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#1702083 - 05/22/12 06:11 PM Number of the Week: Student Loan Bubble
Jokerman Offline
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368%: The jump since 2007 in the measure of consumer credit held by the government comprised primarily of student loans.

Check out the chart.

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#1702087 - 05/22/12 06:19 PM Re: Number of the Week: Student Loan Bubble Jokerman
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On the car radio at lunch, I heard a woman who said she's in her 50s and a doctor, who cannot afford to help her children with college expenses because she is still paying for her own. Huh?

The only good thing about all the talk in the media about crushing student loan debt is that maybe my kids will someday realize that having mom and dad pay 100% of their costs was something to be grateful for.
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#1702088 - 05/22/12 06:20 PM Re: Number of the Week: Student Loan Bubble Jokerman
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Maybe someone should protest the colleges and universities who keep raising their tuitions into the stratosphere?
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#1702092 - 05/22/12 06:23 PM Re: Number of the Week: Student Loan Bubble MB Guy
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Originally Posted By: MB Guy
Maybe someone should protest the colleges and universities who keep raising their tuitions into the stratosphere?


Well actually they would be protesting access to student aid. This pushes the demand for the college education upwards and with limited seats the supply is hard pressed to catch up. So the increase in colleges tuition is a direct result of the government making student aid too accessible. Or better put, the price of that student aid too low (the interest rate).

I believe this is what J is getting at, since someone (????) has tried to make this a political issue.
Last edited by Moderate; 05/22/12 06:25 PM.
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#1702098 - 05/22/12 06:35 PM Re: Number of the Week: Student Loan Bubble Jokerman
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there are two debt bubbles on the horizon - student loans, which was caused by greedy administrators that will not control the costs of a college education, and healthcare, not so much health insurance, but healthcare.....

the education and healthcare industries are going to kill the goose that has provided the golden eggs...
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#1702105 - 05/22/12 06:46 PM Re: Number of the Week: Student Loan Bubble Jokerman
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Somewhere in the middle
The cost of higher education is terrible. For my alma mater it now cost for one year, what it cost me to attend 4.
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#1702121 - 05/22/12 06:58 PM Re: Number of the Week: Student Loan Bubble Jokerman
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What I find humorous is that the interest rate on the price of money for the product is low so the price is high. We all see how low student loan rates are affecting the price of the service.

Yet there still exists the same housing programs that caused the bubble in the housing market using the exact same mechanism. The housing bubble was not caused by sub prime loans. It was caused by the price of money for home loans to be so low that the product (in this case not a service) price to skyrocket.
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#1702133 - 05/22/12 07:11 PM Re: Number of the Week: Student Loan Bubble Jokerman
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Do you think that applies for college education in the same way that it applies to home prices?

I'm not so sure. When you buy a house, you immediately start paying for it and know the payment amount, what it will cost out of your budget, etc. When kids are in school, they don't base their decision on where to go to school (generally speaking) or whether to go onto med, law, or grad school on how much their loans are going to cost them.

A house, yes; an education, not in my opinion.
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#1702141 - 05/22/12 07:20 PM Re: Number of the Week: Student Loan Bubble Jokerman
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I do think it applies in the same way. It causes an increase in demand which in turn directly drives up the price. If the market dictated both student loan rates and mortgage rates people would borrow less for both which drives down the prices. Both would make rational decisions.

Remember one of the primary principles in Adam Smith's Wealth of Nations - All people make rational decisions in their own best interest.

If you knew that you would pay $200/ yr for 10 years in student loan prices vs $400 you would make a different decision. I know many students who have taken money out just because of the low rate and stopped once their payment estimate became high enough.

Sure, not everyone will act perfectly rational. We call those people idiots.
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#1702188 - 05/22/12 08:16 PM Re: Number of the Week: Student Loan Bubble MB Guy
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Originally Posted By: MB Guy
Do you think that applies for college education in the same way that it applies to home prices?

I'm not so sure. When you buy a house, you immediately start paying for it and know the payment amount, what it will cost out of your budget, etc. When kids are in school, they don't base their decision on where to go to school (generally speaking) or whether to go onto med, law, or grad school on how much their loans are going to cost them.

