I’ve been seeing some commentary, granted somewhat satirically, around how similar an environment we are in with Student Loan Asset Backed Securities to what the housing bubble looked like with Mortgage Backed Securities in '08. Throw in the idea that loan forgiveness may be used to push for further support prior to mid-terms, and this seems like a spicy situation.
I’m not smart enough to understand the economics of how all of this interplays, but want to hear some opinions on how y’all think this might play out.
I don’t think forgiveness affect the economy in the same way as defaults. Who’s asset value drops as a result of this? In the MBS situation, everyone who owned property suffered had the asset values drop, as the market got flooded with repo’s, and mortgage companies suddenly got a lot pickier about their applicants.
However, what happens when the student loans are forgiven? Does the government pay the owners of the asset-backed securities with money it doesn’t have, resulting in more inflation? Will SLABS get more picky about which student loans they bundle, leaving the gov’t with non-STEM loans?
I’m not entirely sure, but I think turning on the money printer and inflation would be the result of loan forgiveness. Defaults here are somewhat interesting, though, because unlike the MBS situation, there is no value underlying (i.e. a home to repo) a student loan so I’m not exactly sure how that would impact the economy. And my understanding of what seems to be the largest issue is that the loans are made at the federal level and have no risk assessment practices in place regarding the degree that the loan is going towards, which makes many of these predatory and why so many people are in debt that they cannot pay off.