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Are high student loan interest rates a form of tax on the middle class?

Are high student loan interest rates a form of tax on the middle class?


  • Total voters
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The recovery rate on the loans is an astounding 90 percent.

Which still means that only about $9 of principle is recovered for every $10 lent. What interest rate would then be required to simply break even?
 
Which still means that only about $9 of principle is recovered for every $10 lent. What interest rate would then be required to simply break even?

A couple of points:

1. It is a very remarkable rate of recovery when compared to the auto industry recovery rate of 40 to 60 percent. And those comparatively low rates are considered good. This is because of the harsh punishment that is imposed in case of default on student loans.

2. You have simply ignored that all of the loans do not default. If I recall correctly, 86 percent of them do not default at all.
 
A couple of points:

1. It is a very remarkable rate of recovery when compared to the auto industry recovery rate of 40 to 60 percent. And those comparatively low rates are considered good. This is because of the harsh punishment that is imposed in case of default on student loans.

2. You have simply ignored that all of the loans do not default. If I recall correctly, 86 percent of them do not default at all.

https://us.spindices.com/indices/specialty/sp-experian-auto-default-index

Auto loan default rate of 1.06% for calendar 2015.
 
Which still means that only about $9 of principle is recovered for every $10 lent. What interest rate would then be required to simply break even?

Actually I looked at those statistics again. You are wrong, the interest is included.
 
Actually I looked at those statistics again. You are wrong, the interest is included.

Of course interest is included - if you default then you fail to pay both interest and principle and if you do not default then you do pay both interest and principle. What a default rate represents is how much is principle and interest is not recovered.
 
That you don't give a damn about the suffering of others is meaningless.

You're engaging in opinion again with absolutely no facts to back your assertion. Like I said, if you want to engineer social policy there are better ways to do it than giving kids loans. The problem with giving them cheap or free money is it does nothing to reduce the cost of education. It only serves to drive the price higher for everyone.

The reason that we have government is to ensure that people are not victimized by fools, under the influence of greed, who want to usurp all of the resources available to human society for their personal aggrandizement. It is not there to facilitate such idiots in their stupid endeavor. The purpose of the government making the loans should therefore be to facilitate education, nothing more. It should not be a money making scheme devised by people with the mentality of loan sharks to give an excuse to lower taxes for the wealthy.

But how does increasing the cost of education facilitate it? :confused:
 
You made a general statement concerning interest rates when you said no rate was too high if the borrower agreed to pay. That is a bogus bunch of baloney because if we take that as true then the ridiculous notion of someone agreeing to pay 1000 percent interest on a loan, because someone held a gun to his head and threatened to kill him if he didn't agree, would become acceptable. So your statement was bogus.

Well, if someone is holding a gun to your head you're under duress and not really agreeing to pay it. No one, to my knowledge, is holding a gun to anyone's head to take out a student loan. So, in point of fact, your argument is a bunch of bogus baloney.
 
It is not absolutely true, but it is generally true these days. Otherwise you will be stuck in some service job flipping burgers.
Absolutely false. People that give a crap and have a minimal amount of ambition will find a way. Those that don't will just whine about the rich and demand $15 an hour to flip burgers.
 
Of course interest is included - if you default then you fail to pay both interest and principle and if you do not default then you do pay both interest and principle. What a default rate represents is how much is principle and interest is not recovered.

No, I referred to recovery rates. The recovery rates of 90 percent and above include, contrary to your earlier assertion, interest.
 
No, I referred to recovery rates. The recovery rates of 90 percent and above include, contrary to your earlier assertion, interest.

One last try - if you recover only $9 of every $10 lent then you are, in fact, losing money. Why is that hard to understand?
 
You're engaging in opinion again with absolutely no facts to back your assertion.

No, the fact is that you said if you are a lender all you care about is whether they repay the loan, REGARDLESS of coercion. IF THAT IS THE CASE, then you don't give a damn about the suffering of others. That is a fact.

But how does increasing the cost of education facilitate it? :confused:

The practice of fractional reserve banking has resulted in higher prices across the board. How has it facilitating the purchase of them?
 
One last try - if you recover only $9 of every $10 lent then you are, in fact, losing money. Why is that hard to understand?

Why is it hard for you to understand that the overwhelming majority do not default? And that your statement is false. You lend the principle. The 90 percent is 90 percent of principle PLUS interest. Do you get it?
 
The government is not a private entity and it is good they are making the loans. What is not good is that they are trying to charge interest rates that are unnecessarily high. Because the government has resources at it disposal that far exceed the capabilities of private lenders, it can provide rates much lower than what private lenders are reasonably capable of. That is good because the government can thus facilitate the educational needs of citizens, while at the same time lowering their debt burden. The less debt that students have when they graduate, the more they can spend on consumption in the private sector which stimulates the economy.

Again, since extending cheap credit does nothing to address the cost side any presumed benefit is illusory. It also results in a misallocation of resources as more of society's wealth is piled into higher education to dubious ends. I mean, even without free education we're turning out more liberals arts grads than we need simply because it's a less daunting academic track than fields with better prospects for employment, such as math, engineering, and science. Many of these students would probably be better served by learning a trade, but we've sold them on the idea that a college education is always the path to prosperity. It's not.
 
The recovery rate on the loans is an astounding 90 percent.




want to do some simple math?

lets use your 90% recovery rate for defaults

lets use 25k as an average student loan

lets use 6% as the rate the government charges

for every one default....how many perfect loans does the government need on their books?

now look at the total number of student loans outstanding.......

now take your 90% recovery rate

is the 6% rate covering the defaults? yes or no?
 
want to do some simple math?

lets use your 90% recovery rate for defaults

lets use 25k as an average student loan

lets use 6% as the rate the government charges

for every one default....how many perfect loans does the government need on their books?

now look at the total number of student loans outstanding.......

now take your 90% recovery rate

is the 6% rate covering the defaults? yes or no?

