Re:Student Loans a Lot Like the Subprime Mortgage Debacle, W...
by tbrownaw on Wednesday December 11, 2019 @04:57PM
(#21767199)
The amount that's owed is known, but ability to repay can change.
Suppose that someone invents a better version of ELIZA, and everyone in the psychotherapy business is suddenly out of work.
Or slightly less absurdly, suppose that Intuit and H&R Block mess up their next round of lobbying, and the IRS implements that one-click tax payment we've all been asking for. And the accountant industry shrinks by a few percent and wages go down for the ones that are left.
Either of those would be a significant shift in the job prospects of a large group of people, which could affect how many student loans actually get repaid.
I think it might also count as a risk if it suddenly became fashionable to get degrees in, say, underwater basket weaving. As in, incoming students aren't perfectly rational with perfect information about what degrees have what job prospects, and I'm assuming the college loan system might not react quickly if something caused an overall shift towards less economically useful degrees.
It does lack one "feature" that helps the bad mortgages cause problems, in that I don't think it would be self-reinforcing. From what I understand, subprime defaults were contagious in a way that I don't think this would be.
Suppose that someone invents a better version of ELIZA, and everyone in the psychotherapy business is suddenly out of work.
Or slightly less absurdly, suppose that Intuit and H&R Block mess up their next round of lobbying, and the IRS implements that one-click tax payment we've all been asking for. And the accountant industry shrinks by a few percent and wages go down for the ones that are left.
Either of those would be a significant shift in the job prospects of a large group of people, which could affect how many student loans actually get repaid.
I think it might also count as a risk if it suddenly became fashionable to get degrees in, say, underwater basket weaving. As in, incoming students aren't perfectly rational with perfect information about what degrees have what job prospects, and I'm assuming the college loan system might not react quickly if something caused an overall shift towards less economically useful degrees.
It does lack one "feature" that helps the bad mortgages cause problems, in that I don't think it would be self-reinforcing. From what I understand, subprime defaults were contagious in a way that I don't think this would be.