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Are student loan interest rates to high?

Are student loan interest rates to high?


  • Total voters
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I thought I would check on the current interest rates reported for student loans. This is what I found.

https://studentaid.ed.gov/about/announcements/interest-rate

These rates appear to be different from the 8.5% rate you've posted. Why is the rate you're showing higher than what I see in the table?

I had posted earlier the rate range that you posted. In addition, there is a certain type of loan that a parent might take out to, for example, send their kid to medical school, or a graduate student. It is called a Federal Plus loan and that rate is a whopping 8.5% regardless of creditworthiness. That is a 6 percent spread over the highest rate the the government borrows money. It is gouging, no doubt about it.

https://studentaid.ed.gov/types/loans/interest-rates
 
Absolutly.

But I doubt that we will ever see the 18% prime rate again. Interest rates are a function of inflation and tend to follow inflation closely. The high inflation rates that we were experiencing during the late 70s and early 80s were the result of cost push inflation due to OPEC embargos which resulted in oil going from $12 to $80 in less than five years.

I hope we don't see 18% again, but I don't know. I didn't think oil prices would drop as fast as they did either.
 
I hope we don't see 18% again, but I don't know. I didn't think oil prices would drop as fast as they did either.

From the Bush era oil high, oil would have to go to $950 a barrel to match the rise in price we saw during the Carter/early Reagan era. With US oil production increasing, I doubt that's going to happen again. OPEC isn't the cohesive alliance it used to be and will probably never be again.

Double digit inflation is possible, and that would cause double digit interest rates, but neither are likely.
 
How does one gain acceptance into College without a basic grasp of math and english?
I'm fairly sure that the community colleges in my area provide what are basically remedial courses for people with issues math and such.

High school algebra and earlier, even.
 
Sally Mae. That sounds like a Sally Mae private loan.
Guess I got lucky on the one I let myself get maneuvered into.

As I have a Sallie Mae private loan with less interest than that.
 
I'm fairly sure that the community colleges in my area provide what are basically remedial courses for people with issues math and such.

High school algebra and earlier, even.

Quite right. I was referring though to 4 year colleges and universities.
 
Guess I got lucky on the one I let myself get maneuvered into.

As I have a Sallie Mae private loan with less interest than that.

It all depends on who holds your sallie mae loan. As they are private, they can varry greatly. My wife has four, all through sallie mae. some are only 6 percent, some are 13 percent.
 
From the Bush era oil high, oil would have to go to $950 a barrel to match the rise in price we saw during the Carter/early Reagan era. With US oil production increasing, I doubt that's going to happen again. OPEC isn't the cohesive alliance it used to be and will probably never be again.

Double digit inflation is possible, and that would cause double digit interest rates, but neither are likely.

What is happening now is that we have used to reserve currency status of the dollar to export our inflation over to places like China. However, interest rates are about to rise and that will cause capital to flee such foreign markets and return here. Not only that but countries like China, India, Russia, and Brazil are making strong moves to trade amongst themselves without the dollar. The amount of traction that such events get may determine a corresponding amount of inflationary pressure on the dollar. Unless of course the Fed decides it is better to have another Great Depression or worse.
 
It's not gouging, but the government makes a profit off of student loans and almost every one eventually repays their loans in full with interest so there is really little risk factor to the government.

I find that the student loan program is a reasonable compromise, between the federal tax payer having to subsidize individuals college or having a nation without ample college graduates - but there is no reason that the government has to run the program at a profit, and no reason that student loans can't be made at the same rates that banks can borrow money at.

So how much does it cost the government to make these loans? To my knowledge, they are all administered by service providers, who obviously have to be paid.

Have you seen any figures on what it costs to oversee these loans over their lifetime?
 
A six percent spread is gouging.

Why? How much does it cost for these loans to be made and serviced? The article in USA Today provided the attractive headline, but read into the article and it indicates there is very little to no profit to the government - Like so many things, it depends on how one wants to apply the accounting.

Frankly, I'd like to see the colleges and universities, the true gougers, taken to the mat over their outrageous screwing of students. It seems to me, the forces have been directed to go after the wrong villain.
 
