I get that just forgiving loans is not exactly a brilliant solution. Forgiving interest on loans would be a more sensible step.
If that is the solution, I would not have any issue. But rest of the population will have to pay interest rate for the money borrowed abroad. Many people here think you can create money out of thin air.
"Many people here think you can create money out of thin air."
Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans. Something to chew over.
hey, I would LOVE it if my grad school loans financed at 7.05% interest (now sitting at 6.55% because I've fullfilled all my incentive requirements) were suddenly interest-free. That would save me tens of thousands of dollars and let me pay off my loans in around 2/3rds of the time. If that's what comes out of this nonsense, I'll feel like a winner.
Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans. Something to chew over.
So what about QEs which cause extreme damages to savings. Isn't that the money that is created on balance sheet. Many people who live in the country won't notice. But if you go places like Singapore you can feel the pain caused by QEs because US dollar value is dipping.
I always wish US fed is half as cautions as Bundesbank. Without being able to keep the vale of the money, you just can't encourage people to be prudent and frugal. Because it is not worth it to put money in bank.
rationalist - good point. i think it'd be great if they simply used a floating interest rate that is pegged at inflation. why does the government (or worse, banks) need to make a profit on education? if what i took out got paid in, i would have no problem with the ridiculousness of education (and neither should the tax payer who would be made whole). but i am on track to pay back about 3 times what i borrowed...that feels a little silly. if this were the case, i have a feeling the market would limit the loans to those that are likely to be realistically repaid, too. this would thereby eliminate the need for those of us who do pay to OVERpay to make up for the non-payers. that is not a slight to non-payers. there are plenty of people who chose un-marketable majors (kinda like architecture) but had no idea it would be so bad. but the market would select that out, and the true deadbeats should get the full wraith of the IRS (it is AMAZING how easy it is to get out of default, ever look at the rules?)
What about it? It's a last resort manouver used in extreme situations such as this one (high unemployment, zero interest rate). People of Singapoure should come up with their own currency.
I mean devaluation of currency. Exchange rate! Stability of the money. I also should say if you visit other countries.
I mention QE because you said
Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans.
"I mean devaluation of currency. Exchange rate! Stability of the money."
QE is meant to act as a control burn. I'm not qualified to comment on the effectivness. FED is saying it has worked well. Conservative analysts are saying the opposite. We don't have deflation happening so it worked on that level. Deflation would make those student loans that much worse btw.
Rusty, your disinformation is not welcome here. Interest rates on loans cover the cost of defaults and inflation. What creates money in the money supply is QE (slicing the same size of pizza a thousand times instead of a hundred, you don't get more pizza, you just get more smaller pieces, aka inflation), and velocity (meaning activity creates a good economy which creates wealth, as money is virtually more places than one).
Since student loans happen on a revolving basis, for every student that doesn't repay their debts, a future student cannot go to school. So by forgiving debt, you not only erase that money from the pile, you increase inflation, so the kids 5-10 years down the road will not only have less money from which to borrow, their need for it is greater as inflation devalues the dollar. Try to think about others please before you ask for your handouts.
To whomever suggested we subsidize education, um, we do. A lot. Turn off the TV.
Isn't that the one of the main reason of dwindling middle class American? While CPI has been going up steadily esp. in last two few years, the real value of income has been going down. I agree for the fact that it help out to those who have loan. But it is also causing damages to those who save. May be this economy is after all rewarding to the spendthrifts.
QE that was done between 2009-11, and not done in the US since 1936? Is that why everything cost the same between 1937 and 2007? Brilliant!
"for every student that doesn't repay their debts, a future student cannot go to school. So by forgiving debt, you not only erase that money from the pile, you increase inflation"
OK now. I may be struggling with financial basics here, but you are just talking out of your ass. Inflation means more money in the pile. Not the other way around.
"I agree for the fact that it help out to those who have loan. But it is also causing damages to those who save."
Welcome to Vegas! Place your bets. Oh, you picked "SAVE". Aww better luck next time.
Seriously though, everything has become part of speculation market. From health to education. Housing to retirement. It's capitalism munching on its own tail. Yum!
You just don't see the full effects of the QEs yet. Many people are predicting the full effects around 2015. After QEs, the CPI is artificially inflated by, flush of money on balance sheet. Because of QEs, we are going to have much less purchasing power.
Rust bucket, Not sure what you are asking about the QE, sorry. But I'll take the compliment!
As for future students, if we used to have $X available for student loans, then if everybody got forgiveness that pile would shrink, let's say .5X$. But with inflation, all money is worth less therefore prices go up, so tuition prices go up to pay for the same thing (or potentially worse than the same thing)! So a student in the future has to find more money from a smaller pile (the smaller pile is the pile of student loan money, not necessarily overall money supply.) Did I explain myself?
