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Student Loan Rates

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Replies to: Student Loan Rates

  • bluebayoubluebayou 34 replies0 discussions Junior Member
    ridiculous idea, of course. But note, one of the reasons that student loans have a high rate is that Congress is using the excess to subsidize the cost of the Pell grants. (look it up.)

    So what is missing from the blog, is the cost of the Pells which will have to be made up.

    With zero chance of passing, this is just political grandstanding by the new Senator.
    edited May 2013
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  • ttparentttparent 13 replies0 discussions Junior Member
    Why does it have to be made up? Why students are paying for someone else education when they can hardly pay for their own? The rich will be able to get better loan that is market based, the poor but not poor enough get fleeced again and again.
    edited May 2013
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  • rmldadrmldad 16 replies0 discussions New Member
    There are quantifiable reasons that banks receive a lower rate than students:

    -banks have a much lower default rate on loans (despite headlines when one does default, it is relatively rare)
    -the administrative and overhead costs of loaning to students is exponentially higher than loaning to banks

    The rate that students pay is already heavily subsidized by taxpayers. In an open market, the rate differential would be far higher than a factor of nine. Sen. Warren is choosing to demagogue this issue to score political points on a hot button issue with a loyal constituency rather than deal with facts.

    In the article, Sen. Warren admits that the core issue is that students costs are rising too quickly. Why doesn't she instead propose a bill mandating that all colleges must cut tuitions in half for one year? The answer is obvious when you look at facts.
    edited May 2013
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  • bluebayoubluebayou 34 replies0 discussions Junior Member
    Why does it have to be made up?

    A free lunch is great for everyone, correct? :)

    But look at it this way: the actual loans go out 10+ years, but the federal debt goes out a generation+, which means that today's college students who borrow the money, will (hopefully pay their loans back and then have to pay back the interest on the national debt. But more importantly, those not attending college will end up helping to pay off the loans for those that do (attend college).

    Great deal for those that get the free lunch. Not so good for those that do not.
    edited May 2013
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  • ttparentttparent 13 replies0 discussions Junior Member
    It is not free lunch when you are paying the interest, and then let's pile on some more because it is convenient and we the government has captive market so there's no way around it for you unsuspecting students in the middle.

    Not sure I understand your point, and I don't want to expand this to class warfare but those that do not go to college probably will have nothing to do with paying those loans of college attending folks. The interest is actually higher than the market rate, and the program actually makes money off these students. There is nothing to pay from those that did not go to college.
    edited May 2013
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  • BCEagle91BCEagle91 152 replies2 discussions Junior Member
    Think of the poor savers in this country.
    edited May 2013
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  • BCEagle91BCEagle91 152 replies2 discussions Junior Member
    > Not sure I understand your point, and I don't
    > want to expand this to class warfare but those
    > that do not go to college probably will have nothing
    > to do with paying those loans of college attending
    > folks.

    They pay for the subsidy on the interest rates.

    > The interest is actually higher than the market rate,

    What's the market rate on unsubsized loans? I own a company that makes business loans to small companies. The company typically charges over 13%.

    > and the program actually makes money off these students.

    Net of the subsidies I think.

    > There is nothing to pay from those that did not go to college.

    The interest rate subsidies.
    edited May 2013
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  • ttparentttparent 13 replies0 discussions Junior Member
    What subsidy? Interest means the program take back more money than going out. What is the US treasury rate? 13% for business loan is because probably they have large default rate. What is the default rate of federal student loan? How does one declare bankruptcy and dispose of student loan? How do you have money left over for Pell grants from the program?
    edited May 2013
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  • charlieschmcharlieschm 34 replies2 discussions Junior Member
    The President and some members of Congress are proposing that the federal government move to market based interest rates for all federal student loans, including PLUS, Perkins and Stafford. The rate would be a certain amount above the current rate for Treasury bonds. This would mean that most current rates would fall for new loans taken out during the 2013-14 academic year. However, if inflation increases (which is likely), the rates for brand new loans that are taken out in future years could be higher than the current rates. The rates would be fixed interest rate based upon the standard in place at the time the loans were approved.

    Some members of Congress are insisting that any market based rate program needs to include maximum caps.

    Other people think that Congress will not be able to come to a consensus and they will just agree to another one year extension of current rates. Congress never likes to agree to an extension of more than one year for most subsidies because it makes the federal deficit look worse.
    edited May 2013
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  • ttparentttparent 13 replies0 discussions Junior Member
    Market based is ok by me. In the end, this is not a handout and it should not be. If you want to give handouts, then appropriate money for it and justify it to the tax payers and not soak it from students who already are struggling to pay for education or unfairly punish current students during low interest rate period and reward others in higher interest rate environment.

    Student Loan Rates Boost Government Profit As Debt Damps Economy
    edited May 2013
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  • bluebayoubluebayou 34 replies0 discussions Junior Member
    Market based is ok by me.

    Are you sure?

    Market-based would also mean that market risk is involved. And in reality, what 'market' would loan an unemployed 19 year-old -- without the foggiest idea of how to pay it back -- any money at all?
    The spread between what the government pays to borrow and what it charges students has led to the Congressional Budget Office to forecast that the government will generate a profit this fiscal year of more than 36 cents off every dollar lent to borrowers.

    The government makes the most off graduate students, who generate nearly 64 cents in revenue for taxpayers off every dollar they borrow.

    Assuming the above is accurate, I don't have much concern from a policy perspective of making money of grad loans.

    But as I noted earlier, the program is cross-subsidized. In essence, grad students are subsidizing undergrads, and all educ borrowers are subsidizing the Pell Grant recipients.
    Much of that profit is directed at other student-aid programs...
    edited May 2013
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  • ttparentttparent 13 replies0 discussions Junior Member
    Yes, I am sure. It is still a government program not very different from what we have now. So the unemployed 19 year-old is taking a loan directly from the government (although some private companies are administering it for a fee). Leave the term the same, the loan is permanent and cannot be discharged through bankruptcy. Whatever cost is incurred to administer the program including cost from default or from death or other rare circumstances, then that is the premium that people need to pay.

    No commercial program can beat it since it is not for profit. It is fair and self contained. Banks and their lobbyists won't like it because they don't get into the action but that is a good thing for students.
    edited May 2013
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  • bluebayoubluebayou 34 replies0 discussions Junior Member
    It is still a government program...

    Then by definition, it is not market-based.
    Banks and their lobbyists won't like it...

    They are practically out of the loan game anyway -- educ loans were nationalized a few years ago. Private lenders typically require a co-signer.
    edited May 2013
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  • ttparentttparent 13 replies0 discussions Junior Member
    "But as I noted earlier, the program is cross-subsidized. In essence, grad students are subsidizing undergrads, and all educ borrowers are subsidizing the Pell Grant recipients."

    No, 64 cents of every dollar comes from grads but still by deduction, 36 cents must be coming from undergrads. Those Pell Grant recipients could be very well off after graduation while the other grads and undergrads students could be in a much worse off situation. Why is it ok that grads students or any students for that matter should subsidize the program?

    PS: the rate is market-based, that is the proposal on the table. And you can believe that the private lenders are trying to find ways to get back in the game every chance they get.
    edited May 2013
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  • undecided2014undecided2014 8 replies1 discussions
    I agree with ttparent.
    edited May 2013
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