Will there be 50B+ in student loan delinquencies in US? | Hacker News Reader

Will there be 50B+ in student loan delinquencies in US?

wordsofwill.com

29 points_7axl82 comments

> [Student loan deferment/forgiveness] is the most likely cause of the continued high consumer spending, which is keeping the economy out of a potential recession.

Definitely feels unsustainable.

Having a significant portion of the young population be unable to participate in the economy seems unsustainable as well.

The US has painted itself into a corner.

On one hand, culturally, we pushed young people into colleges and universities at ever-increasing and frankly unethical price points. Many people have spent "buy a house" money on education. These people are then given a heavy burden which holds them back significantly both socially (raising families) and financially (owning a home, saving for retirement).

On the other hand however is the many people who decided not to go to school because it was simply unaffordable. They went to work instead, and often in the kinds of careers that are unappealing to college graduates who prefer white-collar work. Any student loan forgiveness is coming directly from the pockets of these people, who have on-average lower incomes and shorter career spans than their white-collar counterparts.

It's easy to see both sides on this one. The only meaningful solution I can see is to remove the (again, unethical) protections which prevent students from declaring bankruptcy over student loans. In turn, this would hopefully force wiser lending and more price-competition to bring the cost down.

Bankruptcy for student loans should be allowed, with appropriate restrictions against the obvious abuses.

I think the federal government should cap the student loans amounts they secure also and standardize all fee and interest service that can be applied to them. That cap should be modest too. The ability for students to get larger and larger loans is the primary driver of tuition fee inflation.

Lastly, and this is maybe a bit controversial. But any university that is either non-profit or receives government subsidies must have a limits on the amounts paid to executive staff like presidents and also a limit on the ratio of administrative spending to education spending. The crazy growth of the the former compared to the latter is form on theft from the students, in my humble opinion.

Except you don't have to tax low earners! Progressive taxation is the norm in the US; you just need to tax where the wealth lies, and the ways in which it moves.

This is the process that I see happening:

1. Money is printed, inflation occurs

2. Cost of living rises, wages follow (but not closely enough)

3. Buying power is decreased, but the tax brackets don't change much

4. The lower income groups proceeds to pay more taxes than they "should" while simultaneously being the group that can afford it the least. At the same time, this group is the most affected by inflation, hurting even more.

The money printer hurts everyone. Spinning it up as the expedited solution to every problem for political expedience is how we ended up with an enormous and ever-growing amount of debt.

Who gets taxed only really matters for a specific federal expense if the spending were being covered directly by an increase in taxes. Any money spent on buying up student debt will come from new federal debt without a tax increase or levee to pay for it.

The federal government is adding $1T every 100 days to the national debt.

That far outweighs any effect of student loans.

Does that go into the hands of consumers though? The great thing about debt forgiveness is it goes directly to the population.

The only more direct route would be to write everyone a check! (…and I just remembered Trump actually did that.)

Indirectly it does. Check out the economic multiplier effect.

https://www.tutor2u.net/economics/reference/multiplier-effec...

This hasn't held up at least over the last 15 years ago in the US. Our debt to GDP was around 60% going into the housing crisis. The ratio is now roughly twice that, around 120%.

In that time our national debt went from $9B to $33B. GDP went from $15B to $25B.

You can always calculate the multiplier, but in this context the multiplier would really need to be greater than 1 to show a meaningful economic benefit to the additional spending, and the debt to GDP ratio would decrease as GDP would grow faster.

That's fine, as long as we actually use the opportunity to fix the underlying problems that will take longer to heal.

Which of course we won't do, especially if a certain former president gets re-elected. But at least it's helping some people in the short term.

Much like a 21% corporate tax rate (lowest in a century) juicing the deficit to record highs.

Why should there be a corporate tax rate at all though? Why not just tax income and leave it at that?

All of the money that corporations earn (and would be taxed on this way) will always be taxed as income before it's distributed to an individual, after all, no? Corporate tax never fully made sense to me.

Because then they could do accounting to make it look like they're never earning money, and still get taxed nothing.

The point is that they would be able to earn money without being taxed money anyway. It'd mean fewer accounting tricks, or none.