I can see the effects of QE in my life. Purchasing power is down down down. Am I the only one who sees that?
Apr 30, 12 3:51 pm ·
·
"Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans. Something to chew over."
True. And also easily misunderstood. "Money" is not really the printed currency that most people tend think it is. All of those paper dollars floating around are actually a really small percentage of the "money" that is out there on accounts and being electronically bounced around by financial organizations. It makes for more sense to think of money as being synonymous with credit. When somebody or something takes out a loan, new "money" is added to the books and...BOOM...the economy grows. Just like that. The big picture problem right now is that seemingly everybody has as much debt as they can already handle and they are intent on paying that down. As that happens, credit (i.e., the "money" supply) shrinks and the economy contracts rather than grows. The more this happens, the more desperately we need growth to escape the funk but unfortunately we're already begun the downward spiral with vicious feedback loop. Hence my relentless pessimism for the near future. More debt is not the solution to a debt problem, despite the best efforts of the politicians and central bankers.
Cars?
I'm not sold on the college student/ automobile hypothesis above. Colleges are on campuses for a reason. It makes absolutely no sense for students to be spending on cars (although admittedly that doesn't mean it isn't happening).
Whoever it was that suggest government directly finance education, however, was spot on. Universities should receive direct state support. Even in America it used to be this way. Is it any wonder that as state support of universities has been drastically cut, that tuition has dramatically rised? Ever since the post WWII era GI Bill sent a bunch of people to college who otherwise would not have gone, universities have become growth industries, actively competing for students (and the Fed backed loans that come with them). So yeah, states should support universities directly. Tuition should/would be much lower. And the trade off would be that far fewer students (but hopefully those most deserving based on the merit of their academic achievement) would be on campus. But since the world is now a free market, capitalist wet dream, universities that aren't growing are just not very appealing.
So, my last question will be what is the big difference between Wall St. bail out and (Supposedly)Student Loan bail out? The amount of money?
The difference is that Wall Street bailouts allow the current paradigm to keeping lurching forward for a while longer (allowing the politicians and bankers to collect a few more of their fat paychecks & bonuses). Debt relief for students or any other form of the common man, however, would actually speed the collapse of the current paradigm and put the haves in harms way of the have-nots sooner rather than later. Isn't it obvious which they choose?
And how! That would make perfect sense if "student loans" was a single bank account with finite finances. Tooth for tooth standard. Or something. This is not how the world is run. Sorry there there.
Oh I'll go back to saving. When Japanese gov needed money they can borrow from its people. But US gov need money, it has to borrow from other countries, esp. BRIC + Middle east. For every penny you borrow, you've to pay interest rate. It is not free. In case of China, the interest from US might be financing People Liberation Army as well. Too bad, don't encourage people to save money.
if we used to have $X available for student loans, then if everybody got forgiveness that pile would shrink, let's say .5X$.
This is probably one of the biggest assumptions I would disagree with here, just to pick one out. I don't think anyone ever involved in creating the legislation or originating the loans, or really anyone else involved ever considered student loans to exist in these terms.
I'm pretty sure the pile of money where student loans comes from is in mostly no way connected with the government. It comes from private banks (so Bank Bernanke might not be all that far off, but he would be 2 or 3 times removed). What the government does is subsidize the loan. So you get a loan through your school from a private bank, who takes the government subsidy as collateral.
If the government has a direct cost from creating that subsidy, or from default, that money would come from a department's budget. I'm pretty sure that is a budget set by congress (not positive). There isn't an 'X' pile of money for student loans, or an 'X' pile for payment on defaults that comes directly from profit created by the loans and given to the government. There is a moving number based on whatever that year's budget happens to be.
Do any of you have a link from an actual student loan department or advocacy group that would explain where student loan money originates?
I am not making that up. My buddy works for collections for student loans. I am taking her word for it. It doesn't quite work that way, admittedly, but it isn't false either. Start reading here:
Tee, actually everyone saving is bad for the economy as well. Sounds counterintuitive but it's true. What you ideally want is everyone in a moderate level of debt. You want money to exchange hands as quickly as possible, not sit under mattresses.
There there, we covered where money comes from. You said "What creates money in the money supply is QE". This has only been true since 2008 and in 1930's. This is an intentional move by central bank to combat inflation (and to some degree stagflation). This is not how money is typically created. Got it?
And when people save money, they don't usually put it under the mattress, they put it in investments (bank accounts n stuff) where it is pooled with other people's money and used to make big things happen and create more wealth.
Simple rule of thumb is save when you have excess. Use your saving when things are tight.
I said QE because it is worst of the worst maneuvers that any fed can deploy. The more extreme case might be countries like Zimbabwe or Wiemar republic. Using QEs as short term solution can undermine credibility of the currency.
