Students aren't allowed to declare bankruptcy on their loans now, and if they stop paying their wages will be garnished. I think we those types of conditions the interest rate could be lowered a bit.
The bankruptcy prohibition is why you even see loans in the single digits.
You have a typical 18 year old with zero credit history and zero real income. You have a loan that may take many years to repay, but unlike a mortgage there is no house to repossess if the loan goes bad. You can't repo a degree.
A good exercise is to imagine that you're a lender writing checks with your own money. Would you even make loans to somebody majoring outside of STEM? What interest would you charge especially given other options for investing your capital? How would you have to adjust your interest rates if students were allowed to declare bankruptcy to discharge their debt to you?
> The bankruptcy prohibition is why you even see loans in the single digits.
No, the reason you see loans in the single digits is because the government is both the sole lender (since the Health Care and Education Reconciliation Act of 2010) and sets the rates by law.
What private lenders would accept was only relevant when there were private lenders.
> There are numerous private lenders that offer student loans.
Not federally subsidized ones; the program under which such loans were offered through private lenders in addition to directly by the government was discontinued several years ago (as noted in the grandparent comment.) The upthread comment was about interest rates on federally subsidized loans.
OK yes. That's correct. I think perhaps it's easy to read your comment and think that there aren't private lenders at all anymore. I just wanted to point out that this is not the case.
You're correct that private student loan lending is no longer subsidized and hence the rates tend to be higher.
Agreed. Private lenders wouldn't take the risk at a price most people would accept.
I believe this is the problem with getting the government involved in the loans. It obscures the true cost.
Who knows what the college system would look like today without federal funding? Maybe distance learning or a more focused associate degree would have developed.
> Students aren't allowed to declare bankruptcy on their loans now
If you mean they can't discharge the loans when they declare bankruptcy, this is a popular myth that, while it has some relation to fact, is not actually true -- it is difficult to discharge student loans in bankruptcy (and more difficult for some than others), but they are not impossible to discharge.
But loan payments delayed cost the loaner money. We also have loan forgiveness programs. You pay 10% of your income for 20 years and whatever you have left is forgiven.
You have a typical 18 year old with zero credit history and zero real income. You have a loan that may take many years to repay, but unlike a mortgage there is no house to repossess if the loan goes bad. You can't repo a degree.
A good exercise is to imagine that you're a lender writing checks with your own money. Would you even make loans to somebody majoring outside of STEM? What interest would you charge especially given other options for investing your capital? How would you have to adjust your interest rates if students were allowed to declare bankruptcy to discharge their debt to you?