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> lenders that are taking on too much risk The lenders are taking no risks since these loans cannot be discharged through bankruptcy. There are also very larg
by GartzenDeHaes 3y ago
> lenders that are taking on too much risk
The lenders are taking no risks since these loans cannot be discharged through bankruptcy. There are also very large late fees and penalties that can triple (or more) the amount owed.
- chiefalchemist 3y agoIn other words, the government gave the leaders license to do "predatory".
- pclmulqdq 3y agoIn other words, the government has become a predatory lender with some intermediaries.
- pixelatedindex 3y agoWhich I find really weird, they take this stance against education but businesses don’t have to deal with such predatory loans - in fact govt loans for businesses tend to have low interest rates, or forgiven like the PPP loans. Why do we take anti-individual stances, but pro-business stances? Is that a byproduct of capitalism, or am I misreading the world?
- mistrial9 3y agoyou are right basically -- with the caveat that "business has shown the ability to be responsible with money" while individuals fail at this for a large variety of reasons. However, in many societies past and elsewhere, not every single individual adult has to manage money like a business. Zoom out a bit and you might imagine that government now treats corporations as a person, and persons like they have to behave like a business.
- nightski 3y agoPPP loans weren't really loans. It was known they would be forgiven before taking them out. If that had not been the case, most businesses would not of participated. I believe they were structured as loans providing a mechanism for congress to pass the aid immediately. Actual business loans require assets/collateral, even those from the SBA. At least this has been my personal experience with my businesses. You can't get a loan with no credit or assets (like a student can).
- pixelatedindex 3y agoThat’s the part that doesn’t make sense to me. Businesses make way more money than an individual, so why charge the individual more APR? And PPP really should not have been forgivable - if you run a business, then it’s your responsibility to have enough money in the coffers to survive any economic downturns. Individuals get punished way more harshly than businesses when things go south.
- nightski 3y agoThat's not really true imho. If we are going to be pedantic and talk about the pandemic, almost all taxpayers received individual stimulus checks in the thousands. On top of that those with children received a lot more. The vast majority of PPP loans went to small business and it was to make up for the government shutting down parts of the economy (it wasn't simply an economic downturn). I don't agree with how hastily and sloppy it was administered, you'd think we would have plans in place beforehand. But hey it's the government. As far as interest rates, I had six figures of student loans and they were at 2.88%. Rates today are higher, but that's because they very loosely follow the federal funds rate. This is no different for business loans. But loosely speaking, interest rates on federal student loans are pretty low compared to other types of loans. In fact, the reason the stock market reacts so badly to interest rate increases is precisely because it increases the cost of borrowing for business.
- pixelatedindex 3y agoI would kill for such a low interest rate. I graduated soon after the financial crisis and the cheapest loan I had was 4.88%, with the average being 6%, and some were even 8%. I can (could have?) finance a car for cheaper, which is a bit ridiculous to me. Personally, there should be a cap or a set interest rate for education loans but I understand that it’s a contentious statement. Yeah there were stimulus checks, and I saw a lot of people say something like “wow look at all these handouts people are getting, they don’t deserve it all!” but then they turn around and say the PPP was the greatest thing ever and businesses deserved them. I think we are too critical of individual choices nowadays, but not critical enough of the terrible choices that businesses make. That’s probably the gist of my discontent.
- kolbe 3y ago> Why do we take anti-individual stances, but pro-business stances? You're presuming a fact that's not in evidence. I know it's the flavor of the month whataboutism to point to PPP as an excuse to forgive student debt, but PPP was wildly unpopular amongst people who didn't directly benefit from it as well. I have full faith the SBA makes terrible loans as well. Also, anti-student loan isn't exactly an anti-individual stance. It can also be interpreted as anti-University subsidy. And when you look at the absurd wages professors and administrators can command at these places, I wouldn't blame someone for thinking these loans are distorting the market so badly that it harms consumers/taxpayers while enriching professors and administrators.
- pixelatedindex 3y agoI 100% agree that universities are not incentivized to keep their costs low, and there are so many that could run on a much leaner funding. > You're presuming a fact that's not in evidence. I’m not so sure about that. How many executives get paid remarkably well, even though they fail miserably? Sometimes even with tax payer money.
- kolbe 3y agoThe fact that's being presumed is that "people" approve of corporate welfare.
- pclmulqdq 3y agoWhere are we taking anti-individual stances? I'm pretty sure you are misreading the world here. Nobody mentioned individuals at all - the question is just how much you blame businesses vs lawmakers. I claim that the blame here really rests on big government for creating this fucked up system, not the businesses that work within it. By the way, I blame the government for the PPP fiasco too. None of this is particularly pro-business, but a lot of people are apologists for big government and need to be disabused of that notion.
- prepend 3y agoComically, the government is the direct lender and is charging “predatory” rates. My loans are all through DEd. At time of issuance, they were double the 30 year mortgage and many multiples of prime. My payments go directly to the governments payment processor (AidVantage/Navient) and on to DEd.
- taeric 3y agoRight, this is what I meant by them having captured the market.
- kortilla 3y agoBut your comment seems to blame them for taking on risk, which they aren’t. Maybe reword it?
- taeric 3y agoI can see that read. I meant that we should not have built a situation where lending money is risk free. It is a perverse incentive to do more lending, and ignores the actual risks that people will be unable to repay.
- TheRealDunkirk 3y agoNow I read that Wall Street is creating CDO's based on these loans, like they (continue to) do on mortgages. Some people die "early" without paying back these loans, and sometimes, they will owe more than they took out. Given the mounting problems with the numbers here, it seems a whole generation of people in the middle of this bubble are going to go to the grave while still owing on these loans. What happens to these CDO's? Are we headed for a smaller "meltdown?" I went to school from 87-91. I could already see the problem starting. I was hoping this bubble would burst before my own children went to school. Two of three have gone to public schools so far, and we've paid through the nose for it. We are pushing our third towards some sort of trade school.