Now a lot of people won't save it at all even though they have ability to save because they know Purchasing Power is going down very quickly.
This is an intentional move by central bank to combat inflation ? Pumping more money to combat inflation?
there there, investing personal saving can increase own's wealth but has no effect on overall money supply within any monetary ecosystem. You still need people paying interest on loans in order to create new currency. Stock increasing in value does not mean money just got printed. oy!
That doesn't really address the origin of the student loan money. Your source does suggest that defaulting can reduce the amount of loans a particular school will be able to administer in the future, but it is unclear on why. I don't think the funds available are directly related to the amount of profit those loans are bringing in to the school. Does a default lead to a funding gap from the federal government to that school, maybe as a penalty rather than pile 'X' being reduce to '.5X'? If everyone paid off their loans and the school made a bunch of money on interest and fees, I do not think they would have additional funds available to them to give out more Perkins loans, at least not because of profit. Maybe there is some sort of budget rule to provide additional funds to schools who manage their loan administration better.
Also, the Stafford loan program (both subsidized and unsubsidized) would be the more relevant program to look at instead of Perkins loans. The Perkins program is administered by the school, not the federal government. Defaulting on a Perkins loan only effects the school that issued it, right? I'm pretty sure the Stafford program is much larger too.
I think assuming people (either the government, or the federal reserve, or the half dozen largest banks - i'm not sure) can and do create money of out thin air is a more accurate assumption than assuming there is a pile of money people can take out of and put back into.
"This is an intentional move by central bank to combat inflation ? Pumping more money to combat inflation?"
I meant to say deflation. My bad.
"Now a lot of people won't save it at all even though they have ability to save because they know Purchasing Power is going down very quickly."
US corporations are sitting on record levels of cash. As long as they continue to do so, we will have a recession. In the meantime, US banks still not interested in lending to anyone...
Yes your theory of the federal reserve, or the half dozen largest banks - i'm not sure) can and do create money of out thin air is a more accurate assumptionthe federal reserve, or the half dozen largest banks - i'm not sure) can and do create money of out thin air is a more accurate assumption is the best. Genius. We need more people like you to make things happen.
The federal government had a good idea two generations ago that has run its course, and I do think that there needs to be some relief. A significant reduction in interest, or making loans dischargeable by bankruptcy does have merit in my eyes. It must be accompanied by reforming and reducing the cost of higher ed. Colleges have been racing to build what I call "luxury dorms" in recent years, where students get a 4-bed suite with kitchen and private bath instead of a gang shower/toilet down the hall. That can't help the cost of education, and I don't know how much value it really brings.
But mass forgiveness of loans sounds a lot like social security, which will run dry in 20 years. We have enough problems with social security, housing, and healthcare that affect every citizen in the US. Student loans affect a small portion of the US.
Cut healthcare costs in half, and your student loans are covered.
Cash reserves and retained earnings. Few other sources as well. Again, clearly I have no idea what I'm talking about here. Companies tend to either pay out dividends or invest back in company (via new hires, etc...) This time around they are just "sitting on cash". Like a pillow full of dollar bills underneath your ass. Yeah.
CLEARLY, you have no idea what you are talking about. Cash reserves and retained earnings are NOT in the form of pillows full of dollar bills. I call your b.s. Would you like to try again?
If they're indeed sitting on pillow full of $$$$$, I'll be very sorry for them. Because the $$$$ is getting worthless day by day. They may have some cash for expenditure in near future. The rest are in different forms of assets which are easy to transfer, transform or liquidate. If you have more than a million dollars you just can't efforts to sit on that $$$ pillows without hedging yours. Fed, Banks, and US. gov have totally destroyed the virtue of saving or holding cash in your hand. Currency devaluation is working in full force for you 24/7. It ain't sleep or take a break.
I was sad to learn that people won't be able to eat Foie gras in Cali. What a shame Cali! These fat asses need to eat that expensive, greasy delicacy. Let them eat and let them die early. Better for the World.
Anyway, I should stop here for this topic. I've been spending a lot of my time here.
i was under the impression that the feds were reluctant to issue loans to students at schools with a history of defaulting loans - taking the "invisible hand" principle, this should or would lead to schools either having to issue more of their own financial aid or having to lower costs (as their alumni default, which is I suppose why the none-need-blind schools keep admissions that way - balance risk).
It is disturbing to see 1) that "public" schools receive an ever decreasing amount of funding from their states (Jefferson's 'public education' pride UVA covers more of a student's education cost through tuition than state funding) 2) the ever increasing number of for-profit schools that print diplomas without much concern for their students after collectig tuition 3) the ever increasing number of college students who enter without regard to their financial responsibility. NYT ran an article a couple of years back on what some HS grads are doing instead of rushing off to college, I would hope that was helpful to some - and hopefully more high school students will get better advice about jumping into a huge education investment.
