So for education right now,

when a student wants to pursue higher education he takes out a student loan so we can

consider that to be a sort of say bond that the student sort of issues.

Is it possible that you know we could switch to an equity model.

Right. This is something I've been behind for

a long time but it's not new with me the idea of

having student loans that are responsive to income.

So it protects you against the outcome that you might

not get a great job even though you incurred this expensive education.

That goes back many decades.

Even here at Yale in the 1970s we created,

I wasn't here then but they created with Professor Toban they created

a Income Contingent student loan

and so now we have such things that President Obama is behind this too.

But it's also happening in other countries.

So student loans should be ideally contingent

on the income of the borrower as long as you can verify that.

Now there's a moral hazard problem.

We have to deal with that. We have to limit,

in fact with the Yale experience,

people were surprised when they made a lot of money and they saw

their tuition debt go up.

One thing that was a problem they hadn't thought of

what if you marry someone who makes a lot of money.

Well they didn't think about that but the contract said it was

the income on your tax form that goes into the formula.

So the bad luck of marrying a rich person because Yale could get lot of the pie.

So these are problems but they have to be worked out.

Do you think there's a student loan bubble forming?

Oh! Now in the United States?

Yes.

Maybe elsewhere too.

But the kind of bubble I think that has been happening.

I think it's partially driven by all this talk about robots

and artificial intelligence and the anxiety that drives young people today.

Where am I in this world.

Every time I look around there's some new thing replacing a job.

So I think that there is an atmosphere of I've got to be

connected I've got to be somehow the elite.

The way we define elite especially in America since there's no aristocracy,

there's no lords or dukes or barons,

you get status here by having an education.

So people are willing to spend a lot for that.

At the same time after the financial crisis in 2008,

governments are very wary of spending money.

So the U.S. does have some support for a college

educated less so in another country but they're pulling back on that.

So that you kind of have to buy your own college education.

Even the state universities are getting expensive because

they're not being given enough money by the state governments.

So it's getting expensive and so people are borrowing

to finance a quality higher education.

But in some sense it's a bubble because it's getting expensive to go to

college and also it might be

a bubble in the sense that if a lot of people go to

college it might not be as lucrative as it used to

be and then you

have to pay it back and you can't declare bankruptcy to get out of a student loan.

That's a special law in the United- I hope you aren't

thinking to do that that's because it would be too easy.

You would graduate and say hey I am out of job.

For a number of MBA students they offer

International loan for the international students, I think they offer bankruptcy.

I didn't know that.

Please don't do that.

Salon - Student Loans

Financial Markets

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