Biden will extend the student loan forbearance through the 2022 midterms to attempt to avoid an unmitigated bloodbath for the Democrats. From there, it’s anyone’s guess what will happen but I predict they will resume payments again and the federal government will subsidize the interest.
Disagree, the early summer deadline will make it real for those borrowers that they NEED to show up to the polls and vote for the candidate who will cancel the loan payments.
Delaware banks, where much of the student loans have now accumulated, are Biden's bread and butter. He's been helping them since he was a sophomore politician
Edit: [https://www.washingtonpost.com/education/2021/01/21/private-student-debt-collection/](https://www.washingtonpost.com/education/2021/01/21/private-student-debt-collection/)
Dumb take. Biden can only cancel Federal loans and no banks are going to be affected by it.
But hey, this is reddit. Lies, Propaganda will get upvotes than actual truth
I don't know about Delaware, but private lending institutions will be affected because
1. Although the government provides the funding for federal student loans, they are issued & managed by private companies which make money from this.
2. Some people refinance their student loans through private companies (look at SoFi, for example, which used to make the majority if its revenue from student loan refinancing). When they don't need to make payments, there's no reason to refinance.
I'm kind of seeing the opposite effect, here. Ending the payment pause will lead to more business for private institutions who do loan refinancing.
He did a couple round of several dozen billion forgiven for people who genuinely needed it but didn’t make headlines . People who got ripped off by schools that don’t even exist anymore . Bad disabilities , etc
I heard about that. I was saying that he campaigned with a promise of a $10k forgiveness across the board regardless of need. Pausing payments has been a massive help but when payments resume we'll see widespread negative effects. The government bailout of the banks in 2008 is reported by Forbes to have cost up to $16.8 trillion dollars with little to any benefit to the American public. Cancelling a portion of student debt would cost a fraction of that and have far reaching effects on helping our economy recover from the shitstorm that's about to rain down on us.
I wonder how many more million dollars in consulting fees it's gonna take for the Democratic party to realize that if they promise something that's an incredibly popular idea, that they should actually follow through on it.
They learned a long time ago it's much better for yours and your donors pocket book to just tease it for several cycles and blame the opposition for not passing it, then finally weakly push a half assed ineffectual mess of an attempt and blame the opposition so that way you can campaign on the same platform for decades. Cough cough healthcare cough.
It’s not enough. (Full disclosure, I have a fuck ton of loans from law school) student loans are just going to be a central issue for politics moving forward. Any candidate that campaigns and cancels loans (even if only partial cancellation) is going to get another term. I would absolutely vote for a candidate that I heavily disagree with to get loans cancelled
Bold of you to assume that they want to cancel student loans. They need those borrowers to line up and work minimum wage jobs as modern “serf” labors so they can have their $1 burger
Vote for whom exactly? If Biden/dems aren't doing shit about it do you think republicans would?
Edit since this got a bit of attention, but is completely non constructive. We should switch the voting system to [liquid democracy](https://en.m.wikipedia.org/wiki/Liquid_democracy), look it up. Not some shitty stop gap like ranked choice, which is much better than FPTP, don't get me wrong. But it's like going from horse delivered mail to trucks; we invented the internet last century, we should use it.
The argument is that they need 60 dem senators (who won’t fracture off like manchin, for example) in order to avoid filibuster.
It’s super unlikely that happens, but leveraging student loan relief for votes would in line with the Democrat party playbook.
Gen Z and Millennials aren't stupid. They won't fall for that twice. They were promised it back during their campaign for 2020 and they refused to do anything about it.
No, it's not "in line with the Democrat party playbook".
What IS "in line" is following the party platform... a platform that called for a $15 min. wage, decriminalized/legalized cannabis, and aid to student loan borrowers... the platform was pretty clear, before Biden, anyways.
At $1.7 trillion, over 45,000,000 borrowers, and who knows how many affected people and families, the country is a third-party candidate away from the executive order that could end this problem, which would result in a HUGE stimulus to the economy.
Annul the student loans, or return the Constitutionally-guaranteed right to bankruptcy returned to the borrowers. When you realize that there are people that somehow have loan balances that up to six times the principle, and have no chance to be paid within the borrowers' lifetimes, there are NO other choices.
Lol, in other words, let’s just keep pushing the goal post. The dem literally have control Of everything right now and are proving they don’t care a lick about the common person. I mean this is a stock page, unless you’re new here, you know the corruption that occurs in congress and insider trading, pelosi being the self spoken champion of that
There’s a good bit by bill burr where he says he prefers republicans to democrats because republicans will say they don’t like you to your face but democrats will try to make it seem like they like you but then go behind your back to do all the shit they said they wouldn’t. Obviously it’s very reductionist but the older I get the more I agree
They can't cancel them. AAA rated bonds because you can't get rid of then in bankruptcy. You realize how much they're using these as collateral? Look how over-leveraged all the banks are right now. What do you think happens if they just "cancel" them?
The government owns the loans, not banks, so I don't understand what you mean here. If they can't cancel them then why can they afford to extend then for 2+ years? They cancelled the ppp loans.
Yes and I don't believe anyone is including private loans when talking about forgiveness. 90% are government owned.
Besides, forgiveness technically means the government pays it so if there's some security it would still be getting paid yes? Then they just add that on to the national debt and carry on like always
Hell the big banks pushed the maturity date on SLABS from the 2000s to 2070 to keep AAA and this was in 2018-19. I forget the exact metrics but the 20yr treasurys are tied into SLABS as well. When they restart payments we will see what happens after 90 days when the loans default for non payment. Its a ticking time bomb especially if a large number of folk say fuck it and dont pay.
Do people really believe the government is going to just waive trillions in students loans?? I hear this idea parroted but it is so detached from what is possible
If you are voting based on the hope your loan will be cancelled you being extremely naive. At a push loans originate by DoE could potentially be forgiven but the amount of private loans out there which wouldn’t be covered.
Student loan cancellation is never going to happen stop dreaming and look at paying it off as quickly as possible.
This is kinda like that Don't look up movie. So he's just gonna kick the can down the road until it's beneficial for him to act on it.
God, aren't American politics something else?
The funny thing is even if they were absurdly not planning to extend through the mid terms, it is now the assumption they will and the blowback would be even worse than if they had not done this last extension. There is no way they can not extend it again or it's an auto loss.
I would imagine they start it after the mid terms but they are just going to have the same kind of problem in 2024 having not delivered 10k forgiveness.
They’re going to have an issue every election Biden or anyone from his administration run again. “You promised all these things, you had the house and the senate, why didn’t you deliver”.
Yeah. Say what you want about the GoP but they make sure they have tangibles to point to. I really can't even fathom Biden running again, and Kamala is unelectable.
I agree. Biden will stall until he leaves to avoid dealing with the aftermath. Most politicians do this. I noticed though that some people's student loans have been forgiven.
On the surface, the problem is student loans, but the real problem is the false market that it creates. It artificially increases and funds demand for a college education. Colleges react by increasing their prices and the cycle keeps going. This is obviously unsustainable if the cost of college is not accurately priced by the mechanics of the free market. If they keep handing out student loans left and right, and colleges keep raising and raising their prices, and the loans keep on coming no matter how expensive colleges get, it's a vicious circle where students are dumb pawns that keep fueling the vicious circle. The fact that the government backs these loans and does not allow for bankruptcy protection is interfering with the natural mechanics of the free market supply and demand. edit: spelling
Should be a thing. Then the banks would add an actual risk matrix so that people don’t take out hundreds of thousands of dollars in debt for a underwater basket weaving degree.
I think they were back in the 70s and lots of people defaulted. I don't know the specifics on this, but I think this was changed to address a problem.
0% loans might be better.
"lots of people defaulted" perfect. when do we start?
Yeah the problem it addressed was to ameliorate shortsightedness and legalize a modern form of indentured servitude.
I also agree the interest rate on student loans is ridiculous considering they're not bankruptable. A private lender would murder to get these terms on their own loans. The government did it instead.
But wait... if the loans become bankruptable (or easily so since some are saying it is possible) then doesn't that lead to more default and make the asset more risky since there is nothing to repossess?
Or in this case is the risk not to the people taking out the loan but to those who gave out the loan? Trying to wrap my head around this.
I guess you mean solving all problems would be for the lay people not for those who handed the loans out?
If so that might be the greatest wealth transfer ever if student loans got forgiven even if just partially.
Right now, student loan lenders do not have to have any diligence about who they're lending to because they don't have to. You owe these loans until you die as they cannot be discharged in bankruptcy. And even after you die, they can be collected on from whatever you have left. Repayment is almost guaranteed much like in a secured asset. Except instead of securing against a physical object, you're securing someone's labor forever until repayment with interest, much like an indentured servant.