Taking the interest off of loans is fine with me. Nope, don't really care where the money comes from.
What I would care about is basing it on income. Just like with some of the mortgage messiness, I don't exactly appreciate people getting bailed bailed out that went over their heads in the first place. I pay my mortgage on time, every month, and didn't over extend with any purchase.
I left the traditional career path so I could make a comfortable living (while still doing truly creative things). I shouldn't be exempt because of my income.
You get rid of student loans, it better be fore everyone. I'd love mine to be decreased, but I'll fight tooth and nail not to pay for others debt.
"I pay my mortgage on time, every month, and didn't over extend with any purchase."
And you probably kept your house. Sanity too.
You are dangerously walking into the "poor people have it so much better than everyone" territory.
BTW federal gubbermint already forgives loans to a bunch of people. We just need to declare entire America as disaster relief zone, and we shall all be debt free.
Rusty - yeah, I tend to be more aligned with the middle, when it comes to things like that.
Yes, I kept my place, and I felt the pain of the last few years too.
The problem I have is when people clearly over extend themselves. I borrowed for school and my place, but that's it, no car loans (I saved to get what I wanted), no credit card debt. I just live within my means.
The big point is that it is the middle class that gets screwed over and over. The wealthiest have insane, truly insane, breaks and loopholes, and the lower earners get perks disproportional to their contributions to society.
How about a tax break for those that didn't buy a home that cost 10x their income??
Is that close enough to a political rant? Sadly, there are no parties that seem to agree with my thinking. All about numbers, either the money or the votes.
Has anyone here seen the video "college conspiracy" on youtube? It's great. The problem lies with arbitrarily "valuing" education as Universities do. With information so available through the internet now it is almost as if University level education/information is actually free for anyone looking for it (like iTunesU). So essentially what a University student is charged for in the end is the evaluation/testing. The "better" the University, the higher the charge. I can understand someone paying high prices or studying for long periods of time in areas of study where life and death are at stake, like brain surgeons for example. And of course architecture has its life and death issues, like making sure a building is safe. But in terms of design why should somebody need a piece of paper to say they have talent? In general the whole educational system needs to be taken down a peg or two. A "good education" is not as sacred as everyone once believed. Apprenticeships and proving oneself through hard work and determination is the way to go I beleive. Instead of trying to lobby new laws everyone could just boycott the "University education" concept. Anyway... the student loan problem WILL get big enough that students will need a big bailing out. BUT, when that happens, the University scam will be exposed just like the bad mortgage scam was exposed when the banks went under. A University education will no longer be sacred to those who ever viewed it as such. The degrees earned that way will be looked down on. Quite possibly everyone who is in the middle of their University education or got bailed out will have to look at earning society's respect through other avenues.
@Tee002, I am glad someone mentioned the German system. Here is where I first learned about it.
I see points on both sides of the argument, but really can't offer a solution for something that is cobbled together. As someone else suggested, I think there should be some sort of loan counseling for students in their last year of high school. This, combined with people in public schools (guidance counselors?) that provide students with information on scholarships and state/federal funding that is already in existence.
I work in the affordable housing field, and I know that loan counseling is a requirement if you are applying to buy affordable housing. The result was when the housing market collapsed there were very few defaults in this sector in my region. It could work, but states would have to have more money to fund something like this, which doesn't seem very likely...
I felt a twinge of education is for the elite in this thread, because there is the assumption that a lot of the people holding massive student loans are people that went to fancy colleges when they could have went to regular colleges. But now Harvard and Yale are cheaper to go to than UCal. A lot of private universities have the ability to provide more subsidies because of their large endowments. Unlike public universities and K-12 which have suffered constant funding cuts on the state and federal level. There is a problem here that is larger than not everyone needs to go to college/all students make bad decisions with regards to funding their education.
I also don't know if loan forgiveness is necessarily the best idea, because I know a ton of people that take time paying of their Federal student loans because they are the lowest interest loans they have. Maybe regulating how private loans for education are structured is a bette move?
Student loan forgiveness act 2012
I get that just forgiving loans is not exactly a brilliant solution. Forgiving interest on loans would be a more sensible step.
If that is the solution, I would not have any issue. But rest of the population will have to pay interest rate for the money borrowed abroad. Many people here think you can create money out of thin air.
"Many people here think you can create money out of thin air."
Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans. Something to chew over.
hey, I would LOVE it if my grad school loans financed at 7.05% interest (now sitting at 6.55% because I've fullfilled all my incentive requirements) were suddenly interest-free. That would save me tens of thousands of dollars and let me pay off my loans in around 2/3rds of the time. If that's what comes out of this nonsense, I'll feel like a winner.
Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans. Something to chew over.
