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Should the U.S. Make Billions from Student Loans?

11 points by peterkrieg 12y ago

hnnewguy 12y ago
It's just as crazy in Canada. The fixed interest rate on government backed student loans is prime +5%! That means that during a period of historically low interest rates, students are paying nearly 8% on their loans. Why not prime? This is non-dischargeable debt, what is the risk to the lender? It's absurd.
- fennecfoxen 12y ago
  Hmm. You get prime rates on a house -- where the asset's value fully covers the liability -- if you have a decent credit score and a source of income to cover the monthly payments. Are non-dischargeable debts are just as good as having that asset there, and if not, how much worse are they? What's the additional risk added by having people with nil credit score and little or no sources of income -- more or less than 5%? If this were really some sort of competitive market we could probably find out empirically by working backwards from extant rates, but apparently it's government-backed, so who knows :P
rayiner 12y ago
Yes. The new federal student loan programs are great. The total repayment is capped at 10% of discretionary income, and forgiven after 20 years. Having the system yield a profit will keep the program viable and reduce the temptation to cut the benefits under the program. It's also fair--people who need loans for school (I.e. Who aren't so rich to begin with they can afford school out of pocket) are pooling the risk amongst each other.
- JonFish85 12y ago
  For such a heavy lede, the article is missing a LOT of information. How much profit does the government make? Profit, not revenue.
jobu 12y ago
That's a difficult question to answer. In the long term it's in the country's best interest for the government to subsidize college education, but perhaps not all degrees should be eligible. The basketweaving degree mentioned here is a terrible example because there are legitimate degrees in fields where the average income makes it difficult or impossible to pay back the student loans to get it (Psychology, Early Childhood Education) - http://www.npr.org/blogs/money/2013/09/10/219372252/the-most-and-least-lucrative-college-majors-in-1-graph http://www.npr.org/blogs/money/2013/09/10/219372252/the-most...
leereeves 12y ago
I've heard a plausible argument that federally guaranteed student loans fueled a huge increase in the cost of college (http://nces.ed.gov/fastfacts/display.asp?id=76 http://nces.ed.gov/fastfacts/display.asp?id=76), and much of the increased income went to administrator salaries and new construction, rather than faculty. Perhaps it's time to force colleges to compete on price.

11 points by peterkrieg 12y ago

It's just as crazy in Canada. The fixed interest rate on government backed student loans is prime +5%! That means that during a period of historically low interest rates, students are paying nearly 8% on their loans. Why not prime? This is non-dischargeable debt, what is the risk to the lender? It's absurd.

fennecfoxen 12y ago
Hmm. You get prime rates on a house -- where the asset's value fully covers the liability -- if you have a decent credit score and a source of income to cover the monthly payments. Are non-dischargeable debts are just as good as having that asset there, and if not, how much worse are they? What's the additional risk added by having people with nil credit score and little or no sources of income -- more or less than 5%? If this were really some sort of competitive market we could probably find out empirically by working backwards from extant rates, but apparently it's government-backed, so who knows :P

rayiner 12y ago

Yes. The new federal student loan programs are great. The total repayment is capped at 10% of discretionary income, and forgiven after 20 years. Having the system yield a profit will keep the program viable and reduce the temptation to cut the benefits under the program. It's also fair--people who need loans for school (I.e. Who aren't so rich to begin with they can afford school out of pocket) are pooling the risk amongst each other.

JonFish85 12y ago
For such a heavy lede, the article is missing a LOT of information. How much profit does the government make? Profit, not revenue.

jobu 12y ago

That's a difficult question to answer. In the long term it's in the country's best interest for the government to subsidize college education, but perhaps not all degrees should be eligible. The basketweaving degree mentioned here is a terrible example because there are legitimate degrees in fields where the average income makes it difficult or impossible to pay back the student loans to get it (Psychology, Early Childhood Education) - http://www.npr.org/blogs/money/2013/09/10/219372252/the-most-and-least-lucrative-college-majors-in-1-graph http://www.npr.org/blogs/money/2013/09/10/219372252/the-most...

leereeves 12y ago

I've heard a plausible argument that federally guaranteed student loans fueled a huge increase in the cost of college (http://nces.ed.gov/fastfacts/display.asp?id=76 http://nces.ed.gov/fastfacts/display.asp?id=76), and much of the increased income went to administrator salaries and new construction, rather than faculty. Perhaps it's time to force colleges to compete on price.