Those would be shifted to individuals. You'd see an uptick in high earners trying to avoid taxes. It's just a question of whether high earners would be better or worse at hiding income than corporations.

Taxing income rather than profit would actually account for that. I'm not sure I'd want to see that change, but you can't employ clever accounting to hide income like you can hide profits.

Because companies have ways of avoiding income taxes.

Aren't they generally dodging taxes on profit rather than income?

hardly. consumer spending is from the top 10% mostly. the upper-middle-class and above contribute to 80% of consumer spending.

Those graphs feel very heartening. Loan delinquency is an awful position to be in and a graph of delinquency dropping to zero feels like a graph of some level of suffering going to zero.

I also hadn’t heard / realized the argument that relaxing student loan repayments is bolstering economic health, but I guess it makes sense if you think of it as US government taking $465bn out of the hands of the financial institutions and giving it to their citizens instead, ish.

Please disavow me of my economic naivety!

Sorta. If someone owes a 10 year loan they are making small payments every mouth and future payments are discounted at present value. So it's not at all like a lump sum.

Article mentions credit card delinquencies.

Taking the contrarian view, how much of that is just bad spending habits vs using it to live/augment income?

Another contrarian view, how come people can’t get a second job or better job with more money?

I just would like to see more personal accountability. I don’t understand why the taxpayer needs to absorb these loans when the individual took it out on their own assuming it wasn’t predatory or illegal.

Student loans are primarily targeted at an audience that is 16-18 years old. I'd argue this is inherently predatory.

The government should simply stop protecting student loan debt from being discharged in bankruptcy. Then lenders will have to take responsibility for their lending actions, universities will have to lower tuition due to less "free" money, and students will have to be more careful with what field they choose.

Obviously students shouldn't be pursuing degrees that won't result in a well-paying job, but the lenders are still partially responsible. After all, if you ask a bank for a business loan with a stupid idea, the bank won't give you money, because they know they'll probably lose it. I don't know why it's different with education.

There’s some truth in the “obviously” part of what you say, but it’s important to note that it’s both the degree and the institution that can be of variable worth.

Every so often, politicians re-invent the facile idea that Art degree bad, BioTech degree good but it’s the long tail of junk Universities that are the real problem.

I know someone from Goldman Sachs with a degree in Anthropology, a barrister with a degree in Norse History, and a COO with a degree in Sociology*. They have all had extraordinarily high flying careers that are seemingly unrelated to what they read at University until you know they went to Harvard, Oxford, and Cambridge.

Maybe those are too exceptional though? Should we shut down the worst schools, accept that you can study anything at the best schools, and then insist that everyone in the middle study only Economically Important, vocational subjects decreed to be Of Use by the technocrats? Seems a bit bleak.

*Gender Studies, no less, a favourite punching bag of the ignorant.

> They have all had extraordinarily high flying careers that are seemingly unrelated to what they read at University until you know they went to Harvard, Oxford, and Cambridge

Yes while were at it, we should somehow address the nepotism network effect of universities

There's something very sick in pretending the value of the degree or the institution is related to success when it's really just how much those things let you access people connected to capital

Especially since you have to have access to capital to even attend such schools, with few exceptions

Those people got there because their undergrad topic had nothing to do with it. It was their general intelligence, aptitudes and connections.

> primarily targeted at an audience that is 16-18 years old

Citation needed. I’d be shocked if the large majority of people taking out student loans aren’t over 18. And even if they are 18 when they take out their first one, they’re well over that as they continue to take them out for years.

That isn’t to say they aren’t predatory. But you don’t need to fudge the numbers to make your point seem stronger.

On another note, if anyone should be answering for these predatory practices it’s universities, not tax payers. They abuse the fact that student loans are government assured by upping tuition to absurd rates. Fuck them and their greed. Punish them for it, not everyone. I made it through college by going to a cheap university and working. My degree doesn’t carry the weight of someone who went to an absurdly expensive school, even if we got the same degree. Now I’m expected to pay for their degree after already paying for mine? Fuck that.

> They abuse the fact that student loans are government assured by upping tuition to absurd rates.

This is basic market economics and something that everyone predicted would happen. If you think that somehow colleges are going to be the moral exception then I'm sorry it's just not happening.