So what about QEs which cause extreme damages to savings. Isn't that the money that is created on balance sheet. Many people who live in the country won't notice. But if you go places like Singapore you can feel the pain caused by QEs because US dollar value is dipping.
I always wish US fed is half as cautions as Bundesbank. Without being able to keep the vale of the money, you just can't encourage people to be prudent and frugal. Because it is not worth it to put money in bank.
rationalist - good point. i think it'd be great if they simply used a floating interest rate that is pegged at inflation. why does the government (or worse, banks) need to make a profit on education? if what i took out got paid in, i would have no problem with the ridiculousness of education (and neither should the tax payer who would be made whole). but i am on track to pay back about 3 times what i borrowed...that feels a little silly. if this were the case, i have a feeling the market would limit the loans to those that are likely to be realistically repaid, too. this would thereby eliminate the need for those of us who do pay to OVERpay to make up for the non-payers. that is not a slight to non-payers. there are plenty of people who chose un-marketable majors (kinda like architecture) but had no idea it would be so bad. but the market would select that out, and the true deadbeats should get the full wraith of the IRS (it is AMAZING how easy it is to get out of default, ever look at the rules?)
"So what about QEs which cause extreme damages to savings"
What about it? It's a last resort manouver used in extreme situations such as this one (high unemployment, zero interest rate).
"But if you go places like Singapore you can feel the pain caused by QEs because US dollar value is dipping."
People of Singapore should come up with their own currency.
What about it? It's a last resort manouver used in extreme situations such as this one (high unemployment, zero interest rate). People of Singapoure should come up with their own currency.
I mean devaluation of currency. Exchange rate! Stability of the money. I also should say if you visit other countries.
I mention QE because you said
Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans.
"I mean devaluation of currency. Exchange rate! Stability of the money."
QE is meant to act as a control burn. I'm not qualified to comment on the effectivness. FED is saying it has worked well. Conservative analysts are saying the opposite. We don't have deflation happening so it worked on that level. Deflation would make those student loans that much worse btw.
Rusty, your disinformation is not welcome here. Interest rates on loans cover the cost of defaults and inflation. What creates money in the money supply is QE (slicing the same size of pizza a thousand times instead of a hundred, you don't get more pizza, you just get more smaller pieces, aka inflation), and velocity (meaning activity creates a good economy which creates wealth, as money is virtually more places than one).
Since student loans happen on a revolving basis, for every student that doesn't repay their debts, a future student cannot go to school. So by forgiving debt, you not only erase that money from the pile, you increase inflation, so the kids 5-10 years down the road will not only have less money from which to borrow, their need for it is greater as inflation devalues the dollar. Try to think about others please before you ask for your handouts.
To whomever suggested we subsidize education, um, we do. A lot. Turn off the TV.
Isn't that the one of the main reason of dwindling middle class American? While CPI has been going up steadily esp. in last two few years, the real value of income has been going down. I agree for the fact that it help out to those who have loan. But it is also causing damages to those who save. May be this economy is after all rewarding to the spendthrifts.
"Rusty, your disinformation is not welcome here."
I'm glad you are here to set the record straigh.
"What creates money in the money supply is QE"
QE that was done between 2009-11, and not done in the US since 1936? Is that why everything cost the same between 1937 and 2007? Brilliant!
"for every student that doesn't repay their debts, a future student cannot go to school. So by forgiving debt, you not only erase that money from the pile, you increase inflation"
OK now. I may be struggling with financial basics here, but you are just talking out of your ass. Inflation means more money in the pile. Not the other way around.
"I agree for the fact that it help out to those who have loan. But it is also causing damages to those who save."
Welcome to Vegas! Place your bets. Oh, you picked "SAVE". Aww better luck next time.
Seriously though, everything has become part of speculation market. From health to education. Housing to retirement. It's capitalism munching on its own tail. Yum!
@Rusty Shackleford
You just don't see the full effects of the QEs yet. Many people are predicting the full effects around 2015. After QEs, the CPI is artificially inflated by, flush of money on balance sheet. Because of QEs, we are going to have much less purchasing power.
Rust bucket, Not sure what you are asking about the QE, sorry. But I'll take the compliment!
As for future students, if we used to have $X available for student loans, then if everybody got forgiveness that pile would shrink, let's say .5X$. But with inflation, all money is worth less therefore prices go up, so tuition prices go up to pay for the same thing (or potentially worse than the same thing)! So a student in the future has to find more money from a smaller pile (the smaller pile is the pile of student loan money, not necessarily overall money supply.) Did I explain myself?
I can see the effects of QE in my life. Purchasing power is down down down. Am I the only one who sees that?
"Actually, most new monetary supply is created through fractional reserve system; more specifically through money that comes from interest on loans. Something to chew over."