I had posted earlier the rate range that you posted. In addition, there is a certain type of loan that a parent might take out to, for example, send their kid to medical school, or a graduate student. It is called a Federal Plus loan and that rate is a whopping 8.5% regardless of creditworthiness. That is a 6 percent spread over the highest rate the the government borrows money. It is gouging, no doubt about it.

https://studentaid.ed.gov/types/loans/interest-rates

What percentage of student loans fall into this highest rate category? Seems to me it would be a small number relative to all the others. If that is the case wouldn't it be inaccurate to imply there is a 6% spread on student loans?
 
It all depends on who holds your sallie mae loan. As they are private, they can varry greatly. My wife has four, all through sallie mae. some are only 6 percent, some are 13 percent.

If your wife has a 13% Sallie Mae loan, it's because she is deemed a credit risk.
 
Absolutly.

But I doubt that we will ever see the 18% prime rate again. Interest rates are a function of inflation and tend to follow inflation closely. The high inflation rates that we were experiencing during the late 70s and early 80s were the result of cost push inflation due to OPEC embargos which resulted in oil going from $12 to $80 in less than five years.

I, on the other hand, don't doubt that anything is possible.

Interest rates may never get to 18%, but they won't be as low as they are today much longer. That's why banks that historically kept their residential loans in portfolio are selling on the secondary market at record rates this year. Nobody wants to be sitting on a boatload of 30 year fixed 3.25% loans.
 
Guess I got lucky on the one I let myself get maneuvered into.

As I have a Sallie Mae private loan with less interest than that.

Since the inception of Sallie Mae over 40 years ago they have been the best route to take to get great interest rates on student loans. Anyone who has a Sallie Mae loan with a high interest rate has credit problems. Their credit scoring is actually much more lenient than most models.
 
You care to prove me wrong?



That is exactly what you support by defending the high interest rates.




Your reading comprehension is lacking. I am not cheering student loan programs. I am criticizing the high interest rate that allows the DoE to take in tens of billions of dollars from struggling young citizens. That is a perfectly libertarian position.

I don't even understand what you're trying to say. How do lower interest rates lead to high rates?

And how does the DoE take in tens of billions of dollars from "struggling young citizens"? The "struggling young citizens" want to borrow money from the government (which should not be in the lending business to begin with) or government sponsored entities. What is the Constitutional right that "struggling young citizens" have to cheap loans from the government - or anyone for that matter?
 
That seems reasonable to me.

I agree, but the problem will be that we will see another mass of failed loans, like we did starting 10 years ago or so when the simpletons who took adjustable rate loans all of a sudden couldn't make their payments anymore. They'll whine and complain and say they didn't understand the agreements that they signed, and then the current administration will step in with a "bailout" program, and call the lenders "predators".
 
I agree, but the problem will be that we will see another mass of failed loans, like we did starting 10 years ago or so when the simpletons who took adjustable rate loans all of a sudden couldn't make their payments anymore. They'll whine and complain and say they didn't understand the agreements that they signed, and then the current administration will step in with a "bailout" program, and call the lenders "predators".

When inflation is high, it becomes easier to repay fixed rate loans because the principle get's deflated. What happens with fixed rate loans is that a little extra interest is added in to protect the lender from the possibility of the inflation rate increasing in the future, the adjustible rate loan doesn't have to have that extra interest built in, so rates can be lower at the time it is issued.

Is it harder for a brand new college graduate getting his first entry level job to pay his student loans, or someone who has been in the workforce for year and who's income is near the top for their field, to meet their student loan obligations?

We have to remember that when inflation increases, just about everything increases, including income. During the high inflation years of the late 70s and early 80s, my parents were getting 5-8% cost of living raises twice a year instead of 2-3% once a year. If this didn't happen, then we would all still be making 25¢ an hour.
 
Why? How much does it cost for these loans to be made and serviced?

Since you know something about accounting, what exactly do you think the loan fees that are attached to the loan are for? Are they there just for the hell of it?
 
When inflation is high, it becomes easier to repay fixed rate loans because the principle get's deflated. What happens with fixed rate loans is that a little extra interest is added in to protect the lender from the possibility of the inflation rate increasing in the future, the adjustible rate loan doesn't have to have that extra interest built in, so rates can be lower at the time it is issued.