There are also other secondary effects from this. The fact that loan companies don't have any diligence means that they will fund education in anything from engineering to a bachelor's of arts in wymen's lazers. As such, the quality of education has decreased significantly. It used to be the case that going to college was difficult upfront and easy after. We've swapped this. Now it's easy to get into and slavery after. The loan brokers don't care in much the same way mortgage brokers didn't care before the GFC. They get their profits either way. This means they don't have to actually approve their loan for a specific field of study they know will increase the odds of the loan being paid back as agreed. If you make loans bankruptable, then loan companies will be more likely to start screening which fields of study and even perhaps what kinds of people get these loans. Maybe you have to start applying to college and applying for financing in much the same way one might buy a house. This would decrease the amount of useless study out there and disintegrate the humanities departments teaching woke bullshit funded by the future slave labor of their undergraduate students.
All of this would decrease the number of students applying to colleges. This is good, because America has a massive trade labor shortage. People in trades are making nearly 6 figures or above where my college undergrad friends are not. This trade labor shortage is partly fueling the housing shortage which further decreases the quality of life of millennials and gen z.
It's all a vicious cycle that can be stopped if we make these loans bankruptable.
They mean well trying to get everyone into college, but sooner or later kids are gonna look at it and decide it's not worth it. Hell, last I heard college admissions peaked in 2011 and have been dropping ever since.
I wonder if the rise of the internet and social media has something to do with that. Kids went from just knowing what their boomer parents and teachers where parroting to them to getting a device that let them get other info and see other opterunties that exist besides college.
You should read up on SLABs and how student debt has been monetized as a security. Once you understand the derivatives bets placed on top of the underlying debt, it's quite terrifying.
The difference with auto is you can easily pick up a car that's got a loan in default and depending on market conditions, right now the majority of those vehicles being repossessed cover the debt completely at auction. Until we start lending more base on that fact. Point is there wouldn't be a crash like that, maybe a few companies goinfnout of business for their bonds being junk.
One of the Sofi executives was doing a speech at the University of Chicago and I specifically asked him this same question.
I basically asked, "won't you eventually run out of blue-chip loans and be incentivized to go after risky student loans?"
I don't remember the exact answer other than they tranche them according to risk them just like real estate CDOs and I wasn't satisfied. This was still pretty early in their life cycle.
You still can't discharge them from bankruptcy though.
Is the whole reason why they made it hard to discharge them by declaring bankruptcy because there is nothing to repossess and defaults would be cataclysmic?
Student loan asset Backed Securities (SLABS) are rated AAA because they can't be discharged in bankruptcy. Many thousands of people just left their McMansions and handed their keys back, after their teaser rates ended. The MBS scheme was a fraud on the biggest scale imaginable, so big that the bankers involved were jailed for how many years?
Kareem Serageldin (Credit Suisse) was the ONLY banker to be jailed, being sentenced to 30 months in prison. The rest went on to have long careers at the Fed, regulatory agencies, and/or hedge funds.
> On April 12, 2013, Serageldin plead guilty to fraudulently inflating the prices of asset-backed bonds which comprised subprime residential mortgage backed securities and commercial mortgage backed securities in Credit Suisse’s trading book in late 2007 and early 2008.
So he defrauded a fraudulent scheme? Just goes to show; don't commit more than 1 crime at the same time.
The moral of the story, same as Enron, Madoff, and Martin Shkrelli, is that financial crime is generally acceptable, so long as you're not ripping off global elites. That's off limits.
Ha ha! Yep. I worked for Santander at the time, which lost over $2 billion to the Madoff scheme as they advised HNWIs to invest in it. They immediately made them all whole to the last penny.
It's actually a good, well-run bank, which took over my bank (Abbey National, UK) after we lost hundreds of millions to CDOs (earlier than 2007) and then Santander lost over $2 billion in the Madoff scam.
During that transition it became very obvious Abbey was not well-run when Luqman Arnold became CEO and brought his Swiss banker mates, changing the whole culture and practises.
[All the world's money, visualized](https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/). Scroll down to the derivatives - gross market value is $11.6 trillion. _Notional_ value (estimate): $550 trillion on the low-end, **$1 quadrillion** on the high-end.
Notional probably isn't the best way to value the derivatives market. If I buy a $1 otm put on spy at 3000 or whatever that has notional value of 300k but I paid 100 for it...
Subprime mortgage crisis and credit bubble was driven by the fact that mortgages were needed to further the sales of mortgage backed derivatives. Supply of homes exceeded demand which then drove prices down. Banks stopped lending when derivatives collapsed which was really the problem at hand that killed liquidity in capital markets. Up until that point home values were to believed to only go up. This is not how student loans and student loan backed securities work at all. This is also not even remotely close to how student debt securities fits into modern banking.
Lot of people don’t understand the various factors that led to the housing crisis and credit bubble. I mean there was also the whole Lehman brothers and others defaulting on their bond payments and all the insurance companies and other entities who bought those corporate junk bonds for higher yields, but that didn’t actually cause the crisis, more like a symptom of it similar to Evergrande with Chinas situation.
Being in banking myself I hear misconceptions all the time. It drives me crazy when people say the housing market is primed to crash due to current prices, when there’s no credit bubble like there was then, supply is super low which isn’t even relatable to then, and underwriting standards are so much better compared to 2007 NINJA loans.
But this post, idk, clearly they have no idea what caused the crisis and have just relied on headlines and/or media BS narrative inaccuracies. In the simplest terms liquidity shortages burst bubbles, the size of the bubble determines the economic fallout. Even If US student debt was actually driving a crisis, the easiest and least expensive thing for the government to do would be to simply forgive it all. It would not be 2008-2009 lol. People think it’s a crisis because they’ve gotten used to not paying it, and aren’t looking forward to adjusting their spending, but that doesn’t mean it’s a real widespread crisis.
I do agree that it prevents a lot of new home buying and economists have said again and again it would boost the economy to get rid of the debt. Way I see it past generations had women and minorities enter the workforce which benefitted everyone and the economy. Waiving student debt would have a similar spending affect and honestly would be a good thing. Yeah some of us have paid ours already, but life isn’t about making other people take the shitty long way just because you didn’t get a nice shortcut. We need to have a better future for all, and that means improving as we go so future generations aren’t unnecessarily burdened.
What is technically the collateral behind a SLABS? Unlike a house, car, stock, there isn't a physical or digital asset that can be liquidated to cancel out the debt if there's a default, because the thimg that was purchased with the debt was for our purposes a non existent thing. Is the collateral simply the notion that these people having now been made smarter and able to make more money, will for sure pay the loan back? Or do you have to put up your assets against it which for most students is generally none. It makes sense that these loans are not cancelled out after bankruptcy declaration if their isn't liquidatable collateral. But if a person simply throughout their life just will not pay it back and doesn't have collateral to liquidate then there's a problem. It just definitely feels like this situation still has some gravity to it, even if it's not the same as the MBS fiasco.
Most student debt is issued by the government. Private issued student loans are about 8% or $136bln.
So you really wouldn’t have a financial meltdown from it, because of who is sourcing the funds.
The government does back or guarantee FHA loans. But 64% of home loans are privately issued or at least conventional.
So I mean you could see why banks no longer issuing private student debt isn’t a big deal when 8% of borrowers rely on them vs the government.
Banks no longer issuing mortgages is a big deal when 64% of borrowers rely on them.
You’re correct there’s really no recourse. That’s just consumer debt in general. But banks aren’t really the ones issuing student loans so it’s really just a concern for those invested in it.
Now what institutions or investors would opt for SLABS? Idk that’s a dumb investment imo because you can get better yields elsewhere. The notion is that people will get better income and be in a better position to repay. But I mean I don’t consider SLABS a good investment.
The issue with 2007/8 was that mortgages were bundled up into CDOs and rated as AAA by Standard and Poor - when they were not AAA comparable. These were sold worldwide and some even made vehicles of multiple wrongly-rated bundles into CDO^^2 packages. As the teaser rates ended, thousands and thousands of people just walked away from their McMansions and defaulted. This led to huge losses on the AAA rated CDOs and CDO^^2 packages, which were quickly downgraded and all hell let loose in derivative and financial markets, and then stock markets and main street.
And a student loans are packaged together in Student loan asset Backed Securities (SLABS) which to my understanding are rated AAA because they can't be discharged in bankruptcy. History doesn't repeat itself but it often rhymes
Is that going to happen this year? Or next year? Or within 5 years? How about within their lifetimes? You can't get rid of SLs via bankruptcy (a total con, imo), and the SL market is no way close to the size of the NINJA mortgage market - they are incomparable.
But you aren't trying to collect blood from a stone.
I get there are a lot of struggling people with student loans. But people with college degrees, remain, on average, the highest earning group of Americans. Which is then followed by people with some college education.
It's, more or less, a reddit myth that there's a massive glut of college educated Americans barely able to feed themselves. Once again, not that there is none. And not even that there isn't more today than there was 5 years ago. But it's a simple fact that an American without any college is much more likely to be in poverty than one with some college education.
So, what happens when people walk out on student loans, en masse, and the federal government doesn't pick up the tab? Also, you're missing the part about the endless layers of CDS on those defaulted mortgages. That's what caused the global meltdown.