True. And also easily misunderstood. "Money" is not really the printed currency that most people tend think it is. All of those paper dollars floating around are actually a really small percentage of the "money" that is out there on accounts and being electronically bounced around by financial organizations. It makes for more sense to think of money as being synonymous with credit. When somebody or something takes out a loan, new "money" is added to the books and...BOOM...the economy grows. Just like that. The big picture problem right now is that seemingly everybody has as much debt as they can already handle and they are intent on paying that down. As that happens, credit (i.e., the "money" supply) shrinks and the economy contracts rather than grows. The more this happens, the more desperately we need growth to escape the funk but unfortunately we're already begun the downward spiral with vicious feedback loop. Hence my relentless pessimism for the near future. More debt is not the solution to a debt problem, despite the best efforts of the politicians and central bankers.
Cars?
I'm not sold on the college student/ automobile hypothesis above. Colleges are on campuses for a reason. It makes absolutely no sense for students to be spending on cars (although admittedly that doesn't mean it isn't happening).
Whoever it was that suggest government directly finance education, however, was spot on. Universities should receive direct state support. Even in America it used to be this way. Is it any wonder that as state support of universities has been drastically cut, that tuition has dramatically rised? Ever since the post WWII era GI Bill sent a bunch of people to college who otherwise would not have gone, universities have become growth industries, actively competing for students (and the Fed backed loans that come with them). So yeah, states should support universities directly. Tuition should/would be much lower. And the trade off would be that far fewer students (but hopefully those most deserving based on the merit of their academic achievement) would be on campus. But since the world is now a free market, capitalist wet dream, universities that aren't growing are just not very appealing.
So, my last question will be what is the big difference between Wall St. bail out and (Supposedly)Student Loan bail out? The amount of money?
The difference is that Wall Street bailouts allow the current paradigm to keeping lurching forward for a while longer (allowing the politicians and bankers to collect a few more of their fat paychecks & bonuses). Debt relief for students or any other form of the common man, however, would actually speed the collapse of the current paradigm and put the haves in harms way of the have-nots sooner rather than later. Isn't it obvious which they choose?
Yo!
"Did I explain myself?"
And how! That would make perfect sense if "student loans" was a single bank account with finite finances. Tooth for tooth standard. Or something. This is not how the world is run. Sorry there there.
That IS basically how it works. Where do YOU think the money comes from?
from Bank Bernanke. Just kidding
Oh I'll go back to saving. When Japanese gov needed money they can borrow from its people. But US gov need money, it has to borrow from other countries, esp. BRIC + Middle east. For every penny you borrow, you've to pay interest rate. It is not free. In case of China, the interest from US might be financing People Liberation Army as well. Too bad, don't encourage people to save money.
if we used to have $X available for student loans, then if everybody got forgiveness that pile would shrink, let's say .5X$.
This is probably one of the biggest assumptions I would disagree with here, just to pick one out. I don't think anyone ever involved in creating the legislation or originating the loans, or really anyone else involved ever considered student loans to exist in these terms.
I'm pretty sure the pile of money where student loans comes from is in mostly no way connected with the government. It comes from private banks (so Bank Bernanke might not be all that far off, but he would be 2 or 3 times removed). What the government does is subsidize the loan. So you get a loan through your school from a private bank, who takes the government subsidy as collateral.
If the government has a direct cost from creating that subsidy, or from default, that money would come from a department's budget. I'm pretty sure that is a budget set by congress (not positive). There isn't an 'X' pile of money for student loans, or an 'X' pile for payment on defaults that comes directly from profit created by the loans and given to the government. There is a moving number based on whatever that year's budget happens to be.
Do any of you have a link from an actual student loan department or advocacy group that would explain where student loan money originates?
From Central Bank of the Republic of China. Don't believe? look up what they're holding.
I am not making that up. My buddy works for collections for student loans. I am taking her word for it. It doesn't quite work that way, admittedly, but it isn't false either. Start reading here:
http://www.loan.com/student-loans/consequences-of-defaulting-on-a-federal-perkins-loan.html "Your default can affect the amount of federal student aid they can offer in the future."
Tee, actually everyone saving is bad for the economy as well. Sounds counterintuitive but it's true. What you ideally want is everyone in a moderate level of debt. You want money to exchange hands as quickly as possible, not sit under mattresses.
There there, we covered where money comes from. You said "What creates money in the money supply is QE". This has only been true since 2008 and in 1930's. This is an intentional move by central bank to combat inflation (and to some degree stagflation). This is not how money is typically created. Got it?
Rusty, and did I mention anything else? Check it.
And when people save money, they don't usually put it under the mattress, they put it in investments (bank accounts n stuff) where it is pooled with other people's money and used to make big things happen and create more wealth.
@Rusty Shackleford
Simple rule of thumb is save when you have excess. Use your saving when things are tight.
