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Comment by lionhearted | Hacker News Reader

It misses the big and obvious one: Grants and loans cause price increases. This is pretty much well accepted by economists, but a simple example:

Imagine Warren Buffet announces that he'll pay anyone who buys a used car $5000. What will happen to the price of used cars? It will go up.

Imagine Warren Buffet announces that he'll lend anyone who wants to buy a used car $5000. What will happen to the price of used cars? Again, it will go up.

There are lots of reasons for it, but a lot of 18 year olds just don't understand what the loan application they signed for $40,000 for the upcoming year's tuition really means, since they've never earned or spent $40k before. Unfortunately, student loan debt is pretty much the only kind that can't be discharged by bankruptcy, so students are stuck after getting it. And college prices keep going up.

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> But in 2005, during a major overhaul of the bankruptcy code, private student loans were given an elevated status and thus couldn't be discharged. This didn't make sense. If we are going to have a fair bankruptcy system, private education loans should be treated the same as other private consumer debt. That's the risk lenders take, similar to the risk borne by providers of loans for cars, homes or other consumer purchases.

http://edlabor.house.gov/edlabor_dem/mt-search.cgi?IncludeBl...

> Lenders receive a 97 percent guarantee against default losses, which removes almost all of the default risk of the loan to the lender. If a borrower does not repay his or her federal student loan, the government pays the lender 97 percent of the outstanding principal and all of the accrued unpaid interest. In other words, the lender assumes default risk for only 3 percent of the loan principal.

http://febp.newamerica.net/background-analysis/federal-stude...

I must admit I didnt follow this completely. Do you mean that because Buffer pre-announced he will lend $5K to people, the prices of cars will increase to accomodate this $5K?

Easier money will increase demand. Higher demand puts upward pressure on prices.

The extra $5k people have to spend would increase the price people are willing/able to pay for a car - and increase demand-- which would lead the car sellers to raise their prices.

> There are lots of reasons for it.

Really? Provide some.

"Imagine Warren Buffet announces that he'll pay anyone who wants to buy a used car $5000. What will happen to the price of used cars? It will go up."

Now that you've compared apples to oranges, here's an apples to apples rebuttal. The Cash4Clunkers program not only didn't raise prices of new cars, it didn't raise prices of used cars (since if millions were clunking their old car, that car would be pulled from the market entirely, causing a dearth of used cars available).

Now, the problem with college is that basically everyone needs to graduate from one fare better in this economy. The numbers in this recession speak for themselves: The unemployment rate for people who have no high school diploma is over 12%, ones with a HS diploma is ~9%, and ones with a college degree is 4.5% and holding steady. You're twice as likely to get a job with a degree as someone who finished HS, and almost 3x as likely as a HS dropout.

I guess, along with Cocaine, cigarettes and booze, college is price inelastic.

I really don't see how that is an apple to apples rebuttal.

The parent is talking about receiving $5,000.

Cash4Clunkers required one to take their old car, trade it in, and purchase a new car.

So, not only did you have to already have a used car, you had to be able to qualify to finance a new car or have the cash for a new car.

Additionally, the trade-in car was destroyed, with no parts scrapped. All engines of perfectly functioning vehicles destroyed. Entire fully-functioning vehicles destroyed.

That is a much smaller subset of people than "anyone who wants to buy a used car."

Back to the other stuff...

"You're twice as likely to get a job with a degree as someone who finished HS, and almost 3x as likely as a HS dropout."

I don't see how you can use an unemployment rate to determine the likelihood of finding a job in the current economy based on education level....maybe educational level most likely to be laid off, but that is still a stretch.

Higher level education is expensive because it is subsidized.

Look at the housing market. Harder to get a mortgage now, yet rates are at an all-time low, and property prices are at historical lows.

I guarantee if anyone were able to get a mortgage, even at 20%, housing prices would drastically increase.

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