- Xeronate 3y agoSeems wrong to influence your son's decision based on your financial situation rather than his desires/passions. Of course if he's naturally interested in the trades then sure.
- willcipriano 3y agoMost people desire not being poor over most other things.
- Xeronate 3y agoThere are a lot of ways to make money. Picking a job based on money is a good way to be absolutely miserable. My parents pushed me towards making money my entire life and there is nothing I regret more than following that advice. Every day I wake up dreading going to work and it seeps into every aspect of my life.
- deleted 3y ago[deleted]
- pixelatedindex 3y agoPresumably you have enough money now to switch to something that makes you happy? Personally, if you’re going to be miserable anyway (as most Americans are these days), it’s probably better to be miserable with money than without money, lol
- tylerhou 3y agoStudent loans can be discharged through bankruptcy, if you pass hardship requirements. - https://studentaid.gov/manage-loans/forgiveness-cancellation/bankruptcy https://studentaid.gov/manage-loans/forgiveness-cancellation... - https://www.consumerfinance.gov/about-us/blog/busting-myths-about-bankruptcy-and-private-student-loans/ https://www.consumerfinance.gov/about-us/blog/busting-myths-...
- taeric 3y agoI'd love to see numbers on how many are actually discharged. My understanding is this is almost as akin to saying that the lottery does, in fact, pay out.
- gen220 3y agoThere's more paths to discharging than bankruptcy. Somebody I know had a medical emergency while in their repayment period. They were unable to work and went on to disability insurance, and eventually had their loans forgiven. I think they had to be on disability for a certain period of time (measured in years, iirc) before they were discharged. Eventually, they recovered sufficiently to be able to return to the work force debt-free. I'm not sure if the hurdle for loan forgiveness ought to be "you have to basically die", but it's at least that high for now. There's also the well-known "public servant" path. I'm sure there's some ironic joke to be made comparing the two.
- gorjusborg 3y agoThanks for sharing the anecdotes. Doesn't it seem like a society shouldn't encourage people to financially self-immolate in order to start their adult life? I mean, giving the self-immolators some tweaky hacks to prevent being lit on fire is not really the best solution.
- gen220 3y agoI totally agree, I think most level-headed people do. It's a tricky problem. We want people to have equal opportunity to pursue college, even if their parents can't afford it. But at the same time, we don't want to subsidize cost creep. Clearly the current solution doesn't work. Alas, we're deeply invested in it (literally), and each passing year the entanglement grows. I think you can make a strong case for govt-funded tuition at public universities. But I don't know how to get to there from here without making a handful of people very unhappy.
- SoftTalker 3y agoI mean, you can't get blood out of a turnip. If the borrower has no money to pay, they aren't going to pay, bankruptcy or not.
- jrockway 3y agoSince there is pretty much no social safety net, people are probably going to find some sort of work even if they have a lot of student loan debt. And, the debt servicer can garnish those wages. You are essentially selling yourself into slavery if you take a student loan! (And the reasoning is so weird to me; I went to a state school and tuition was $750/semester. Why are people paying more unless they are extremely gifted and they want to go into a highly regulated field like civil engineering or medicine?) Student loans not being dischargeable through bankruptcy creates a moral hazard, much like bailing out banks. Banks will lend an infinite amount of money for student loans, because there is no risk to them. Creating free money always devalues it; if you have to work for your money, an education is priced $X because that's the maximum people will pay. If everyone gets unearned money to pay for education, it becomes worth $X + $Y. This is just the SaaS model for people. (Consider AWS; "oh you want to make money selling a SaaS service? we'll take 10% of your revenue for servers." Student loans are the same thing, "oh, you want to go into a high-earning field? we'll take 30% of your income for the next 10 years.") Compare this to things where banks could lose money, like mortgages. If you bid $1,000,000 on a property that's worth $200,000, the bank will simply require a down payment of $840,000. They have no interest in your starry-eyed games. If you walk away, they can close out your loan by selling the property at the appraised value, and they're happy. Banks have the right amount of paranoia about lending for this kind of purchase; their goal is to never lose money. Student loans should be no different; current grades and expected job prospects should play heavily into the decision as to whether or not to lend money. This will reduce the cost of education because selling a $600,000 art history degree to straight-C students won't be viable in the market anymore. (Universities will fight hard against this, because the degrees are cheap and everyone pretends they have some value. If people realize degrees don't have much value, the cash cow dries up. But we have to kind of look at the effect on society as a whole and realize that work experience is actually what we value. After the first 4 years of your career, nobody cares about your GPA or where you went to school anymore. And incidentally, 4 years is exactly how long college takes!)
- bryanrasmussen 3y agoI believe that was the posters original point, because the lenders have no more risk it means that the market solution has been put out of balance, and the current situation is arguably a logical consequence of that imbalance.
- 015a 3y agoAnd yet, some lenders (Navient is the big one) have now lost so much money due to COVID forbearance that they've exited that industry entirely. There's inherent risk to everything, everywhere. Making the loans undischargable in bankruptcy doesn't negate the risk of non-repayment; it just hides it. Until, eventually, all the band-aids fall off, reality bares its ugly head, and we all wish we hadn't-a done that. Yet, in thirty years we'll forget about it and do it all over again, in some new, crazy, way.
- milsuj2 3y agoJust because the loan cannot be discharged doesn't mean there are no risks. The money doesn't just appear out of nowhere if the borrower doesn't already have the money.