I said QE because it is worst of the worst maneuvers that any fed can deploy. The more extreme case might be countries like Zimbabwe or Wiemar republic. Using QEs as short term solution can undermine credibility of the currency.
Now a lot of people won't save it at all even though they have ability to save because they know Purchasing Power is going down very quickly.
This is an intentional move by central bank to combat inflation ? Pumping more money to combat inflation?
May be we need to show that image to every students in country
When that happen, no forgiveness will be needed.
there there, investing personal saving can increase own's wealth but has no effect on overall money supply within any monetary ecosystem. You still need people paying interest on loans in order to create new currency. Stock increasing in value does not mean money just got printed. oy!
There is no there,
That doesn't really address the origin of the student loan money. Your source does suggest that defaulting can reduce the amount of loans a particular school will be able to administer in the future, but it is unclear on why. I don't think the funds available are directly related to the amount of profit those loans are bringing in to the school. Does a default lead to a funding gap from the federal government to that school, maybe as a penalty rather than pile 'X' being reduce to '.5X'? If everyone paid off their loans and the school made a bunch of money on interest and fees, I do not think they would have additional funds available to them to give out more Perkins loans, at least not because of profit. Maybe there is some sort of budget rule to provide additional funds to schools who manage their loan administration better.
Also, the Stafford loan program (both subsidized and unsubsidized) would be the more relevant program to look at instead of Perkins loans. The Perkins program is administered by the school, not the federal government. Defaulting on a Perkins loan only effects the school that issued it, right? I'm pretty sure the Stafford program is much larger too.
I think assuming people (either the government, or the federal reserve, or the half dozen largest banks - i'm not sure) can and do create money of out thin air is a more accurate assumption than assuming there is a pile of money people can take out of and put back into.
Are you sure these two things are not correlated at all?
Stock increasing in value does not mean money just got printed. oy!
Zero% interest rate?
"This is an intentional move by central bank to combat inflation ? Pumping more money to combat inflation?"
I meant to say deflation. My bad.
"Now a lot of people won't save it at all even though they have ability to save because they know Purchasing Power is going down very quickly."
US corporations are sitting on record levels of cash. As long as they continue to do so, we will have a recession. In the meantime, US banks still not interested in lending to anyone...
@curtkram
Yes your theory of the federal reserve, or the half dozen largest banks - i'm not sure) can and do create money of out thin air is a more accurate assumptionthe federal reserve, or the half dozen largest banks - i'm not sure) can and do create money of out thin air is a more accurate assumption is the best. Genius. We need more people like you to make things happen.
The federal government had a good idea two generations ago that has run its course, and I do think that there needs to be some relief. A significant reduction in interest, or making loans dischargeable by bankruptcy does have merit in my eyes. It must be accompanied by reforming and reducing the cost of higher ed. Colleges have been racing to build what I call "luxury dorms" in recent years, where students get a 4-bed suite with kitchen and private bath instead of a gang shower/toilet down the hall. That can't help the cost of education, and I don't know how much value it really brings.
But mass forgiveness of loans sounds a lot like social security, which will run dry in 20 years. We have enough problems with social security, housing, and healthcare that affect every citizen in the US. Student loans affect a small portion of the US.
Cut healthcare costs in half, and your student loans are covered.
Rusty, what does it mean to "sit on cash"?
"Rusty, what does it mean to "sit on cash"?"
Cash reserves and retained earnings. Few other sources as well. Again, clearly I have no idea what I'm talking about here. Companies tend to either pay out dividends or invest back in company (via new hires, etc...) This time around they are just "sitting on cash". Like a pillow full of dollar bills underneath your ass. Yeah.
CLEARLY, you have no idea what you are talking about. Cash reserves and retained earnings are NOT in the form of pillows full of dollar bills. I call your b.s. Would you like to try again?
@Rusty
If they're indeed sitting on pillow full of $$$$$, I'll be very sorry for them. Because the $$$$ is getting worthless day by day. They may have some cash for expenditure in near future. The rest are in different forms of assets which are easy to transfer, transform or liquidate. If you have more than a million dollars you just can't efforts to sit on that $$$ pillows without hedging yours. Fed, Banks, and US. gov have totally destroyed the virtue of saving or holding cash in your hand. Currency devaluation is working in full force for you 24/7. It ain't sleep or take a break.
Whatever tee said. I'll take it.
Thanks Rusty!
That makes my day.
I was sad to learn that people won't be able to eat Foie gras in Cali. What a shame Cali! These fat asses need to eat that expensive, greasy delicacy. Let them eat and let them die early. Better for the World.
