dollars. That doesn't even come close to matching our federal deficit. And the debt that would be defaulted on is probably less than $100 billion or so.

I think, honestly the demand for college degrees can only go up. It seems like a requirement to even get interviews nowadays. The housing bubble was created because $250,000 homes dropped to become $125,000 homes. I just don't see college degrees ever being worth less than they are now (i.e. businesses will never choose to hire high-school graduates over college graduates).

We may see tuition prices go down (or be forced down), but again I think people will just continue to soak up the subsidized loans to increase their spending habits.

like i was saying earlier, when there is a default that debt does not disappear. even a "strategic" default could create a recession, when the default is OVER 1 TRILLION DOLLARS.

[John_doe]

The United States does not create credit. The banks create credit. And they can do so as long as they have reserves of something valuable (USD, gold, diamonds, flying pigs, etc). I'd even go as far as to argue that we can create credit indefinitely so long as the Fed has the power to print money so the banks can pay debts with cheaper dollars.

where do the banks get the credit if they are broke?


credit is issued from backed assets. (with the assumption the debt will be repaid with interest) they can create it, but it causes inflationary effects (tuition hikes, books cost more etc.)

it is an insidious cycle the punishes the people it is intended to help.

bernie madoff would be proud.

[68Camaro]

a) I don't recall Laffer saying the 200x housing bubble couldn't pop. Please educate me.

glad to......

http://www.youtube.com/watch?v=LfascZSTU4o


p.s. im not so sure peter got his penny.......

Laffer screwed the pooch on that one, sure enough.

[68Camaro]

...credit is issued from backed assets. ...

Credit is now issued based only on balance sheet "money" - which is itself a debt instrument - borrowed from the Fed, which created it out of thin air. It's a Ponzi scheme...

[John_doe]

a) I don't recall Laffer saying the 200x housing bubble couldn't pop. Please educate me.

glad to......

http://www.youtube.com/watch?v=LfascZSTU4o


p.s. im not so sure peter got his penny.......

Laffer screwed the pooch on that one, sure enough.

i'll throw you a bone, he did say there could be a slowdown. but yea, the bubble did burst and it was a recession.



laffer's solution to the world is dig a hole to fill a hole.

[John_doe]

...credit is issued from backed assets. ...

Credit is now issued based only on balance sheet "money" - which is itself a debt instrument - borrowed from the Fed, which created it out of thin air. It's a Ponzi scheme...

REAL credit is issued from backed assets. I should have been a bit more forward with that.

[John_doe]

...credit is issued from backed assets. ...

Credit is now issued based only on balance sheet "money" - which is itself a debt instrument - borrowed from the Fed, which created it out of thin air. It's a Ponzi scheme...

no they are borrowing money from the east. they are acting as a proxy between the borrower (people that think they are entitled to secondary education) and those who can issue credit (china for example).