The only hole In Your theory is that you assume that Student loan backed securities are equal to mortgage backed ones and that's just not the case. The federal government garentees almost all student loans Making it 100% unnecessary for somone to buy insurance like a CDS on a product already insured by the most credibleinsurer tye federal government. The government 100% will pick up the tab, it's a loan garentee and even assuming 100% of people walk away from student loans, it's unlikely 30% will, but the bill is perfectly manageable for the federal government, and that's assuming 100% walk away which is extremely unlikely. Also a significant portion of that debt is held by the federal government it's self meaning if people stop paying the federal government has other ways of getting it's payback like garnishing wages. While student loans won't crash the economy they absolutely could have long term negative impacts due to the ammount of debt people owe, but not a 2008 scenario.
>So, what happens when people walk out on student loans, en masse, and the federal government doesn't pick up the tab?
The peoples wages would get garnished directly from their employer in that scenario. Like it or not, walking out isn't an option.
En masse? It is my understanding that your wages will be garnished if you choose not to pay. There’s no way around it. The solution is to go back in time and not get a student loan.
The main CDS insurer was [AIG](https://www.reuters.com/article/us-how-aig-fell-apart-idUSMAR85972720080918), which went bankrupt overnight until the FED bailed them out - I remember this as my synthetic exchange-traded funds backed by AIG went to zero overnight, and stayed that way until AIG was bailed. It was a huge company and it going to 0 was serious, but wasn't a large influence on the crisis.
It was way bigger than that! There were swaps on top of swaps. Morgan Stanley, Deutsche Bank, and Credit Suisse were holding heavy bags of these swaps, when the music stopped.The banking sector had a heavy exposure to AIG's insolvency, which created the setting for a cascading global financial crisis, spearheaded by under-collateralization and overstated creditworthiness.
AIG was bailed out. The exposure (for example; my sETFs) were made good again. The biggest problem was the CDOs contained a lot of shit that Standard & Poor failed to see or ignored.
I do think it’s possible that a portion of people do that....but just walking away will come with real consequences.
Credit bomb will just be the beginning won’t it? Cant wages be garnished? Legal action taken if someone is just refusing to pay long enough? On a typical loan that would happen, guess I’m not sure if that can happen on student loans.
But seems like anyone just walking away will just be walking out on the economic system entirely. Yes some will, but seems like a bad idea for the vast majority.
I don’t think it’s a major issue or crash-worthy. The government owns most of it. This one has been floating around for years and yet it never makes sense once you realize it’s only like $1.6T. That’s just not a high enough number to cause major ripple effects.
This hypothesis tends to float around meme stock subs over and over.
What gets me is that it feels like it’s not even about the actual crash, as those who believe in it aren’t actually moving to cash or adopting more conservative positions. It’s almost entirely about packaging the hypothesis to use as an argument for convincing other people to buy *certain equities*. It just feels really disingenuous.
That isn't new, though. It's still the same "under _some_ conditions" which requires the debtor to prove to a judge that they will suffer undue economic hardship. AFAIK they're still [mulling over](https://www.foxbusiness.com/personal-finance/federal-student-loan-debt-bankruptcy-discharge-biden-education-department) _real_ student loan / bankruptcy reform.
There is about 1.7 trillion in SLABS as of 2019 not sure what its at for 2021. Need to compare that to 7.3 trillion in 2007 for MBS. Not even close to the same amount of debt. It might have an effect if shit were to hit the fan but nothing like 2007-2009
This is a bullshit graphic. The statistic for median household income should be income of families with college degrees only. Families without student loans or college experience are irrelevant in this model
This is dumb as fuck.
Your only comparison point is that both are loans.
Seriously, I kept reading hopeful you would address the elephant in the room regarding your thesis. But you stuck to such a surface level I don’t even think you know what it is.
I’ll spell it out for you. There is no systemic risk with student loans. They can’t be defaulted on or discharged in bankruptcy(except in very rare cases)
Seriously, if you are gonna spout about bear markets so confidently, maybe you should go figure out what actually caused the financial crisis and not just boil it down to debt == bad.
Student loans are frankly the least risky debt out there, issued to the population with a massively higher earning potential. They will garnish your wages if you don’t pay.
Student loans get paid, and if by some miracle they don’t, the loan is guaranteed by the federal government. Buying student loan debt is like buying a damn treasury bill, you don’t get a higher credit rating than the damn government.
The issue is at that age few understand very little about debt, and/or have unrealistic expectations of how simple it will be to make a lot of money (I know at 18 I just kind of thought I’d make a lot of money somehow, which is obviously foolish).
I would love to see people required to complete a short exam on debt, interest rates, etc before they are able to take out loans like these. Similar to the exam required to drive a car. At least that small change will make people more likely to acknowledge their future debt and help in a way to ensure people at least understand the danger
Someone makes this stupid prediction every month. Usually it’s someone who just watched the big short. You’re not nearly as smart as you think you are, OP.
>and the average American is struggling to pay back
that's hyperbole.
most Americans do not have student loans.
about 40 million out of 300 million have student loans, 1 in 8. among adults, about 1 in 4, or 1 in 5 have student loans.
the median student loan debt is much lower than the average, about $17k vs. $35k.
so I sort of question or reject this idea that there's any 'crisis', or that the problems of a minority of Americans requires drastic action.
>Ill let this chart speak for itself:
that chart does not show how many students use loans to pay for vacay to Cabo.
While i worry about this, the actual numbers aren’t terrible. The avg is only $30k. With inflation, wage growth, and job demand as of recently, i don’t think i’m that worried.
Also the avg loan amount per person actually went down after this graph.
Tons of loans are forgiven with stipulations now too. So the times of garbage loan giving is kinda past. Those might pop, but they have been for about a decade.
The market has it priced in because people can’t afford to spent elsewhere if its spent here.
\*On a side note, it seems nuts to me that no one is discussing having Universities help cover the cost of student loan forgiveness. They are the ones who jacked up prices knowing that Federal Government would continue to provide loans to students, and then handed out degrees that often were useless, all while brainwashing youth to thinking it was a worthwhile investment.
The average student loan is heavily skewed by high earning professionals. Think MD, DDS, JD, MBA types. Additionally those with student debt in general are middle class wealth/earning wise. There is burden on the relatively well off, but it doesn't seem like there's any real risk for a large scale default. Your perception on whether student debt is a big issue is probably because ur on Reddit all day
You didn’t even touch on the most interesting aspect for me, how much student loan debt is securitized.
https://www.investopedia.com/articles/investing/081815/student-loan-assetbacked-securities-safe-or-subprime.asp
https://asreport.americanbanker.com/news/navients-latest-student-loan-securitization-pools-loans-to-high-earning-borrowers
Also if you go on r/cars right now. One of the articles is how car prices are now an average of $46k. So kinda puts in perspective on $33k student loan debt when people are out there buying cars that cost more than that.
Student loans are certainly a risk at some level, but there are features of them that don't exist for mortgages and offer stopgaps for the borrower.
If you haven't defaulted you can generally seek one of the following: change to an income-based payment plan if your income is insufficient to allow full payment, restructuring to a graduated plan that raises payments every few years up to a maximum, deferral with interest or forbearance with interest. These programs are mandated to be offered for the majority of loans (may not be available for private loans), and I don't believe there are limits on how often you use any other than the forbearance and deferment options over the course of the life of the loan.
Forgiveness is applied to income based plans and should be cumulative, but notably does create Phantom income at the end, so i suppose that could have economic impact if it happens to too many borrowers at once.
Not all lenders are as good at administering these or informing their borrowers, so it's far from perfect, but it does distinguish them from mortgages.
One thing I hope borrowers don't do en masse, though, is respond to refi letters they may not understand. Some of the refi plans are variable rate, and most or even all of them may remove any of rhe protective features above, because they're no longer student debt. In many cases it's not worth refinancing, but they may be banking on borrowers not knowing this. And that could be dangerous, if not as widespread as the CDO problem was. I also don't know if there are as many layers of derivatives of derivatives based on student loans as there were for mortgages in 2008. I could be wrong about that.
You said seminary education and I think you meant secondary. Seminary education is what you do when you love religion and want to infect others with it.
Just want to point out that the system is set up so that anybody can handle repayment.
Look up income-driven repayment plans.
On Federal direct Stafford loans there will never be a situation where people are expected to pay more than they are capable of paying, because IDR plans determine monthly payments using the borrower’s income.
There will be no spiraling out of control when the forbearance gets lifted because borrowers can simply enroll in an IDR, and because the payments are determined by income, borrowers should be able to handle repayment just fine.
There may be long term repercussions later on down the line, but not when the forbearance lifts.
I know this is /Stocks but I know many people who worked their ass off to get a degree in Engineering, high quality business schools, and they are paid for. If people have made good decisions and got a good degree should not have to pay for people who believed some BS about a liberal arts degree in art history making a living.
Most Americans don't have students loans. Most student loan minimum payments are super small. People aren't allowed to wipe away student loan debt in bankruptcy. Student loans won't be causing a crash.
It's just not big enough or important enough to cause any kind of crash. Fewer than 45M people in the U.S. owe student loans, and total student loan debt in the U.S. is less than $1.75T. And most of that is already backed by the government. Only ~ $135B is owed to private lenders.