Anyway, I should stop here for this topic. I've been spending a lot of my time here.
i was under the impression that the feds were reluctant to issue loans to students at schools with a history of defaulting loans - taking the "invisible hand" principle, this should or would lead to schools either having to issue more of their own financial aid or having to lower costs (as their alumni default, which is I suppose why the none-need-blind schools keep admissions that way - balance risk).
It is disturbing to see 1) that "public" schools receive an ever decreasing amount of funding from their states (Jefferson's 'public education' pride UVA covers more of a student's education cost through tuition than state funding) 2) the ever increasing number of for-profit schools that print diplomas without much concern for their students after collectig tuition 3) the ever increasing number of college students who enter without regard to their financial responsibility. NYT ran an article a couple of years back on what some HS grads are doing instead of rushing off to college, I would hope that was helpful to some - and hopefully more high school students will get better advice about jumping into a huge education investment.
Taking the interest off of loans is fine with me. Nope, don't really care where the money comes from.
What I would care about is basing it on income. Just like with some of the mortgage messiness, I don't exactly appreciate people getting bailed bailed out that went over their heads in the first place. I pay my mortgage on time, every month, and didn't over extend with any purchase.
I left the traditional career path so I could make a comfortable living (while still doing truly creative things). I shouldn't be exempt because of my income.
You get rid of student loans, it better be fore everyone. I'd love mine to be decreased, but I'll fight tooth and nail not to pay for others debt.
"I pay my mortgage on time, every month, and didn't over extend with any purchase."
And you probably kept your house. Sanity too.
You are dangerously walking into the "poor people have it so much better than everyone" territory.
BTW federal gubbermint already forgives loans to a bunch of people. We just need to declare entire America as disaster relief zone, and we shall all be debt free.
"All animals are equal, but some animals are more equal than others"
How cute!
Rusty - yeah, I tend to be more aligned with the middle, when it comes to things like that.
Yes, I kept my place, and I felt the pain of the last few years too.
The problem I have is when people clearly over extend themselves. I borrowed for school and my place, but that's it, no car loans (I saved to get what I wanted), no credit card debt. I just live within my means.
The big point is that it is the middle class that gets screwed over and over. The wealthiest have insane, truly insane, breaks and loopholes, and the lower earners get perks disproportional to their contributions to society.
How about a tax break for those that didn't buy a home that cost 10x their income??
Is that close enough to a political rant? Sadly, there are no parties that seem to agree with my thinking. All about numbers, either the money or the votes.
Has anyone here seen the video "college conspiracy" on youtube? It's great. The problem lies with arbitrarily "valuing" education as Universities do. With information so available through the internet now it is almost as if University level education/information is actually free for anyone looking for it (like iTunesU). So essentially what a University student is charged for in the end is the evaluation/testing. The "better" the University, the higher the charge. I can understand someone paying high prices or studying for long periods of time in areas of study where life and death are at stake, like brain surgeons for example. And of course architecture has its life and death issues, like making sure a building is safe. But in terms of design why should somebody need a piece of paper to say they have talent? In general the whole educational system needs to be taken down a peg or two. A "good education" is not as sacred as everyone once believed. Apprenticeships and proving oneself through hard work and determination is the way to go I beleive. Instead of trying to lobby new laws everyone could just boycott the "University education" concept. Anyway... the student loan problem WILL get big enough that students will need a big bailing out. BUT, when that happens, the University scam will be exposed just like the bad mortgage scam was exposed when the banks went under. A University education will no longer be sacred to those who ever viewed it as such. The degrees earned that way will be looked down on. Quite possibly everyone who is in the middle of their University education or got bailed out will have to look at earning society's respect through other avenues.
@Tee002, I am glad someone mentioned the German system. Here is where I first learned about it.
I see points on both sides of the argument, but really can't offer a solution for something that is cobbled together. As someone else suggested, I think there should be some sort of loan counseling for students in their last year of high school. This, combined with people in public schools (guidance counselors?) that provide students with information on scholarships and state/federal funding that is already in existence.
I work in the affordable housing field, and I know that loan counseling is a requirement if you are applying to buy affordable housing. The result was when the housing market collapsed there were very few defaults in this sector in my region. It could work, but states would have to have more money to fund something like this, which doesn't seem very likely...
I felt a twinge of education is for the elite in this thread, because there is the assumption that a lot of the people holding massive student loans are people that went to fancy colleges when they could have went to regular colleges. But now Harvard and Yale are cheaper to go to than UCal. A lot of private universities have the ability to provide more subsidies because of their large endowments. Unlike public universities and K-12 which have suffered constant funding cuts on the state and federal level. There is a problem here that is larger than not everyone needs to go to college/all students make bad decisions with regards to funding their education.
I also don't know if loan forgiveness is necessarily the best idea, because I know a ton of people that take time paying of their Federal student loans because they are the lowest interest loans they have. Maybe regulating how private loans for education are structured is a bette move?
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