downloadThe day after Christmas, presidential candidate Bernie Sanders asked on Twitter: “You have families out there paying 6, 8, 10 percent on student debt but you can refinance your homes at 3 percent. What sense is that?”

My snarky tweet in response was, “Because you can foreclose on a house but you can’t repossess an MFA in creative writing.”

A more thorough (and thoughtful) explanation is provided by Megan McArdle. She explains why loans secured (such a by a house) always have lower interest rates than unsecured loans (like student debt):

Student loans are two-for-one in terms of risk: They are frequently made to people with no income, no credit history, and somewhat imperfect prospects; and they carry no guarantee of payment other than the borrower’s signature. If someone fails to pay their auto loan, you can take their car away. This ensures repayment in two ways: first, you can auction the car and recover some of the money that you lent out; and second, people need their car, and will scrimp on other things in order to keep from losing it. The immediate personal costs of failing to pay your student loans, on the other hand, are pretty minimal, and people are going to take that into account when they decide whether to pay you or the auto finance company. That’s why the government has to guarantee these loans; the low-fixed-rate, take-any-course-of-study-you-want-at-any-accredited-institution, interest-deferred-in-school is probably not a financial product that would exist in the wild.

Secured loans have thus always carried lower interest rates than unsecured loans, and will do so until the heat death of the universe renders moot such questions.

Read more . . .

A Treatise on Money

A Treatise on Money

A Treatise on Money is a selection from Luis de Molina’s larger work On Justice and Right. In these selections, he examines the various kinds of contracts and businessmen of his day and applies the scholastic method to analyze the nature of currency and exchange, offering a unique and indispensable look into the origins of modern monetary theory.

  • Philosophical Actuary

    “Because you can foreclose on a house but you can’t repossess an MFA in creative writing.”
    Hence the reason usury is said to be charging for something that doesn’t exist as property.

    • http://rdmckinney.blogspot.com Roger McKinney

      But since the teachers who provide the education for the MFA exist and get paid by the loan then it’s not usury. The professors own themselves and their knowledge, both of which exist, and they rent those to the students.

  • Robert Johnson

    US Government will have a $127 billion profit over the next decade from lending to college students and their families. Student debt should not be used to making record breaking profits.

    • http://rdmckinney.blogspot.com Roger McKinney

      Exactly! Students should be able to get rid of student debt in bankruptcy like any other debt.

  • http://rdmckinney.blogspot.com Roger McKinney

    I suppose if I accepted you definition I would have no choice but to agree with you. But you’re defining property is a ridiculously narrow way. Society has accepted for centuries that ideas are property, and everyone owns their own body and a teacher needs his body to teach, so by teaching he is renting his body and knowledge to the student.

    Whether you call it property or not, the student is buying something valuable to him, education, and so is property to him.

    I don’t get why you stubbornly cling to an Aristotelian concept of property when the West rejected it centuries ago. Your argument is true only if others accept your narrow outdated definition of property.

    • Philosophical Actuary

      I suppose we would need to begin from more fundamental principles to proceed in this discussion. I similarly hold that your understanding of property is ridiculously broad, to the point where laborers rent their bodies as if they could sell themselves. Please provide the definition of property and its justification that men are called property.

      The student is indeed purchasing something valuable to him, otherwise he would not purchase it. However, the lender has not recourse to a real asset were the student to default. The lender does not have recourse to recover the principal by taking ownership of the professor nor his knowledge, hence I see no sense in your argument.The lender in fact charges for no real asset, but only the personal guarantee of the borrower.

      Please retrieve for me the passage in Aristotle or from the Aristotelian tradition the narrow outdated definition of property I am using since you seem to know Aristotle and the tradition better than me.

      • http://rdmckinney.blogspot.com Roger McKinney

        Well I’m operating with the definition of property that has been common in the West for the past four centuries by the church and economics and society in general. You need to justify the use of such a narrow definition that almost no one else would subscribe to.

        • Philosophical Actuary

          A few problems as I see it. First, not actually providing the supposed definition is not helpful in continuing the discussion. Second, as to people renting their bodies, I know no laborer who thinks this way nor in any contract I have signed has it mentioned or implied that I was renting my body. Indeed, the sale of one’s body is associated with prostitution, not literally, but analogously and to emphasize the degradation and unnaturalness of the work.

          Finally, my position is largely developing. As I understand it, property involves at least two essential characteristics, that the thing can or is owned and that it can be exchanged, that is the ownership can be transferred. Ownership of my body cannot be transferred nor the use of it given to another in an exchange in such a way that I do not use it while another does. Ownership of ideas as such is impossible, because truth is common. My ideas as mine, such as my idea of property, cannot be alienated from me in an exchange, that is I cannot give my idea away such that it no longer belongs to me.

          The exclusive use of an idea, such as an engineering design, may be owned provided by a legitimate authority, thus we have patents and copyrights, which seem to be temporary leases of exclusive use of an idea, but not the ownership of the idea as such.

          Regardless of this, to return to my original point, there is no real asset that the lender has recourse to in order to retrieve what is owed him in the case of default. This is a sign that lender charges for assets that do not exist and hence the charge is usurious.

  • Steve Vinzinski

    I only have one thing to say I have held mortgages with no problems.I would never lend a stranger money for school without something excellent in nature to lien.Of course I am small and Banks i understand are compensated by the United States Government for defaults. Mr.Carter brought up a good point.I wish every one a Happy New Year.