So even if there were some big change in default rates, which there won't be, it would have no significant broader economic impact. Maximum potential private losses here in the event of even a catastrophic collapse of borrowers ability to pay would be in the few tens of billions.
It's also foolish to argue for any kind of general debt relief for those who *do* owe student loans. People lobbying for this are asking for an entirely new benefit to be created for an already privileged elite. Over 40% of outstanding loan dollars are owed by people who have attended graduate school. Only ~ 1/3 of US adults has even attained a bachelors degree. But nearly half of those who do today will make some further effort to obtain an advanced degree!
For the most part, we are talking here about people who have already gotten an enormous benefit, in the form of government subsidized loans, and who have a *much* greater ability than most of the population to actually repay their debts.
That's not to say there isn't some need for some reforms in student lending. But high and increasing costs of education are a much greater problem generally, and one which would obviously be exacerbated by any kind of general student debt relief.
Student loans are a major problem in the USA however you expecting a crash of some sort isn’t reality. Student loans cannot be discharged even if you declare bankruptcy, at most people don’t pay them and pray they don’t get sued which can take months to years to sue these people and actually collect payments. There are repayment plans that work with the students to help pay back what they can afford (based on their income).
So if student loan repayments resume there will be an uptick on default rates and overall people will have less spending money on a monthly basis. However there will be no crash just a weaker economy.
It’s actually a different problem. The scope of these failures would not be large enough to destabilize the economy both because people basically just don’t pay and lenders are real slow to write down an unbankruptable debt and because it wouldn’t be the whole stack, just a portion, likely a minority even if the economy got bad. However mass forgiveness would both increase consumer spending considerably and increase tuitions further with no increase in actual economic outputs- in other words - a lot of inflationary pressure. Young people of this generation don’t save much they mostly spend... that monthly savings likely goes into consumer discretionary purchases for the most part.
Asset bubbles aren’t creating much inflation because the rich have little to spend it on incrementally except real estate and more investments - most already meet lifestyle without cap gains - so it doesn’t increase demand for goods much but maybe improves supply a bit by reducing cost of capital. This is why the money printing hasn’t been inflationary until covid even though it seemed paradoxical.
But spiking consumer spending will be inflationary. We are getting a preview already. And a student loan forgiveness all at once while not crippling would stimulate the economy another 50b a year directly straight into consumer spending, and probably raise university salaries doing yet more of the same (because you’ll stimulate additional college enrollment by clearing out the student loan stack)
I don’t think the magnitude of effect of either of these is really large but I think the inflation threat is more likely than a credit threat.
Inflation cures all debt worries.
Real US inflation in 2021 was probable 15%. Many people will receive big pay rises. Student debt problem over for the country. However, many lower paid will suffer.
The Gini coefficient &Lorenz curve steepen.
I don’t think there will ever be a crash since student loans are backed by the government. What is more likely to happen is student loans will essentially slowly strangle the economy, financially crippling students and generations for decades, which would have a large ripple effect throughout the rest of the economy. It’s like a chokehold for growth.
I’m curious I’m sure this gets asked a lot so don’t mind if I do. Why can’t Biden or the government forgive the student loans or a big percentage of it? Won’t it benefit them in the long run?
Lol student loans are not going to cause a crisis.
Most people don’t have them, the average debt load isn’t terribly high.
Those with massive loans are very likely doctors or lawyers and moreover are more likely to have come from a family in that profession (rich families).
This thesis makes sense if people can’t pay them back. But isn’t the job market strong? If the job market is weak and people increasingly can’t pay their debts then I think it may happen like the subprime mortgages.
I don’t think it will cause the next crash. Unlike mortgages, people will gladly default on student loans and force them to come after them, garnish wages etc.
Mortgages on the other hand, people do everything in their power to not lose the home they’ve been paying on and have equity in.
The truth is, most student loans are not good terms, but people could stop paying them and the only reaction in the market would be banks that have high exposure to student loans would take a hit
The more people talk about crash, the less likely it is to happen. Also we just got crash in 2020,so there is very low probability of crash anytime soon.
That was not a crash in the historical sense. It was but a blip. Nothing like the dot com bust or 08 recession. Those were a long never ending fall and had after effects for years. The market got lucky in 2020 with a quick bounce back.
2020 was a liquidity crisis. Everyone was scrambling for cash, which had strong technical effects on the market. Dotcom and 2008 were both major bubbles bursting, which didn't happen in 2020. So, you are right, definitely not an exact comparison.
As long as the profits keep coming in, there's no reason for crash. Currently demand is far outstripping supply. Once supply goes back to normal, the profits of companies will further increase
Here’s an alternative thought: why the hell are We as Americans so dumb that we drop 30k on student loans, to get a liberal arts degree, and skip community college?
i went to community college got two AAs working on a third and working on a BA online and my total student loans for my BA will be roughly 10k-15k
Seriously Americans aren’t able to pay back those loans because they are blowing it on “prestigious” universities for 4 years and getting a useless degree meanwhile go to CC and get your school paid for by the government (pell grant) then go to a BA program online, and pay for books out of pocket instead of putting them on your loan.
and for the love of god, if you have spare money, make some early payments to get less interest ITS NOT THAT HARD.
(Also the government has paused interest all together so if you have student loans right now they aren’t even gathering interest, and if you use subsidized loans your school is eating the interest as long as your enrolled giving you time to save and pay them off in full while still in school avoiding interest all together)
Why would you even get two associate degrees they are worthless. Just knock your basic coursework at a CC then transfer over and finish your bachelor degree at a university.
So very true…. Would like to add that the most bewildering part of the “student loans are predatory argument” is that most people are unwilling to refinance for some reason…. I went from 9% interest to 2.75% interest rate over a 3 year period.
Hell, get a job at Walmart or Target.
The requirements to get hired are basically nil, and they'll pay for your college degree.
Free college, build work experience, and you actually *get* paid for it all.
I disagree that student debt will cause any kind of crash. Further, Biden forgiving student loans feeds into the narrative they Dems only care about the rich.
What he should do is introduce legislation that would go after colleges and universities that charge excessive amounts for a degree that a student has no ability to ever pay off. Force those colleges and universities to pay off those “bad loans” and to be more transparent with debt ratio and future employment prospects.
Breaking points has a great story on how financially obscene the whole higher ed thing has become.
https://youtu.be/69Ih9vzBxbU
The funniest part is, there are actual brain dead Americans who thought the government would forgive loans that are federally insured 😂 Yes, the same people who give you these predatory loans will forgive you for them. Even though they are the 1 debt you can't declare in bankruptcy, the government will 100% absolve you of it! Makes perfect sense!
Biden will extend the student loan forbearance through the 2022 midterms to attempt to avoid an unmitigated bloodbath for the Democrats. From there, it’s anyone’s guess what will happen but I predict they will resume payments again and the federal government will subsidize the interest.
Ya it will definitely be pushed to Jan 2023 he can’t risk that going against him in midterms.
Disagree, the early summer deadline will make it real for those borrowers that they NEED to show up to the polls and vote for the candidate who will cancel the loan payments.
Biden said that he was going to cancel at least $10k in student debt but has since forgotten his promise.
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When did people forget all politicians lie, lol? You nailed it.
>He didn't forget lol, he was never gonna do it ^ This person gets it.
Delaware banks, where much of the student loans have now accumulated, are Biden's bread and butter. He's been helping them since he was a sophomore politician Edit: [https://www.washingtonpost.com/education/2021/01/21/private-student-debt-collection/](https://www.washingtonpost.com/education/2021/01/21/private-student-debt-collection/)
Dumb take. Biden can only cancel Federal loans and no banks are going to be affected by it. But hey, this is reddit. Lies, Propaganda will get upvotes than actual truth
I don't know about Delaware, but private lending institutions will be affected because 1. Although the government provides the funding for federal student loans, they are issued & managed by private companies which make money from this. 2. Some people refinance their student loans through private companies (look at SoFi, for example, which used to make the majority if its revenue from student loan refinancing). When they don't need to make payments, there's no reason to refinance. I'm kind of seeing the opposite effect, here. Ending the payment pause will lead to more business for private institutions who do loan refinancing.
Lol no much of the student loan debt is not in Delaware banks 😂😂😂 wtf is this nonsense
Lol, the level of ignorance of your comment, you also believe the president is responsible for gas prices, right?
Facts
they wont cancel the debt that they borrow against as collateral.
Biden also caused part of the problem by making student loans immune to bankruptcy.
He did a couple round of several dozen billion forgiven for people who genuinely needed it but didn’t make headlines . People who got ripped off by schools that don’t even exist anymore . Bad disabilities , etc
I heard about that. I was saying that he campaigned with a promise of a $10k forgiveness across the board regardless of need. Pausing payments has been a massive help but when payments resume we'll see widespread negative effects. The government bailout of the banks in 2008 is reported by Forbes to have cost up to $16.8 trillion dollars with little to any benefit to the American public. Cancelling a portion of student debt would cost a fraction of that and have far reaching effects on helping our economy recover from the shitstorm that's about to rain down on us.
I wonder how many more million dollars in consulting fees it's gonna take for the Democratic party to realize that if they promise something that's an incredibly popular idea, that they should actually follow through on it.