This is squarely on the government for making student loan debt impossible to get out of. Its caused a gross cycle of stupid practices and serves absolutely no good.

My original point was that you took the debt you should pay it back. Especially when it comes to taxpayer funded or backed loans. This isn’t like a house where it depreciates and some value can be extracted through a foreclosure or short sale. It a full or partial education that has intrinsic value. The only recourse is to force repayment.

There are plenty of loans where the original principal is never recovered to any reasonable amount and the vast majority of the loan is forgiven. It's literally how debt collection works, mostly attempting to get SOMETHING from the original debtor.

Forcing full repayment is absurd, and known to be by just about every reasonable person who's looked into the economics of loans. We figured out debtors prisons were also stupid a long time ago. There's plenty of alternative measures, and the whole reason things like bankruptcy exists is because we recognize it's better than financially nuking someone.

Or do you think we should also make medical debt unforgivable since you can't rip the kidney back out?

This ignores history to a great extent.

There was a period of time, from 1945-1974, when the population did not largely rely on student loans (which were introduced in 1965 via Title IV if the HEA act) because they were both harder to get and had stricter rules on how they were marketed, they simply were not prevalent.

Yet, in this era of tax funds actually funding most university educations, many of those same “bullshit” majors existed and people graduated with them, and yet the entire world didn’t spin out of control and people didn’t suddenly have an inability to pay their debts or otherwise struggle simply based on their major choice.

I posit then, that the issue at heart isn’t the chosen major so much as the system in which university students largely exist in, which has become financially predatory to both students and their parents

>The government should simply stop protecting student loan debt from being discharged in bankruptcy. Then lenders will have to take responsibility for their lending actions [...]

You realize that in the overwhelming majority of cases, "lenders" means the federal government? In other words it's going to be the taxpayers who will be suffering the losses, not some wall st bank.

Yes, I'm aware of that.

Mind you a lot of people still aren't paying, and we've already had deferrals. It doesn't matter if "XYZ owes $100k" is on the books if it's never going to get paid. We may as well formally eat the losses now, because we're already doing so unofficially. It's the only way to actually move forward.

I'd lump that into the broad category of the government protecting student loans.

The government really has no business playing a role in financing consumer debt, whether we're talking about students loans or mortgages. The fact that the government does finance loans artificially decreases the perceived risk of the loans because its reasonable to assume the government just won't let the loans fail.

Oh no! The great nation would be financing higher education of its citizen! Unacceptable!

If a similar amount of education can be obtained at a lower price, then it’s not really education that’s being financed but something else. (I would argue that it’s university administrators, shiny buildings and unnecessary facilities).

I fully agree - add to this interests on student loans (-> banks). So let's push it further and affirm that the government should not only finance but _regulate_ the education market.

> The government should simply stop protecting student loan debt from being discharged in bankruptcy. Then lenders will have to take responsibility for their lending actions, universities will have to lower tuition due to less "free" money, and students will have to be more careful with what field they choose.

This would mostly mean the end of student loans entirely. I don't disagree with the approach, but we should be aware of the tradeoff.

No, it would be the end of student loans for shit degrees that don’t end up giving the student a career. Doctors, lawyers, engineers, etc.. will still be able to easily get degrees. And the universities will have to lower tuition for those other non-marketable degrees, as they should.

But the data shows even 'shit' degrees still have lower unemployment rate and better prospects overall compared to no degree.

It’s almost like those people should have stopped at the Associate Degree level to better themselves. That’s one of the benefits of higher education beyond High School.

People don’t go for a college degree to “better themselves” in an educational sense. they go because any job that pays a worthwhile salary requires minimum a bachelors.

Hell most job posting for our field requires a bachelors even though you can completely learn it online

Another effect: universities would be recentered on learning, instead of being four year resorts kids go to because it's what you're supposed to do and they don't know what else to do.

Students don't need fancy rock climbing walls and tuition funded orientation parties, and they certainly don't need armies of administrators and deans. They can learn a semester's worth of knowledge for $100 in supplies (if that!), a living wage for professors and TAs, and room and board.

I hear what you are saying on the amenities. But the kids need something to do while there.