You run someone's business and you said that? That recovery rate includes interest and is 90 percent of the defaulted loans only. Most of them do not default. As such, it more than covers the principle that was lent.
 
Why is it hard for you to understand that the overwhelming majority do not default? And that your statement is false. You lend the principle. The 90 percent is 90 percent of principle PLUS interest. Do you get it?

Yes, I get that. My point is that a 3% interest rate does not make up for a 10% default rate. Just like any business, the fact that most (even 90%) customers do pay for their goods does not mean that shoplifting (or spoilage on the shelves) makes no difference. The mark-up, in this case the interest rate, must at least cover the losses (defaults) or the business cannot survive. That is why the same money cannot simply be re-lent as it is repaid and the taxpayers must pony up ever more each year in order to make new student loans.
 
Yes, I get that. My point is that a 3% interest rate does not make up for a 10% default rate. Just like any business' the fact that most (even 90%) customers pay for their goods does not mean that shoplifting (or spoilage on the shelves) makes no difference. The mark-up, in this case the interest rate, must at least cover the losses (defaults) or the business cannot survive. That is why the same money cannot simply be re-lent as it is repaid and the taxpayers must pony up ever more each year in order to make new student loans.

The recovery rate is 90 percent on the defaulted loans and includes interest. As such, it makes up for the TOTAL principle, non default and default, that was lent.
 
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You run someone's business and you said that? That recovery rate includes interest and is 90 percent of the defaulted loans only. Most of them do not default. As such, it more than covers the principle that was lent.


yes...i am in the car business

and "recovery rate" used by the guys i know in finance, means what % of the loans they get paid on after repossessions, auction fees, towing fees, etc

so ie a 10k auto loan with a 90% recovery rate means they get back 9k on average for those loans

i dont work for the government, but my assumption is everyone in the finance loan business uses the same meaning for the same terminology

of course "most" of them dont default.....

but the interest your daughter pays on her loan, and everyone pays on their loans, covers those that do default

what is total interest paid on her note? do you know?

it doesnt take too many defaulted loans at 25k-30k to eat up her interest paid, plus others

but...it doesnt matter

i'm done with this.....you keep bitching about the rate she is paying

and i'll send you a quarter.....call someone who freaking cares
 
No, the fact is that you said if you are a lender all you care about is whether they repay the loan, REGARDLESS of coercion. IF THAT IS THE CASE, then you don't give a damn about the suffering of others. That is a fact.

Now, in addition to engaging in opinion, you're putting words in my mouth. If I engage in coercion to get someone to agree to terms he otherwise wouldn't agree to, doesn't that evolve my "loan" to something else, like extortion? On the other hand, since I'm not the government or a moron, I wouldn't extend a loan ahead of time knowing that it wouldn't be repaid. When I want to exert social change I give to charity.
 
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The recovery rate is 90 percent on the defaulted loans and includes interest. As such, it makes up for the TOTAL principle, non default and default, that was lent.

You can't exclude the cost of collections and things like forbearance and forgiveness. These are costs, and they're born not by the government as stewards of the public trust, but by taxpayers.
 
You can't exclude the cost of collections and things like forbearance and forgiveness. These are costs, and they're born not by the government as stewards of the public trust, but by taxpayers.

That 90 percent recovery rate includes collection costs. Actually the real recovery rates exceed 100 percent. Its just that when you account for collection costs, etc. it comes down to 90 to 95 percent, depending on the type of loan.
 
That 90 percent recovery rate includes collection costs. Actually the real recovery rates exceed 100 percent. Its just that when you account for collection costs, etc. it comes down to 90 to 95 percent, depending on the type of loan.

The other thing you're excluding is this: Are these loans an efficient use of resources? Let me give you an example. I work in the casino industry. There's a local casino school that recruits from the state employment office. It gets young welfare moms to sign up for all of the casino games for a cost of about $9,000, even though they could probably get a job just knowing craps or roulette and blackjack. Then the school passes them whether they know the material or not. The casino hires them because they have a financial incentive to do this, but very often these people don't even make it through their 90-day probationary period because they're completely clueless. In every instance these students require considerable remedial training. Only a couple of casinos (break-in houses) will even hire them now. So they end up saddled with all of this debt that many of them can't repay, while the owners of the school are making bank. It's a racket. In fact, most of the defaults are occurring with these trade and vocational schools.
 
And let's get back to the faulty premise of your poll--that federally-guaranteed student loans are "high." Thanks to the way government does its books, whatever profits you think the government is making on these loans are vastly overstated. Basically, to arrive at the cost of the loans, the CBO discounts the "net present value of the future federal cash flows" over the life of the loan. The CBO takes the term of the loan and compares is to a Treasury bond or note of a like term. No other lender, to my knowledge, does this. In essence, CBO is making the case that your daughter is just as likely to repay her loan as the federal government is to repay its loans, and this clearly isn't the case. So when we read a headline like "Government soaking college kids to the tune of $50 billion!" that's just bogus.

One more thing. In spinning this fairy tale, the CBO does not consider administrative costs. As we all know, it take a lot of bureaucrats at the Department of Education to administer these loan programs. In any case, if you look at a CBO breakdown, the government loses money lending to undergrads. Whatever "profits" will accrue over the next ten years will likely come from parents and graduate students.

https://www.cbo.gov/sites/default/files/cbofiles/attachments/44198-2015-03-StudentLoan.pdf
 
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The other thing you're excluding is this: Are these loans an efficient use of resources?

If you really want to get into it, the whole educational system is very inefficient and needs radical overhaul. That is another subject. The interest rates that the government is charging are too high.
 
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