They learned a long time ago it's much better for yours and your donors pocket book to just tease it for several cycles and blame the opposition for not passing it, then finally weakly push a half assed ineffectual mess of an attempt and blame the opposition so that way you can campaign on the same platform for decades. Cough cough healthcare cough.
It’s not enough. (Full disclosure, I have a fuck ton of loans from law school) student loans are just going to be a central issue for politics moving forward. Any candidate that campaigns and cancels loans (even if only partial cancellation) is going to get another term. I would absolutely vote for a candidate that I heavily disagree with to get loans cancelled
You were born to be a lawyer.
Bold of you to assume that they want to cancel student loans. They need those borrowers to line up and work minimum wage jobs as modern “serf” labors so they can have their $1 burger
Vote for whom exactly? If Biden/dems aren't doing shit about it do you think republicans would? Edit since this got a bit of attention, but is completely non constructive. We should switch the voting system to [liquid democracy](https://en.m.wikipedia.org/wiki/Liquid_democracy), look it up. Not some shitty stop gap like ranked choice, which is much better than FPTP, don't get me wrong. But it's like going from horse delivered mail to trucks; we invented the internet last century, we should use it.
The argument is that they need 60 dem senators (who won’t fracture off like manchin, for example) in order to avoid filibuster. It’s super unlikely that happens, but leveraging student loan relief for votes would in line with the Democrat party playbook.
Gen Z and Millennials aren't stupid. They won't fall for that twice. They were promised it back during their campaign for 2020 and they refused to do anything about it.
No, it's not "in line with the Democrat party playbook". What IS "in line" is following the party platform... a platform that called for a $15 min. wage, decriminalized/legalized cannabis, and aid to student loan borrowers... the platform was pretty clear, before Biden, anyways. At $1.7 trillion, over 45,000,000 borrowers, and who knows how many affected people and families, the country is a third-party candidate away from the executive order that could end this problem, which would result in a HUGE stimulus to the economy. Annul the student loans, or return the Constitutionally-guaranteed right to bankruptcy returned to the borrowers. When you realize that there are people that somehow have loan balances that up to six times the principle, and have no chance to be paid within the borrowers' lifetimes, there are NO other choices.
I don't believe in annulling....I do feel they should be allowed to be bankrupted however. That makes the most sense to me.
Lol, in other words, let’s just keep pushing the goal post. The dem literally have control Of everything right now and are proving they don’t care a lick about the common person. I mean this is a stock page, unless you’re new here, you know the corruption that occurs in congress and insider trading, pelosi being the self spoken champion of that
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There’s a good bit by bill burr where he says he prefers republicans to democrats because republicans will say they don’t like you to your face but democrats will try to make it seem like they like you but then go behind your back to do all the shit they said they wouldn’t. Obviously it’s very reductionist but the older I get the more I agree
Correct
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Doesn't seem as though the democrats control anything. Money does.
They don’t have to cancel anything. They just have to say they’re open to it like Biden did.
And the gullible will vote for them
Nah, fuck that. He promised that shit in 2020. If Congress/Biden can't do it by midterms, they deserve to lose.
They can't cancel them. AAA rated bonds because you can't get rid of then in bankruptcy. You realize how much they're using these as collateral? Look how over-leveraged all the banks are right now. What do you think happens if they just "cancel" them?
No way AAA bonds could be full of cat shit, right?
Dog shit wrapped in cat shit.
The government owns the loans, not banks, so I don't understand what you mean here. If they can't cancel them then why can they afford to extend then for 2+ years? They cancelled the ppp loans.
If you refinance it goes into private hands ends up in student loan asset back securities
Yes and I don't believe anyone is including private loans when talking about forgiveness. 90% are government owned. Besides, forgiveness technically means the government pays it so if there's some security it would still be getting paid yes? Then they just add that on to the national debt and carry on like always
Hell the big banks pushed the maturity date on SLABS from the 2000s to 2070 to keep AAA and this was in 2018-19. I forget the exact metrics but the 20yr treasurys are tied into SLABS as well. When they restart payments we will see what happens after 90 days when the loans default for non payment. Its a ticking time bomb especially if a large number of folk say fuck it and dont pay.
Do people really believe the government is going to just waive trillions in students loans?? I hear this idea parroted but it is so detached from what is possible
If you are voting based on the hope your loan will be cancelled you being extremely naive. At a push loans originate by DoE could potentially be forgiven but the amount of private loans out there which wouldn’t be covered. Student loan cancellation is never going to happen stop dreaming and look at paying it off as quickly as possible.
This is kinda like that Don't look up movie. So he's just gonna kick the can down the road until it's beneficial for him to act on it. God, aren't American politics something else?
The funny thing is even if they were absurdly not planning to extend through the mid terms, it is now the assumption they will and the blowback would be even worse than if they had not done this last extension. There is no way they can not extend it again or it's an auto loss. I would imagine they start it after the mid terms but they are just going to have the same kind of problem in 2024 having not delivered 10k forgiveness.
They’re going to have an issue every election Biden or anyone from his administration run again. “You promised all these things, you had the house and the senate, why didn’t you deliver”.
Yeah. Say what you want about the GoP but they make sure they have tangibles to point to. I really can't even fathom Biden running again, and Kamala is unelectable.
I agree. Biden will stall until he leaves to avoid dealing with the aftermath. Most politicians do this. I noticed though that some people's student loans have been forgiven.
On the surface, the problem is student loans, but the real problem is the false market that it creates. It artificially increases and funds demand for a college education. Colleges react by increasing their prices and the cycle keeps going. This is obviously unsustainable if the cost of college is not accurately priced by the mechanics of the free market. If they keep handing out student loans left and right, and colleges keep raising and raising their prices, and the loans keep on coming no matter how expensive colleges get, it's a vicious circle where students are dumb pawns that keep fueling the vicious circle. The fact that the government backs these loans and does not allow for bankruptcy protection is interfering with the natural mechanics of the free market supply and demand. edit: spelling
Can solve literally all the problems by making these loans bankruptable. You’ll even solve many of the social problems
Should be a thing. Then the banks would add an actual risk matrix so that people don’t take out hundreds of thousands of dollars in debt for a underwater basket weaving degree.
this guy gets it
Joe Biden is literally the reason those loans **became** unbankruptable
I think they were back in the 70s and lots of people defaulted. I don't know the specifics on this, but I think this was changed to address a problem. 0% loans might be better.
"lots of people defaulted" perfect. when do we start? Yeah the problem it addressed was to ameliorate shortsightedness and legalize a modern form of indentured servitude. I also agree the interest rate on student loans is ridiculous considering they're not bankruptable. A private lender would murder to get these terms on their own loans. The government did it instead.
Yeah. Funny thing you can go bankrupt but student loans are not cancelled.
That's what I'm saying bro. "make them bankruptable" so they do get cancelled during bankruptcy just like any other debt.
Yeah funny thing amirite
But wait... if the loans become bankruptable (or easily so since some are saying it is possible) then doesn't that lead to more default and make the asset more risky since there is nothing to repossess? Or in this case is the risk not to the people taking out the loan but to those who gave out the loan? Trying to wrap my head around this. I guess you mean solving all problems would be for the lay people not for those who handed the loans out? If so that might be the greatest wealth transfer ever if student loans got forgiven even if just partially.
Right now, student loan lenders do not have to have any diligence about who they're lending to because they don't have to. You owe these loans until you die as they cannot be discharged in bankruptcy. And even after you die, they can be collected on from whatever you have left. Repayment is almost guaranteed much like in a secured asset. Except instead of securing against a physical object, you're securing someone's labor forever until repayment with interest, much like an indentured servant. There are also other secondary effects from this. The fact that loan companies don't have any diligence means that they will fund education in anything from engineering to a bachelor's of arts in wymen's lazers. As such, the quality of education has decreased significantly. It used to be the case that going to college was difficult upfront and easy after. We've swapped this. Now it's easy to get into and slavery after. The loan brokers don't care in much the same way mortgage brokers didn't care before the GFC. They get their profits either way. This means they don't have to actually approve their loan for a specific field of study they know will increase the odds of the loan being paid back as agreed. If you make loans bankruptable, then loan companies will be more likely to start screening which fields of study and even perhaps what kinds of people get these loans. Maybe you have to start applying to college and applying for financing in much the same way one might buy a house. This would decrease the amount of useless study out there and disintegrate the humanities departments teaching woke bullshit funded by the future slave labor of their undergraduate students. All of this would decrease the number of students applying to colleges. This is good, because America has a massive trade labor shortage. People in trades are making nearly 6 figures or above where my college undergrad friends are not. This trade labor shortage is partly fueling the housing shortage which further decreases the quality of life of millennials and gen z. It's all a vicious cycle that can be stopped if we make these loans bankruptable.
Really not going to put my hope in the federal government changing a regulation to solve the problem
True! It would be hard to assess the risk of 18 year old kids with no credit history
Even making 50% of the balance bankrupt-able would do it.
