Thursday, August 08, 2013 11:54am

Student Credit Risk

Conventional economic reasoning suggests that it would be a good policy to enact the recent Senate bill that would let undergraduate students borrow through the government Stafford program at interest rates equivalent to the primary credit rates offered to banks through the Federal Reserve's discount window.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel
Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 4
Bio/Vote History
         
Alesina Alberto Alesina Harvard Did Not Answer
Bio/Vote History
         
Altonji Joseph Altonji Yale Disagree 4
Federal student loands should be tied to a longer term rate such as 10 year t-bill rate plus a premium, not a very short term rate.
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Disagree 3
Bio/Vote History
         
Autor David Autor MIT Agree 8
College remains an excellent investment for most students, and the federal government is the appropriate lender for most borrowers.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 3
Bio/Vote History
         
Bertrand Marianne Bertrand Chicago Uncertain 2
Bio/Vote History
         
Chetty Raj Chetty Harvard Uncertain 5
Bio/Vote History
         
Chevalier Judith Chevalier Yale Agree 8
Education creates externalities, justifying subsidies. But there are problematic institutions who may be abusing the programs.
Bio/Vote History
         
Currie Janet Currie Princeton Agree 7
Provides modest subsidies to students but still stabilizes cost of the program (since cost of loans to govt exceeds govt cost of borrowing).
Bio/Vote History
         
Cutler David Cutler Harvard Strongly Agree 8
Unclear what you mean by "conventional", but the evidence suggests inadequate college attendance because of price.
Bio/Vote History
         
Deaton Angus Deaton Princeton No Opinion
Why are we being asked about "conventional economic opinion" instead of substance? Makes it a test.
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 3
The discount-window rate represents a subsidy to education. The case for this: (1) credit frictions, and (2) knowledge externalities.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Uncertain 6
Main q is whether marginal return to college exceeds the cost. If it does, std reasoning says we should encourage more college degrees
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Uncertain 1
Bio/Vote History
         
Fair Ray Fair Yale No Opinion
Bio/Vote History
         
Goldberg Pinelopi Goldberg Yale Agree 5
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 7
This has already been done but with a cap on the total rate. Also, the rate is locked in for the loan period. The Q did not state this.
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 9
better skills for the workforce helps not just the workers themselves but the wider economy, too.
Bio/Vote History
         
Greenstone Michael Greenstone MIT Uncertain 1
What do we assume about externalities? If no externalities, then this int rate is too low bc doesn't reflect riskiness of student loans.
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 5
There are so many things wrong with the student loan program that changing the interest rate is down the list.
Bio/Vote History
         
Holmström Bengt Holmström MIT Strongly Agree 7
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Judd Kenneth Judd Stanford Agree 6
Something needs to be done to return the student loan program to what it was earlier this year.
Bio/Vote History
         
Kashyap Anil Kashyap Chicago Strongly Disagree 7
Discount window loans are secured and only made to solvent banks. Student loans historically have high default rates. Very bad idea!
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Disagree 5
I can see the case for subsidizing college, but not pushing the borrowing rate below the risk free rate plus default risk.
Bio/Vote History
         
Levin Jonathan Levin Stanford No Opinion
Haven't had a chance to get informed on this one.
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 7
Bio/Vote History
         
Nordhaus William Nordhaus Yale Did Not Answer
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Uncertain 3
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Uncertain 6
Bio/Vote History
         
Scheinkman José Scheinkman Princeton Did Not Answer
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Uncertain 5
Conventional reasoning may rationalize a subsidy, but it is not clear what the alternative is or why this formula might be optimal.
Bio/Vote History
         
Shin Hyun Song Shin Princeton Did Not Answer
Bio/Vote History
         
Stokey Nancy Stokey Chicago No Opinion
Bio/Vote History
         
Thaler Richard Thaler Chicago Uncertain 1
Guessing what conventional economic reasoning suggests is not in my wheel house. Social returns to student loans is probably high.
Bio/Vote History
         
Udry Christopher Udry Yale No Opinion
Bio/Vote History
         
Zingales Luigi Zingales Chicago Did Not Answer
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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