“Before 1976 student loans were dischargeable in bankruptcy like other unsecured loans.” - Wikipedia

And there was a lot less dollars loaned, at much higher interest rates, because an unsecured loan to a young adult with no assets is a lot more likely to default than most other debt.

This is the avocado toast fallacy.

Millennials were encouraged to take on these loans on the principle that their high-paying jobs would make the debt service affordable, and that if they didn't take on these loans they'd end up as homeless drug addicts. When those jobs didn't pan out, there was no plan B. The world changed between when the decision to take on the loan was made and when the loan started to become a drag.

It has little to do with bad spending habits or adult's mismanaging their finances. An entire generation is paying for mistakes they made as teenagers, which legitimately seemed like a great idea at the time. It's not because millennials are bad with money. The world changed and millennials were left holding the bag in this case.

The ones who make HN wages paid off their loans a long time ago.

An entire generation was sold the idea that a college degree is the ticket to a decent job, where every adult in the lives of these kids were imploring them to take on tens of thousands of non-dischargeable loans.

This was, intentional or not, a systematic selling of this generation to a 21st century version of indentured servitude, kneecapping a cohort of young adults who got to join the workforce during one of the worst economic downturns in US history and, during what would have been their prime earning years, a global pandemic which flipped industries on their head and displaced workers in a way we have never seen before.

The people who say “I didn’t get loan forgiveness why would you?” are just horrifically out of touch with the rapid rise in cost of education. While they could support a full time credit load with a part time job, the only way to support a college course load after 2004 is literally having cash to pay for the course load up front.

The entire system that led to this is farcical and belongs in a comic book along with the “fuck you I got mine” crowd because of how hilariously evil it is.

I think it is good that tax money is spend on having a well-educated population, this is something a democracy thrives on. It is a shame it is spend on loan forgiveness instead of making education cheaper so loans are not needed. Loan forgiveness should be paired with reform so future generations do not have this problem.

Sorry but that would be socialism. Instead here in God's America we allow lopsided unfree markets to produce adverse outcomes, and then spend multiple nation-states' GDPs worth every year to try to make those problems less bad, while erratically regulating subsets of the market in a vain attempt to get it to work better. We never take a holistic, long-term view of a problem, that's not the American way. We prefer chaotic labyrinthine expensive ineffective institutions with lots and lots of room for well-placed rich people to siphon yacht money out of the system.

At a minimum its an interesting gray area. While you can argue that government involvement in education is a socialist policy, it was well understood from the founding of our country that an educated populace is vital to a healthy democracy.

I was being sarcastic. The mere act of a government giving people money or otherwise interfering with contracts does not make that government "socialist" any more than walking to the grocery store makes you a triathlete. A hardcore socialist would probably scoff at the very concept of a "government relieving student debt" as something that shouldn't be possible or even make sense in a socialist society.

Got it, totally missed the sarcasm there.

I would expect a socialist to be onboard with cancelling student debt though. They'd just want it to be part of the government taking over education more completely. Schooling wouldn't be something one pays for at all because the government would be responsible for providing it (and deciding who has access to it).

The interest rates on a typical credit card today were considered predatory not too long ago.

https://en.wikipedia.org/wiki/Marquette_National_Bank_of_Min....

Nowadays “it’s bad for the economy” seems to be a reason not to do something, so reigning in the credit-based nature of everything probably isn’t going to happen.

>Nowadays “it’s bad for the economy” seems to be a reason not to do something, so reigning in the credit-based nature of everything probably isn’t going to happen.

"Nowadays"? When was the economy ever not a consideration when it comes to public policy?

That’s not what I wrote. Obviously the economy has always been a factor in public policy. My point is that now, it’s the primary factor, overriding things like predatory lending rates that were previously banned by law. The link I shared has a perfect illustration: when a law capping interest rates was under consideration, the stock market took a hit and the bill was promptly forgotten.

Introducing credit card interest caps, or really doing anything to curb credit card use, would almost certainly have a negative effect on consumer spending and is thus a political death sentence for anyone trying to make that happen.

> I don’t understand why the taxpayer needs to absorb these loans when the individual took it out on their own assuming it wasn’t predatory or illegal.