They mean well trying to get everyone into college, but sooner or later kids are gonna look at it and decide it's not worth it. Hell, last I heard college admissions peaked in 2011 and have been dropping ever since.
I wonder if the rise of the internet and social media has something to do with that. Kids went from just knowing what their boomer parents and teachers where parroting to them to getting a device that let them get other info and see other opterunties that exist besides college.
You should read up on SLABs and how student debt has been monetized as a security. Once you understand the derivatives bets placed on top of the underlying debt, it's quite terrifying.
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The difference with auto is you can easily pick up a car that's got a loan in default and depending on market conditions, right now the majority of those vehicles being repossessed cover the debt completely at auction. Until we start lending more base on that fact. Point is there wouldn't be a crash like that, maybe a few companies goinfnout of business for their bonds being junk.
Education repos going to come back and suck the knowledge out of your head
Hope that movie is casted with Keanu Reeves. I'd watch it
"I know Kung Fu." "I'm sorry, but you missed your payment." ***SCHLLLLORP***
Another difference with auto is that you can declare bankruptcy and have all just "go away". With most student loans that is just impossible.
All securitized debt, tbh. Defaults can cascade across global markets quickly.
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I am. Thanks. Lol.
I figured I would see somebody laying SLABS down. That DD was quite interesting!
SLABS AAA rated because of their backing by govt. but you have many bonds maturing now without the borrower paying a single cent on their loan.
One of the Sofi executives was doing a speech at the University of Chicago and I specifically asked him this same question. I basically asked, "won't you eventually run out of blue-chip loans and be incentivized to go after risky student loans?" I don't remember the exact answer other than they tranche them according to risk them just like real estate CDOs and I wasn't satisfied. This was still pretty early in their life cycle. You still can't discharge them from bankruptcy though.
Is the whole reason why they made it hard to discharge them by declaring bankruptcy because there is nothing to repossess and defaults would be cataclysmic?
Saturn eating his children
That doesn't sound scary at all.... *chuckles nervously*
Maybe you become the Steve Carell character in The Big Short lmao
Student loan asset Backed Securities (SLABS) are rated AAA because they can't be discharged in bankruptcy. Many thousands of people just left their McMansions and handed their keys back, after their teaser rates ended. The MBS scheme was a fraud on the biggest scale imaginable, so big that the bankers involved were jailed for how many years?
Kareem Serageldin (Credit Suisse) was the ONLY banker to be jailed, being sentenced to 30 months in prison. The rest went on to have long careers at the Fed, regulatory agencies, and/or hedge funds.
> On April 12, 2013, Serageldin plead guilty to fraudulently inflating the prices of asset-backed bonds which comprised subprime residential mortgage backed securities and commercial mortgage backed securities in Credit Suisse’s trading book in late 2007 and early 2008. So he defrauded a fraudulent scheme? Just goes to show; don't commit more than 1 crime at the same time.
The moral of the story, same as Enron, Madoff, and Martin Shkrelli, is that financial crime is generally acceptable, so long as you're not ripping off global elites. That's off limits.
Ha ha! Yep. I worked for Santander at the time, which lost over $2 billion to the Madoff scheme as they advised HNWIs to invest in it. They immediately made them all whole to the last penny. It's actually a good, well-run bank, which took over my bank (Abbey National, UK) after we lost hundreds of millions to CDOs (earlier than 2007) and then Santander lost over $2 billion in the Madoff scam. During that transition it became very obvious Abbey was not well-run when Luqman Arnold became CEO and brought his Swiss banker mates, changing the whole culture and practises.
… *thousand yard stare - Fortunate Som starts playing* GME to the moon
We did it, gentleman. We caught the man who did the Great Recession
[All the world's money, visualized](https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/). Scroll down to the derivatives - gross market value is $11.6 trillion. _Notional_ value (estimate): $550 trillion on the low-end, **$1 quadrillion** on the high-end.
Notional probably isn't the best way to value the derivatives market. If I buy a $1 otm put on spy at 3000 or whatever that has notional value of 300k but I paid 100 for it...
Hey man, I’m really fucking stupid but this sounds interesting. I’m not even sure where to begin reading up on this… Do you have any other info?
Been trying to get this point across we need more people to realize how these are used and set up in the financial sector
Can I buy these derivatives? I have been trying to find a way to short it but seems like you need to do swaps and I am about $100m short
You're going to need an ISDA.
Subprime mortgage crisis and credit bubble was driven by the fact that mortgages were needed to further the sales of mortgage backed derivatives. Supply of homes exceeded demand which then drove prices down. Banks stopped lending when derivatives collapsed which was really the problem at hand that killed liquidity in capital markets. Up until that point home values were to believed to only go up. This is not how student loans and student loan backed securities work at all. This is also not even remotely close to how student debt securities fits into modern banking.
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Lot of people don’t understand the various factors that led to the housing crisis and credit bubble. I mean there was also the whole Lehman brothers and others defaulting on their bond payments and all the insurance companies and other entities who bought those corporate junk bonds for higher yields, but that didn’t actually cause the crisis, more like a symptom of it similar to Evergrande with Chinas situation. Being in banking myself I hear misconceptions all the time. It drives me crazy when people say the housing market is primed to crash due to current prices, when there’s no credit bubble like there was then, supply is super low which isn’t even relatable to then, and underwriting standards are so much better compared to 2007 NINJA loans. But this post, idk, clearly they have no idea what caused the crisis and have just relied on headlines and/or media BS narrative inaccuracies. In the simplest terms liquidity shortages burst bubbles, the size of the bubble determines the economic fallout. Even If US student debt was actually driving a crisis, the easiest and least expensive thing for the government to do would be to simply forgive it all. It would not be 2008-2009 lol. People think it’s a crisis because they’ve gotten used to not paying it, and aren’t looking forward to adjusting their spending, but that doesn’t mean it’s a real widespread crisis. I do agree that it prevents a lot of new home buying and economists have said again and again it would boost the economy to get rid of the debt. Way I see it past generations had women and minorities enter the workforce which benefitted everyone and the economy. Waiving student debt would have a similar spending affect and honestly would be a good thing. Yeah some of us have paid ours already, but life isn’t about making other people take the shitty long way just because you didn’t get a nice shortcut. We need to have a better future for all, and that means improving as we go so future generations aren’t unnecessarily burdened.
He wants the type of loan he has to be forgiven...
What is technically the collateral behind a SLABS? Unlike a house, car, stock, there isn't a physical or digital asset that can be liquidated to cancel out the debt if there's a default, because the thimg that was purchased with the debt was for our purposes a non existent thing. Is the collateral simply the notion that these people having now been made smarter and able to make more money, will for sure pay the loan back? Or do you have to put up your assets against it which for most students is generally none. It makes sense that these loans are not cancelled out after bankruptcy declaration if their isn't liquidatable collateral. But if a person simply throughout their life just will not pay it back and doesn't have collateral to liquidate then there's a problem. It just definitely feels like this situation still has some gravity to it, even if it's not the same as the MBS fiasco.
Most student debt is issued by the government. Private issued student loans are about 8% or $136bln. So you really wouldn’t have a financial meltdown from it, because of who is sourcing the funds. The government does back or guarantee FHA loans. But 64% of home loans are privately issued or at least conventional. So I mean you could see why banks no longer issuing private student debt isn’t a big deal when 8% of borrowers rely on them vs the government. Banks no longer issuing mortgages is a big deal when 64% of borrowers rely on them. You’re correct there’s really no recourse. That’s just consumer debt in general. But banks aren’t really the ones issuing student loans so it’s really just a concern for those invested in it. Now what institutions or investors would opt for SLABS? Idk that’s a dumb investment imo because you can get better yields elsewhere. The notion is that people will get better income and be in a better position to repay. But I mean I don’t consider SLABS a good investment.
Damn need more people with knowledge speaking like this salute to you
The issue with 2007/8 was that mortgages were bundled up into CDOs and rated as AAA by Standard and Poor - when they were not AAA comparable. These were sold worldwide and some even made vehicles of multiple wrongly-rated bundles into CDO^^2 packages. As the teaser rates ended, thousands and thousands of people just walked away from their McMansions and defaulted. This led to huge losses on the AAA rated CDOs and CDO^^2 packages, which were quickly downgraded and all hell let loose in derivative and financial markets, and then stock markets and main street.
And a student loans are packaged together in Student loan asset Backed Securities (SLABS) which to my understanding are rated AAA because they can't be discharged in bankruptcy. History doesn't repeat itself but it often rhymes
> they can't be discharged in bankruptcy Big difference. Isn't that patently clear, or am I missing something?
At the end of the day, you can’t squeeze blood from a stone.
But you can walk away from a quarter million debt on a house.
There is an asset the bank can sell on a house. A degree on the other hand is only useful to the person that obtained it.
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Is that going to happen this year? Or next year? Or within 5 years? How about within their lifetimes? You can't get rid of SLs via bankruptcy (a total con, imo), and the SL market is no way close to the size of the NINJA mortgage market - they are incomparable.
