[shillno1138]

Many people have been stating the root cause of this bubble for over a decade. Discussion and debate in the US is dead, as the left will not engage in anything that could alter their voter base, and the incentives provided to them.

[ubernostrum]

Many people have been saying for a long time, on "the left", that the fact the government guarantees repayment of loans even if the borrower declares bankruptcy is a classic case of actual moral hazard (wherein improper guarantees to make a lender whole no matter what lead to irresponsible lending, since there are no negative consequences for the lender). Which in turn gets us to where we are now: since the lenders know they can lend essentially any amount and get guaranteed repayment, there's no pressure from lack of lending to keep tuition down.

[mindslight]

It's exactly the same moral hazard as with home loans. There, the bank repossesses and sells the underlying asset so the only time they can ever lose is if housing prices crash. Presumably student loans are secured-by-fiat for precisely this reason.

Financial gamers inherently desire airtight abstractions so they can leverage the heck out of them. But this doesn't mean they should get this wish, since the purpose of the financial system isn't simply to perpetuate itself but to optimize for people.

Everyone needs a place to live, so under financial primacy the only limit on housing prices in a developed area is the economic rent on the principal. A college degree is worth a heck of a lot over one's lifetime, so the fully-optimized market solution is for most of that surplus to go to the credentialer.

In all cases of secured credit, the effect is for prices to rise such that things that used to be able to be owned are instead rented by most people.

[sliverstorm]

It's exactly the same moral hazard as with home loans. There, the bank repossesses and sells the underlying asset so the only time they can ever lose is if housing prices crash.

... are you arguing against secured loans?

[mindslight]

I'm not not. Something has to change to break the positive feedback loop for loans on limited-supply assets, to restore the concept of ownership.

Destroying 'collateral would be quite drastic. I'm pointing out that it is equivalent to making student loans non-secured, regardless that one arises out of contracts and the other from more recent lobbying.

Simpler would be to eliminate banks conjuring money from thin air, or perhaps to just raise interest rates to the point that essentially interest-only loans once again become untenable.

[rhizome]

There are countries with higher standards of living where financial institutions are uninvolved in the world of education.

[roel_v]

Which ones?

[olefoo]

He is arguing against government guarantees of loan performance and profitability.