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"the psychological effect of borrowing from the government - I think people tend to feel safer doing this than borrowing from an obviously competitive private f
by ds9 13y ago
"the psychological effect of borrowing from the government - I think people tend to feel safer doing this than borrowing from an obviously competitive private firm. If you read the article, the casual attitude of student debtors to defaulting on their loans shows this - the government has no teeth. The private firm goes bankrupt if it doesn't get a return on investment. "
All of the above is incorrect.
(a) Student loans in the US are mostly not from the government in the first place, they are from private investors or banks that the schools have made deals with. The USG role is guaranteeing them.
(b) Generally, in classical capitalism, firms will go bankrupt if they don't get adequate returns on investment - but this situation has been distorted by the government guarantees. They get reimbursed if the debtor defaults, and carry on. By exploiting this subsidy they make big profits, that's why they're in it.
(c) I don't know about student-loan-borrower attitudes, but their debt and enforcement of it are not casual. The GSLs are not dischargeable in bankruptcy, so they are basically a lifelong burden unless paid off. And defaulters are subject to wage garnishment and other onerous court judgments.
- nirnira 13y agoThanks for the clarification, but it sounds like the net effect is exactly the same: bad loans are made, money is lost, the taxpayer is forced to subsidise the indiscriminate purchase of education. As always with such schemes, there is an ongoing push to implement them in as complicated and opaque a fashion as possible, to try and hide the naked fact of what is going on. So no one will admit "we take money from taxpayers and make loans no sane private investor would ever consider," they'll just talk about FDCRP-approved rates this and Fannie Mae-that and fiduciary-backed iron bond multiplexing high-yield 7.5% rederived blahblahblah. Same bullshit that happens when bank deposits are federally insured.
- srean 13y agoIt seems to me that you have a-priori decided to whip a particular horse regardless of the context/relevance. Not arguing that particular horse should not be whipped, but its not the main horse in the race that is being discussed.
- nirnira 13y agoSorry, I have no idea what you're talking about. I've simply been trying to show that these allegedly disconnected economic phenomena (government lending, high fees, high students loans, defaults, political pressure to drop interest rates) are actually all the result of a single misguided policy direction.
- deleted 13y ago[deleted]
- bradleyjg 13y ago> (a) Student loans in the US are mostly not from the government in the first place, they are from private investors or banks that the schools have made deals with. The USG role is guaranteeing them. Your information is several years out of date. Prior to July 2010, the bulk of student loans were made through the Federal Family Education Loan Program (FFELP) which were as you describe. But that program was eliminated in the Health Care and Education Reconciliation Act of 2010. Since then all Stafford, Perkins, and PLUS loans (i.e. the lion's share of all student loans) are made directly by the federal government. Only non-program student loans are no made by private banks, and they are not government guaranteed -- though they are still non-dischargeable in bankruptcy. Such loans only accounted for only around 5% of the total borrowed last year. In addition, many of the loans issued privately prior to July 2010 made their way into the government's hands during the financial crisis, so that of all outstanding student loan debt around 85% of it is currently held by the government. Refs: http://www.asa.org/policy/resources/stats/ http://www.asa.org/policy/resources/stats/ http://febp.newamerica.net/background-analysis/federal-student-loan-programs-history http://febp.newamerica.net/background-analysis/federal-stude... http://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf http://files.consumerfinance.gov/f/201207_cfpb_Reports_Priva...