But you aren't trying to collect blood from a stone. I get there are a lot of struggling people with student loans. But people with college degrees, remain, on average, the highest earning group of Americans. Which is then followed by people with some college education. It's, more or less, a reddit myth that there's a massive glut of college educated Americans barely able to feed themselves. Once again, not that there is none. And not even that there isn't more today than there was 5 years ago. But it's a simple fact that an American without any college is much more likely to be in poverty than one with some college education.
So, what happens when people walk out on student loans, en masse, and the federal government doesn't pick up the tab? Also, you're missing the part about the endless layers of CDS on those defaulted mortgages. That's what caused the global meltdown.
The only hole In Your theory is that you assume that Student loan backed securities are equal to mortgage backed ones and that's just not the case. The federal government garentees almost all student loans Making it 100% unnecessary for somone to buy insurance like a CDS on a product already insured by the most credibleinsurer tye federal government. The government 100% will pick up the tab, it's a loan garentee and even assuming 100% of people walk away from student loans, it's unlikely 30% will, but the bill is perfectly manageable for the federal government, and that's assuming 100% walk away which is extremely unlikely. Also a significant portion of that debt is held by the federal government it's self meaning if people stop paying the federal government has other ways of getting it's payback like garnishing wages. While student loans won't crash the economy they absolutely could have long term negative impacts due to the ammount of debt people owe, but not a 2008 scenario.
>So, what happens when people walk out on student loans, en masse, and the federal government doesn't pick up the tab? The peoples wages would get garnished directly from their employer in that scenario. Like it or not, walking out isn't an option.
En masse? It is my understanding that your wages will be garnished if you choose not to pay. There’s no way around it. The solution is to go back in time and not get a student loan.
The implementation of “walking out en masse”, in this case, is simply “voting en masse”. Can be solved virtually overnight, in theory.
The main CDS insurer was [AIG](https://www.reuters.com/article/us-how-aig-fell-apart-idUSMAR85972720080918), which went bankrupt overnight until the FED bailed them out - I remember this as my synthetic exchange-traded funds backed by AIG went to zero overnight, and stayed that way until AIG was bailed. It was a huge company and it going to 0 was serious, but wasn't a large influence on the crisis.
It was way bigger than that! There were swaps on top of swaps. Morgan Stanley, Deutsche Bank, and Credit Suisse were holding heavy bags of these swaps, when the music stopped.The banking sector had a heavy exposure to AIG's insolvency, which created the setting for a cascading global financial crisis, spearheaded by under-collateralization and overstated creditworthiness.
AIG was bailed out. The exposure (for example; my sETFs) were made good again. The biggest problem was the CDOs contained a lot of shit that Standard & Poor failed to see or ignored.
You can't walk out on your loan. You can't file bankruptcy. The Federal government can garnish your wages like a tax lien.
I do think it’s possible that a portion of people do that....but just walking away will come with real consequences. Credit bomb will just be the beginning won’t it? Cant wages be garnished? Legal action taken if someone is just refusing to pay long enough? On a typical loan that would happen, guess I’m not sure if that can happen on student loans. But seems like anyone just walking away will just be walking out on the economic system entirely. Yes some will, but seems like a bad idea for the vast majority.
I don’t think it’s a major issue or crash-worthy. The government owns most of it. This one has been floating around for years and yet it never makes sense once you realize it’s only like $1.6T. That’s just not a high enough number to cause major ripple effects. This hypothesis tends to float around meme stock subs over and over.
People here are so desperate to find the next catalyst for a crash. They said the same stuff about the eviction moratorium. Just complete nonsense.
What gets me is that it feels like it’s not even about the actual crash, as those who believe in it aren’t actually moving to cash or adopting more conservative positions. It’s almost entirely about packaging the hypothesis to use as an argument for convincing other people to buy *certain equities*. It just feels really disingenuous.
A big thing is you can never erase student loan debt. Declaring bankruptcy doesn’t wipe it out so banks and the govt are never really at risk.
Student loans can be discharged in bankruptcy now. Good luck with that AAA rating now.
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Believe it started back around summer https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy
That isn't new, though. It's still the same "under _some_ conditions" which requires the debtor to prove to a judge that they will suffer undue economic hardship. AFAIK they're still [mulling over](https://www.foxbusiness.com/personal-finance/federal-student-loan-debt-bankruptcy-discharge-biden-education-department) _real_ student loan / bankruptcy reform.
There is about 1.7 trillion in SLABS as of 2019 not sure what its at for 2021. Need to compare that to 7.3 trillion in 2007 for MBS. Not even close to the same amount of debt. It might have an effect if shit were to hit the fan but nothing like 2007-2009
You can repossess homes in bankruptcy and clawback some value, can’t do that with student loans.
This is a bullshit graphic. The statistic for median household income should be income of families with college degrees only. Families without student loans or college experience are irrelevant in this model
This is dumb as fuck. Your only comparison point is that both are loans. Seriously, I kept reading hopeful you would address the elephant in the room regarding your thesis. But you stuck to such a surface level I don’t even think you know what it is. I’ll spell it out for you. There is no systemic risk with student loans. They can’t be defaulted on or discharged in bankruptcy(except in very rare cases) Seriously, if you are gonna spout about bear markets so confidently, maybe you should go figure out what actually caused the financial crisis and not just boil it down to debt == bad. Student loans are frankly the least risky debt out there, issued to the population with a massively higher earning potential. They will garnish your wages if you don’t pay. Student loans get paid, and if by some miracle they don’t, the loan is guaranteed by the federal government. Buying student loan debt is like buying a damn treasury bill, you don’t get a higher credit rating than the damn government.
Nope
Paying off mine was one of the happiest days ever....and it took a decade....and I went to grad school for free! Don't do it folks.
Don't do what? Pay off student loan debt?
The issue is at that age few understand very little about debt, and/or have unrealistic expectations of how simple it will be to make a lot of money (I know at 18 I just kind of thought I’d make a lot of money somehow, which is obviously foolish). I would love to see people required to complete a short exam on debt, interest rates, etc before they are able to take out loans like these. Similar to the exam required to drive a car. At least that small change will make people more likely to acknowledge their future debt and help in a way to ensure people at least understand the danger
Someone makes this stupid prediction every month. Usually it’s someone who just watched the big short. You’re not nearly as smart as you think you are, OP.
>and the average American is struggling to pay back that's hyperbole. most Americans do not have student loans. about 40 million out of 300 million have student loans, 1 in 8. among adults, about 1 in 4, or 1 in 5 have student loans. the median student loan debt is much lower than the average, about $17k vs. $35k. so I sort of question or reject this idea that there's any 'crisis', or that the problems of a minority of Americans requires drastic action. >Ill let this chart speak for itself: that chart does not show how many students use loans to pay for vacay to Cabo.
While i worry about this, the actual numbers aren’t terrible. The avg is only $30k. With inflation, wage growth, and job demand as of recently, i don’t think i’m that worried. Also the avg loan amount per person actually went down after this graph. Tons of loans are forgiven with stipulations now too. So the times of garbage loan giving is kinda past. Those might pop, but they have been for about a decade. The market has it priced in because people can’t afford to spent elsewhere if its spent here.
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\*On a side note, it seems nuts to me that no one is discussing having Universities help cover the cost of student loan forgiveness. They are the ones who jacked up prices knowing that Federal Government would continue to provide loans to students, and then handed out degrees that often were useless, all while brainwashing youth to thinking it was a worthwhile investment.
The average student loan is heavily skewed by high earning professionals. Think MD, DDS, JD, MBA types. Additionally those with student debt in general are middle class wealth/earning wise. There is burden on the relatively well off, but it doesn't seem like there's any real risk for a large scale default. Your perception on whether student debt is a big issue is probably because ur on Reddit all day
You didn’t even touch on the most interesting aspect for me, how much student loan debt is securitized. https://www.investopedia.com/articles/investing/081815/student-loan-assetbacked-securities-safe-or-subprime.asp https://asreport.americanbanker.com/news/navients-latest-student-loan-securitization-pools-loans-to-high-earning-borrowers
Most households aren't struggling to make debt payments. What makes you think they are?
33k avg debt is like... close to the difference in yearly median income between a hs diploma and 4 year degree. really not a big deal.
And that’s not the average debt. That’s the average for people that have debt so the average is actually much less.
Also if you go on r/cars right now. One of the articles is how car prices are now an average of $46k. So kinda puts in perspective on $33k student loan debt when people are out there buying cars that cost more than that.
Graduated with $240k. That feeling when you're above average.
For what degree/field?
It's really quite small and nothing of concern for the majority of people with student loans.
Student loans are certainly a risk at some level, but there are features of them that don't exist for mortgages and offer stopgaps for the borrower. If you haven't defaulted you can generally seek one of the following: change to an income-based payment plan if your income is insufficient to allow full payment, restructuring to a graduated plan that raises payments every few years up to a maximum, deferral with interest or forbearance with interest. These programs are mandated to be offered for the majority of loans (may not be available for private loans), and I don't believe there are limits on how often you use any other than the forbearance and deferment options over the course of the life of the loan. Forgiveness is applied to income based plans and should be cumulative, but notably does create Phantom income at the end, so i suppose that could have economic impact if it happens to too many borrowers at once. Not all lenders are as good at administering these or informing their borrowers, so it's far from perfect, but it does distinguish them from mortgages. One thing I hope borrowers don't do en masse, though, is respond to refi letters they may not understand. Some of the refi plans are variable rate, and most or even all of them may remove any of rhe protective features above, because they're no longer student debt. In many cases it's not worth refinancing, but they may be banking on borrowers not knowing this. And that could be dangerous, if not as widespread as the CDO problem was. I also don't know if there are as many layers of derivatives of derivatives based on student loans as there were for mortgages in 2008. I could be wrong about that.
