Anyone else having trouble posting on this thread? I keep trying to post a longer comment and it will not let me. Its not that long but is there a char limit?
Good points, Bchad. I just did some quick googling because I was curious on these points.
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Mortgage debt is valued at around $6.1T. Student loan debt is at around $1T.
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If a mortgage defaults then the debtholder can recoup probably around 70%. If a student loan defaults then as far as I know the debtholder recoups 0%. I am not sure on this point so if anyone knows for sure please speak up.
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Given points 1 and 2, student loan debt, while smaller than total mortgage debt, could represent a very high potential for destruction of capital.
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On bchad’s assertion that a student loan default does not affect the value of that student’s education, I agree but would add that the student loan itself is supposed to be funded by that education so the fact that there was a default indicates that the value of that education is low. Student loan rates are quite favorable (for now) so an inability to make the payments probably indicates that the education as a low economic value (at least for now).
IMO, there are too many people going to school too long. The people that I know who are doers begin working after a BA/BS. Most of the people I know nowadays that are going into grad school could not find a good job following graduation, looked around for a few years, and then bit the bullet and applied ot grad school (more to have something “productive” to do than anything else). Take a person I know who basically defines lazy and entitled (rich parents) and has not had a job in 5 years. Parents finally cut him off, so he got into a decent grad program for Poli Sci (his undergrad degree focus) and is financing this with loans.
Many of the issues posted by others are just descriptions of what happens when the government subidises anything Replace the word wheat with student loans and you get the same problems; overproduction and missallocated resources
Overproduction: In education we have too many people relative to the market demand pursuing higher degrees (that seems to be the case in fired sisters situation. At least on this day)
Misallocation and waste: You have people taking on loads of debt to obtain degrees that do not provide sufficient economic benefit to support the debt (I will not name the degrees but leave it to you to fill in the blank). Many of these people can only hope to find work in their field in taxpayer supported(directly or through subsidies) universities
David Rosenberg, whom I normally don’t agree with, made a very good point a couple months ago. Young adults now owe so much in student loans they can’t afford to buy a home. Since first time home buyers are critical to a healthy housing market, that’s been a key factor in the slow/non-existent housing recovery. Since the student loan situation is going to get worse before it gets better, housing will struggle for several years.
Interesting observation at any rate.
^ I never made that connection before, but I can see it. As such, I think all outstanding student loans should be forgiven on the condition that the borrower uses the money as a down payment on a single family home instead, particularly in the greater Philadelphia area.
thanks for the data check, facial.brain.wash. Those were interesting points and good analysis. I quibble with the data, though.
My impression was that the mortgage market was substantially larger than that. IIRC, the mortgage market is larger than the Treasury market; the Federal debt is close to 100% of GDP, and GDP is around 15 Trillion. So my understanding is that the mortgage market should be over 15 T. Not sure where the 6T comes from.
Looking at Wikipedia (which is not really a great source, but it was easy to find) it says that as of 2011 Q2: there were about $13T in mortgage debt outstanding, and 8.5T in mortgage related securities. $7T is securitized or guaranteed by GSEs.
Brain’s point still stands. Hey higgmond, I don’t know when I’ll get back to the PHL area, but when I do later this summer I’ll try to look you up for some peers if you’re down.
Most certainly Swan.