A house, yes; an education, not in my opinion.

Exactly the same way, no. But it's the same principle, sure. It sure seems to me that every time the government decides to help people afford something (healthcare through medicare, then medicaid, then CHIPs, etc., etc., etc.; housing through Freddie, Fannie, Ginnie, FHA; a college education...), that thing suddenly becomes extraordinarily more expensive. In this case, not only has it become more expensive, but the government is holding the bag, to boot.

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#1702191 - 05/22/12 08:26 PM Re: Number of the Week: Student Loan Bubble Jokerman
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I understand what you're saying, but I think the blame lies in a different place.

Housing price increases - The government increases opportunities to borrow by lowering rates, the banks and consumers take advantage and the balloon starts. The borrower wants to have a bigger house, so they borrow as much as they can and get the biggest house they can, and the bank wants to make more money by loaning out more, and they are both culpable for the balloon.

College tuition increases - The government increases opportunities for students to borrow money more cheaply, the colleges increase their tuition costs and the student doesn't have as much choice but to pay the tuition, and the colleges gain more than the student does. I think the schools are taking advantage of the situation more so than the students are taking advantage of government.

Again, just my viewpoint. The truth is probably somewhere in the middle.
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#1702198 - 05/22/12 08:37 PM Re: Number of the Week: Student Loan Bubble Jokerman
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you want to have more of something...have the government subsidize it...and it also becomes far more expensive...

poverty, welfare programs.... check

education ......check

ethanol, corn.....check

alternative forms of energy....check

retirement....check

children....check

homeownership, home loans.....check

please add your own items.....
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#1702202 - 05/22/12 08:46 PM Re: Number of the Week: Student Loan Bubble Jokerman
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I'm a little puzzled....if the price of education rises, it is the fault of greedy universities and the government. If the price of oil/gasoline rises, it usually seems to be a shrug of the shoulders and a nod to "supply and demand". What's the difference?
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#1702206 - 05/22/12 08:55 PM Re: Number of the Week: Student Loan Bubble raitchjay
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Originally Posted By: raitchjay
I'm a little puzzled....if the price of education rises, it is the fault of greedy universities and the government. If the price of oil/gasoline rises, it usually seems to be a shrug of the shoulders and a nod to "supply and demand". What's the difference?


I am not sure I understand the crux of your question since both are (and we have thoroughly demonstrated) affected by supply and demand.

If you are asking if they are both affected by demand the answer is yes. If you are making an off handed statement that in one case we blame government but in another case we blame supply and demand. Both are true. But whoever cannot see the difference is missing the point quite far.

I think that people who blame the rising gas prices on supply and demand do have a valid argument. But their point is that government has restricted possibly supply to the point that it is at fault for both. In which case I agree.
Last edited by Moderate; 05/22/12 08:56 PM.
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#1702211 - 05/22/12 09:01 PM Re: Number of the Week: Student Loan Bubble Jokerman
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Was just an observation. In one instance, government's hand is presumed to play a role in the rising cost. In the other instance, government's hands off approach plays it's role. End result of both: outlandish prices.
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#1702214 - 05/22/12 09:05 PM Re: Number of the Week: Student Loan Bubble Jokerman
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Well actually I am saying that the Governments hand has played a role in increasing prices in both cases.

I think you may be missing the hand it plays in the price of oil.

First there is the hand that we have not discussed such as taxes imbedded in the price of gas. Next is the governments actual purchasing of that oil for later use. Depending on the season (such as election Season - the government may purchase a lot so that it can release it into the market and drop the price around say late October). But second is their restriction on access to that oil.

