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Comment by fixermark | Hacker News Reader

They're protected from defaulting by law, because they can't be divested by bankruptcy.

... which merely means you need to calculate where the knee in the curve of issuing them was, extrapolate to life expectancy, and know when to cash out. Convenient!

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Most of the student loan debt is owed to private creditors and it is the federal government that insures these loans. If a student doesn't make payments, the lender gets a guaranteed bailout by the government (no need for congress to step in like they did for the banks and auto companies). Basically, all the lenders are incentivized to give out as much money as possible, which incentivizes universities to raise tuitions, all because the US government decided to give lenders free money to play with at the cost of those who take on the debt and the ones footing the bill, which are usually the same people.

Exactly!

How is that bailout guarantee structured? Fixed pool, or the money will just come from "somewhere?"

> They're protected from defaulting by law, because they can't be divested by bankruptcy.

True. I think most people don't realize this. Government programs push young, naive people to borrow to pay for degrees that are unlikely to have positive ROI, and then if life doesn't go as planned there is effectively no bankruptcy protection.

> you need to calculate where the knee in the curve of issuing them was, extrapolate to life expectancy, and know when to cash out.

Sorry, what does that mean?

I believe what they were implying was that such a bubble can only "pop" if a bunch of the debt is discharged at once, which in this case means a bunch of people who still owe student loans on their deathbed die with more debt than assets. The commenter suggested trying to figure out when this would happen, and making sure one is ahead of it.

> and making sure one is ahead of it.

I was with you till the last bit. How does one "keep ahead" with that timescale?

Correct. The question is what, precisely, you'd use to bet against the student loan market. Since of the people who "successfully" shorted real estate found themselves running into trouble cashing out because the same institutions they'd bet against got hammered when housing popped and themselves defaulted. How do you successfully bet against the stability of the world-stabilizing fiat currency---the one other countries jam under their mattresses to back-stop against domestic economic turmoil?

Calculate where, approximately, we get to the point where the average issuee will not be paying the value of the loan back in their lifetime. That's the point where the average loan is not worth is face value and a housing-style mass write-down is imminent.

Debt doesn't pass on to kin, any that can be is paid off by your estate and what is left is written off.

You could theoretically calculate when the bubble is going to pop but figuring out when the majority of loans was issued, life expectancy and some financial details on student loan recipients. With details along these lines you can theoretically calculate an approximate picture of how much student loan debt will be written off and when.

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