Is it harder for a brand new college graduate getting his first entry level job to pay his student loans, or someone who has been in the workforce for year and who's income is near the top for their field, to meet their student loan obligations?

We have to remember that when inflation increases, just about everything increases, including income. During the high inflation years of the late 70s and early 80s, my parents were getting 5-8% cost of living raises twice a year instead of 2-3% once a year. If this didn't happen, then we would all still be making 25¢ an hour.

I know a lot of people who started paying their student loans 9 months after graduating and starting their new jobs. Nobody said it was easier for new graduates to pay, but pay they did. In fact, most of them do pay, as agreed, and on time.

As far as the inflation discussion, I wasn't talking about inflation in terms of the impact on the borrowers, but rather inflation as it impacts the lenders who would be holding on to loans at very low rates for too long.
 
What percentage of student loans fall into this highest rate category? Seems to me it would be a small number relative to all the others. If that is the case wouldn't it be inaccurate to imply there is a 6% spread on student loans?

No it is not inaccurate if the government is actually charging that rate. There is nothing inaccurate about it at all. Actually the 2.5 percent was the highest amount of interest that the government has to pay. But lets take the time to actually look at it in detail since you want to go into it.

Let's assume that the average length of a loan is ten years. The government pays 1.93 percent to borrow money for that long. Here's how the spread looks

1. Student loan interest 4.66 -> 2.73 percent spread
2. Student loan interest 6.21 -> 4.28 percent spread
3. Student loan interest 7.21 -> 5.21 percent spread
4. Student loan interest 7.90 -> 5.97 percent spread
5. Student loan interest 8.50 -> 6.57 percent spread

The thing is this, the government should not be charging student loan customers any more interest on those loans than the interest that the government has to pay. They are already attaching fees to the loan that should cover servicing costs.
 
No it is not inaccurate if the government is actually charging that rate. There is nothing inaccurate about it at all. Actually the 2.5 percent was the highest amount of interest that the government has to pay. But lets take the time to actually look at it in detail since you want to go into it.

Let's assume that the average length of a loan is ten years. The government pays 1.93 percent to borrow money for that long. Here's how the spread looks

1. Student loan interest 4.66 -> 2.73 percent spread
2. Student loan interest 6.21 -> 4.28 percent spread
3. Student loan interest 7.21 -> 5.21 percent spread
4. Student loan interest 7.90 -> 5.97 percent spread
5. Student loan interest 8.50 -> 6.57 percent spread

The thing is this, the government should not be charging student loan customers any more interest on those loans than the interest that the government has to pay. They are already attaching fees to the loan that should cover servicing costs.


it is called a contract

it is between two parties (student and government)

neither is being forced into the situation

sorry....but maybe the degree in basket weaving from podunk college wasnt the best way to spend 60k

that isnt the feds problem.....that is the students

two of my kids are paying off college loans, and having zero issue doing so

but then again, they kept their balances low, and their stem degrees pay well on the outside

first you all bitched because there was no program.....now you are bitching because you think it should be free

grow up......
 
it is called a contract

So what? That does not mean that student loan customers should not be allowed to refinance their loans.
 
So how much does it cost the government to make these loans? To my knowledge, they are all administered by service providers, who obviously have to be paid.

Have you seen any figures on what it costs to oversee these loans over their lifetime?

I thought the govt was servicing the loans now - that they took them back from private banks. But I could be wrong.
 
Since you know something about accounting, what exactly do you think the loan fees that are attached to the loan are for? Are they there just for the hell of it?

I would assume they are what they appear to be. Do you think the loan servicers are paid up front for 30 years of loan servicing, since loan fees are applied to the whole loan amount?

And what about the 8.5% loan rate you have been referring to? That rate only applies to a small percentage of the student loans being generated. I think you lose some credibility to your argument when you try to suggest all student loans fall into that category, with 6% spreads.
 
I thought the govt was servicing the loans now - that they took them back from private banks. But I could be wrong.

This is what I learned, after looking into it as a result of this thread.

https://studentloans.gov/myDirectLoan/additionalInformation.action

Loan Servicing.JPG
 
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