By the government not allowing people to drill (the market) to increase supply to meet demand, it has not done nothing. It has barred access to such oil. This is far worse than doing nothing. Doing nothing would be to allow oil companies to drill at their desire. Or to put it in the terms you have used, this is not "hands off". This is "hands on".
Last edited by Moderate; 05/22/12 09:07 PM.
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#1702221 - 05/22/12 09:11 PM Re: Number of the Week: Student Loan Bubble Jokerman
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"Hands on" would also be some sort of price regulation, like we do with other essential energy sources. What incentive do oil companies have to drop their prices as it's already been proven Americans will pay any price for gas? But that's a subject for another thread i guess....don't want to derail....
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#1702224 - 05/22/12 09:24 PM Re: Number of the Week: Student Loan Bubble raitchjay
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Originally Posted By: raitchjay
"Hands on" would also be some sort of price regulation, like we do with other essential energy sources. What incentive do oil companies have to drop their prices as it's already been proven Americans will pay any price for gas? But that's a subject for another thread i guess....don't want to derail....


That is false. Americans will not pay any price for gas. In fact, when gas prices were at their highest airline companies and bus routes were reduced both locally in my area and nationally.

Please contribute one shred of evidence that says that gas is not price elastic.

http://economics.about.com/od/priceelasticityofdemand/a/gasoline_elast.htm

Quote:
One such study is Explaining the variation in elasticity estimates of gasoline demand in the United States: A meta-analysis by Molly Espey, published in Energy Journal. Espey examined 101 different studies and found that in the short-run (defined as 1 year or less), the average price-elasticity of demand for gasoline is -0.26. That is, a 10% hike in the price of gasoline lowers quantity demanded by 2.6%. In the long-run (defined as longer than 1 year), the price elasticity of demand is -0.58; a 10% hike in gasoline causes quantity demanded to decline by 5.8% in the long run.


Now to get to the real argument. If hands on is only the effect of the government putting a price ceiling on commodities than I think someone might have pulled the wool over your eyes. If that were the case why would the Fed ever purchase or buy fed funds.

There are many regulatory and financial mechanisms a government can put in place to effect the price, supply and demand of any given product or service. Don't be fooled by this our government's supposed "hands off approach". If they were "hands off" they would let oil companies increase the supply of oil the natural way to reduce the price and allow for rising demand.
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#1702245 - 05/22/12 10:55 PM Re: Number of the Week: Student Loan Bubble raitchjay
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Originally Posted By: raitchjay
"Hands on" would also be some sort of price regulation, like we do with other essential energy sources. What incentive do oil companies have to drop their prices as it's already been proven Americans will pay any price for gas? But that's a subject for another thread i guess....don't want to derail....


Why are gas prices going down today and for the last month?

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#1702252 - 05/22/12 11:43 PM Re: Number of the Week: Student Loan Bubble Jokerman
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As long as oil company's large profit margins are met, sure prices will rise and fall with peaks and valleys in supply and demand. Don't get me wrong....i'm extremely grateful for $3.50/gallon gas. Compared to $3.75/gallon, i guess it's great.

And as for the elasticity of demand of gas and the study quoted above, if a 10% hike in gasoline prices over the long term causes a 5.8% drop in demand, shouldn't we be have a 50% or more drop in demand today over say the last 8 years or so? (My memory isn't great, but i'm thinking we were under $2/gallon gas at least in the last decade.) Even with some inflation figures figured in, it's not like gas prices have just "gradually" risen over the last 10-15 years.
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#1702255 - 05/22/12 11:57 PM Re: Number of the Week: Student Loan Bubble Jokerman
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I think you are right about the $2 price or at least really close. But to say Americans will pay any price is really inaccurate. I was trying to inject some logic to the argument that the Government has been "hands off". It hasn't. It has been actively preventing increases in supply. So the argument that the price of tuition increasing because of government intervention but gas prices increased because of lack of government intervention was just not true.

But at this point I think you got that.

As to your last point, regarding the long term elasticity of demand. I really hope this is not your argument. Because if it is, then I am going to halt my discussion as I would realize that anything I would say would be lost. At this point I think you fully understand my argument but you just want to keep going around in circles.
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#1702269 - 05/23/12 12:09 PM Re: Number of the Week: Student Loan Bubble Jokerman
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To quote the character of Ray's father from Everyone Loves Raymond... "Education is the biggest scam going."

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