Because too many of your fellow citizens are spinning in what are basically poorly-written click-jack javascript infinite loops, and those loops are eating too much of our collective cpu time.

If you click "stop," their time/money is freed up to do something else. And compared to paying eternal interest on a degree that didn't lead to a decent job, literally anything else they do with that money is more useful. And since Americans suck at saving, it's incredibly likely that money will immediately get spent directly back into the economy.

If you click "continue" and hope something useful comes out of these loops' cycles, it's difficult to see that as anything but a sunken cost fallacy. Adding the phrase "personal accountability" doesn't really change that.

>Taking the contrarian view, how much of that is just bad spending habits vs using it to live/augment income?

How much of it is trying to maintain a standard of living they've had their whole life in the face of rampant inflation and insane housing costs?

The loans might not be in technical default, but they are functionally already in default. They’re never getting paid off. The taxpayer has already absorbed them. We’re moving numbers around a spreadsheet.

Anyway the largest employer in many states is the university system. It’s taxes that flow through loans back to taxpayers.

Given that wealth now is way too concentrated in older generations, who then rent out the ability to exist to younger ones, voiding these loans or government bailouts are a much-needed form of wealth transfer and net-positive to society.

It isn't really wealth transfer, this will be paid for in new government debt rather than a tax on the rich.

Effectively, the federal government has created a rug akin to Hermione Granger's purse. Whenever they want to spend money but can't increase taxes or decrease spending elsewhere, they sweep it under the infinitely big rug. No wealth transfer, just debt creation on federal books rather than consumer books.

Refusing to pay would be pretty effective civil disobedience if it gained critical mass.

if Warren Buffet has sold most of his positions and the guy who predicted 2008 subprime mortgage and got rich off it are selling stocks and we have widespread asset bubble poised to correct my question to HN is

what do you know better and why aren't you selling all of your stocks? do you believe 2025 is going to be just another year for the bubble?

Already the markets have crumbled in China, real estate, stocks, ponzis what makes you think US is immune here?

I'm genuinely curious as most HN seem so hostile to comments that suggest stock market and economy goes through cycles of ups and downs and that this one might be the big one.

> if Warren Buffet has sold most of his positions

Has he? I'd not heard of this, and can't find anything that suggests this is true. I see Berkshire Hathaway recently reduced its stakes in Apple and Bank of America, and reinvested quite a bit in itself via $2.6B in stock buybacks. Is there something else you're referring to?

> the guy who predicted 2008 subprime mortgage and got rich off it are selling stocks

Are you referring to Michael Burry? He pretty much nailed that one prediction in 2008, and made quite a lot of money and fame from it. Since then, he's been a broken record, and almost always hilariously wrong. Most recently, to my recollection, was his prediction almost exactly 1 year ago, that the stock market was on the verge of a crash, and he allegedly shorted both the S&P500 and the Nasdaq in August of 2023. Since then, the S&P 500 is up 20%. And the Nasdaq is up 22%.

> what do you know better and why aren't you selling all of your stocks? do you believe 2025 is going to be just another year for the bubble?

I can't speak for anyone else here. But I know better because I can admit: "I'm not smarter than Mr. Market, and I can't predict the future". The S&P 500 PE ratio is higher than the historical mean right now, but not outlandishly so like in 2001, 2009, or even 2020. Things just don't seem all that bleak to me. International equities are even less scary, with P/E ratios at ~13, yielding a reasonable 3% in dividends. It'd be weird to describe that as a bubble.

Another reason, I suspect, people are "hostile" to this suggestion is: it's not new. You can pick any month of any year in the past 100 years, and find this Henny Penny doom prediction of "the big one" coming. Maybe you'll be right this time. But there's a long history of people very confidently wrong about such things.

Betting against the market just hasn’t worked since 2008. Outside of the first two months of the pandemic it has steadily climbed regardless of a “recession” coming every year.

I don’t think the economy is healthy, I don’t think what we are doing is sustainable, but I will keep all my stocks, betting that it’s going to all go wrong just doesn’t pay.