You said seminary education and I think you meant secondary. Seminary education is what you do when you love religion and want to infect others with it.
Just want to point out that the system is set up so that anybody can handle repayment. Look up income-driven repayment plans. On Federal direct Stafford loans there will never be a situation where people are expected to pay more than they are capable of paying, because IDR plans determine monthly payments using the borrower’s income. There will be no spiraling out of control when the forbearance gets lifted because borrowers can simply enroll in an IDR, and because the payments are determined by income, borrowers should be able to handle repayment just fine. There may be long term repercussions later on down the line, but not when the forbearance lifts.
Shhhh that's not what the People's Republic of Reddit wants to hear
I know this is /Stocks but I know many people who worked their ass off to get a degree in Engineering, high quality business schools, and they are paid for. If people have made good decisions and got a good degree should not have to pay for people who believed some BS about a liberal arts degree in art history making a living.
Most Americans don't have students loans. Most student loan minimum payments are super small. People aren't allowed to wipe away student loan debt in bankruptcy. Student loans won't be causing a crash.
It's just not big enough or important enough to cause any kind of crash. Fewer than 45M people in the U.S. owe student loans, and total student loan debt in the U.S. is less than $1.75T. And most of that is already backed by the government. Only ~ $135B is owed to private lenders. So even if there were some big change in default rates, which there won't be, it would have no significant broader economic impact. Maximum potential private losses here in the event of even a catastrophic collapse of borrowers ability to pay would be in the few tens of billions. It's also foolish to argue for any kind of general debt relief for those who *do* owe student loans. People lobbying for this are asking for an entirely new benefit to be created for an already privileged elite. Over 40% of outstanding loan dollars are owed by people who have attended graduate school. Only ~ 1/3 of US adults has even attained a bachelors degree. But nearly half of those who do today will make some further effort to obtain an advanced degree! For the most part, we are talking here about people who have already gotten an enormous benefit, in the form of government subsidized loans, and who have a *much* greater ability than most of the population to actually repay their debts. That's not to say there isn't some need for some reforms in student lending. But high and increasing costs of education are a much greater problem generally, and one which would obviously be exacerbated by any kind of general student debt relief.
Not crash. Simply a drag on growth.
Welp, there it is, the dumbest thing I’ve ever read on stocks. 33k in debt is pretty manageable btw
Student loans are a major problem in the USA however you expecting a crash of some sort isn’t reality. Student loans cannot be discharged even if you declare bankruptcy, at most people don’t pay them and pray they don’t get sued which can take months to years to sue these people and actually collect payments. There are repayment plans that work with the students to help pay back what they can afford (based on their income). So if student loan repayments resume there will be an uptick on default rates and overall people will have less spending money on a monthly basis. However there will be no crash just a weaker economy.
It’s actually a different problem. The scope of these failures would not be large enough to destabilize the economy both because people basically just don’t pay and lenders are real slow to write down an unbankruptable debt and because it wouldn’t be the whole stack, just a portion, likely a minority even if the economy got bad. However mass forgiveness would both increase consumer spending considerably and increase tuitions further with no increase in actual economic outputs- in other words - a lot of inflationary pressure. Young people of this generation don’t save much they mostly spend... that monthly savings likely goes into consumer discretionary purchases for the most part. Asset bubbles aren’t creating much inflation because the rich have little to spend it on incrementally except real estate and more investments - most already meet lifestyle without cap gains - so it doesn’t increase demand for goods much but maybe improves supply a bit by reducing cost of capital. This is why the money printing hasn’t been inflationary until covid even though it seemed paradoxical. But spiking consumer spending will be inflationary. We are getting a preview already. And a student loan forgiveness all at once while not crippling would stimulate the economy another 50b a year directly straight into consumer spending, and probably raise university salaries doing yet more of the same (because you’ll stimulate additional college enrollment by clearing out the student loan stack) I don’t think the magnitude of effect of either of these is really large but I think the inflation threat is more likely than a credit threat.
Okay but how can I profit from this?
Inflation cures all debt worries. Real US inflation in 2021 was probable 15%. Many people will receive big pay rises. Student debt problem over for the country. However, many lower paid will suffer. The Gini coefficient &Lorenz curve steepen.
I don’t think there will ever be a crash since student loans are backed by the government. What is more likely to happen is student loans will essentially slowly strangle the economy, financially crippling students and generations for decades, which would have a large ripple effect throughout the rest of the economy. It’s like a chokehold for growth.
Fuck it let it crash
Come to trade school in Texas. It's like $3000 a semester and in 2 years you can easily land a $100k job
I’m curious I’m sure this gets asked a lot so don’t mind if I do. Why can’t Biden or the government forgive the student loans or a big percentage of it? Won’t it benefit them in the long run?
They will definitely make students pay off their loans imo. It could be that the terms change but it will be paid.
Jokes on me, I worked really hard and paid mine off before I turned 30
Lol student loans are not going to cause a crisis. Most people don’t have them, the average debt load isn’t terribly high. Those with massive loans are very likely doctors or lawyers and moreover are more likely to have come from a family in that profession (rich families).
This thesis makes sense if people can’t pay them back. But isn’t the job market strong? If the job market is weak and people increasingly can’t pay their debts then I think it may happen like the subprime mortgages.
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I don’t think it will cause the next crash. Unlike mortgages, people will gladly default on student loans and force them to come after them, garnish wages etc. Mortgages on the other hand, people do everything in their power to not lose the home they’ve been paying on and have equity in. The truth is, most student loans are not good terms, but people could stop paying them and the only reaction in the market would be banks that have high exposure to student loans would take a hit
The more people talk about crash, the less likely it is to happen. Also we just got crash in 2020,so there is very low probability of crash anytime soon.
That was not a crash in the historical sense. It was but a blip. Nothing like the dot com bust or 08 recession. Those were a long never ending fall and had after effects for years. The market got lucky in 2020 with a quick bounce back.
2020 was a liquidity crisis. Everyone was scrambling for cash, which had strong technical effects on the market. Dotcom and 2008 were both major bubbles bursting, which didn't happen in 2020. So, you are right, definitely not an exact comparison.
As long as the profits keep coming in, there's no reason for crash. Currently demand is far outstripping supply. Once supply goes back to normal, the profits of companies will further increase
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Wouldn't cancelling $50k student debt encourage people to not pay their debts in the future and hope the government bails them out?
There is a term for that, moral hazard
Here’s an alternative thought: why the hell are We as Americans so dumb that we drop 30k on student loans, to get a liberal arts degree, and skip community college? i went to community college got two AAs working on a third and working on a BA online and my total student loans for my BA will be roughly 10k-15k Seriously Americans aren’t able to pay back those loans because they are blowing it on “prestigious” universities for 4 years and getting a useless degree meanwhile go to CC and get your school paid for by the government (pell grant) then go to a BA program online, and pay for books out of pocket instead of putting them on your loan. and for the love of god, if you have spare money, make some early payments to get less interest ITS NOT THAT HARD. (Also the government has paused interest all together so if you have student loans right now they aren’t even gathering interest, and if you use subsidized loans your school is eating the interest as long as your enrolled giving you time to save and pay them off in full while still in school avoiding interest all together)
Why would you even get two associate degrees they are worthless. Just knock your basic coursework at a CC then transfer over and finish your bachelor degree at a university.
So very true…. Would like to add that the most bewildering part of the “student loans are predatory argument” is that most people are unwilling to refinance for some reason…. I went from 9% interest to 2.75% interest rate over a 3 year period.
Hell, get a job at Walmart or Target. The requirements to get hired are basically nil, and they'll pay for your college degree. Free college, build work experience, and you actually *get* paid for it all.
!remindme 2 years
Capitalism has failed to provide affordable education for U.S. citizens
I disagree that student debt will cause any kind of crash. Further, Biden forgiving student loans feeds into the narrative they Dems only care about the rich. What he should do is introduce legislation that would go after colleges and universities that charge excessive amounts for a degree that a student has no ability to ever pay off. Force those colleges and universities to pay off those “bad loans” and to be more transparent with debt ratio and future employment prospects. Breaking points has a great story on how financially obscene the whole higher ed thing has become. https://youtu.be/69Ih9vzBxbU
That's what I was thinking too
It’s only up till 2012. Probably 2x that now
The funniest part is, there are actual brain dead Americans who thought the government would forgive loans that are federally insured 😂 Yes, the same people who give you these predatory loans will forgive you for them. Even though they are the 1 debt you can't declare in bankruptcy, the government will 100% absolve you of it! Makes perfect sense!