Buffett hasn’t sold most of his positions. He owns more stock than cash. Many people have had your sentiment since 2009. Sometimes it’s true, sometimes it’s not. Meanwhile people holding total stock market are ever wealthier than the bears.

> I'm genuinely curious as most HN seem so hostile to comments that suggest stock market and economy goes through cycles of ups and downs and that this one might be the big one.

On a long enough timeline, the stock market is always a bear trap. It's very easy to go broke trying to time the market, and very difficult to go broke simply shoving money from each paycheck into an index fund for a few decades.

The expectation return for having your money in equities is lower because of the high valuations, but it's not negative.

Burry hasn’t had a great track record since 2008.

And if APPL is 30% of Bershire, absolutely no concern there. Perfectly well balanced.

Positioned for blow off top and hedged with long duration in case i'm wrong.

There's a lot of psychological factors in markets swinging up and down, and there are always people saying that there's going to be a recession. Also, if you think about HN specifically: if the market is doing well, great. If the market is doing poorly, then cash may be harder to come by, but there's way more upside for growth as the market recovers. Jumping on a fearmongering bandwagon doesn't fit with the entrepreneurial culture of the site.

> do you believe 2025 is going to be just another year for the bubble?

The Fed will drop rates at some point to make US treasury's interest payments manageable. Low rates hike asset prices. IMO we're still coasting off of froth from two decades of LIRP. I dunno how any sane investor is still throwing wads of cash at obviously unprofitable "AI".

So, yeah, another bubble year. Hell, even if it weren't for the interest issue, do you really think a government filled with boomers is gonna let the market tank just as boomers are retiring?

As per usual, HN will deny that the US economy is cratering, I will be downvoted to hell for saying so, but "E pur si muove".

Doomsayers have predicted 16 of the past 2 recessions, in addition to issuing two decades of annual forecasts for the collapse of China 'any minute now'.

It's not a particularly helpful, or interesting viewpoint. A stopped clock is eventually right, but I wouldn't set my schedule to one.

----

But if you're still confident in this, buy puts.

If you're right, you'll be rich in dollars, which might ameliorate some of your losses of internet karma points.

If you're wrong, well, I suppose it would imply that the negative karma is deserved.

>Doomsayers have predicted 16 of the past 2 recessions

8 out of 1 seems like a pretty good track record, right?

(Aside: Psst. Junior, remove my tongue from my cheek, will you?)

the yen carry trade has apparent unwound around 50% https://www.morningstar.com/news/marketwatch/20240809244/sto.... let's see what happens when the remaining 50% is unwound in the next few months, as investors are selling risky assets in US and Europe (and even riskier assets in China, if they haven't already) and moving cash back to Japan to convert to yen. the world economy will be very volatile until the yen carry trade unwind completes.

> ...HN will deny that the US economy is cratering, I will be downvoted to hell for saying so...

You may think you're being downvoted because people disagree that the US economy is cratering.

No, I don't think that's the case. You're being downvoted for making unsubstantiated shallow statements, that don't add value or contribute to the discussion. Per the guidelines: "Comments should get more thoughtful and substantive, not less, as a topic gets more divisive."

Also: "A good critical comment teaches us something."

I do think the US economy is in a dire state. Federal spending is the highest point has even been (pandemic aside) [1], our national debt has skyrocketed to $35T, and we're nowhere near having a sane bipartisan conversation during this election cycle. In the best-case scenario, it'll take another 4 years for us to start facing the reality, and then a decade or two to improve it.

If you have a robust and unbiased perspective, based on data, I'd love to hear more. And I bet you upvotes will follow (or at least you don't be downvoted).

[1] https://fiscaldata.treasury.gov/americas-finance-guide/feder...

There is room yet to erode the dollar to inflate asset prices. High asset prices equal a strong economy, right?

Cratering for short, long or indefinite term that's the real question.

It's US election time and people go crazy with mental gymnastics to protect their team if they are in power, or exaggerate if the other team is. Not a great time to discuss things objectively.

Too big to fail, let's bail them out.

Too young to take a loan, let's bail them out.

Too poor to pay any tax, free ride for you plus food stamps and let's tax the rich more even though the top 5% already paid 66% of all the taxes.

I don't know how this is going to end, I'm sure we're all going to hell together though.

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