what are you saying? do you want lower rates?
if the borrower puts up collateral, maybe they can get lower rates?
if you don’t pay your mortgage, the bank can take your house. What happens if you don’t pay student loans?
You can’t buy a house. Banks have mostly stopped making loans to borrowers with a Z- credit rating, and getting a mortgage is tough if you have $100,000 in student debt.
The point remains though. A house still has value even if the current owner does not repay her loan, and that value reduces risk to the lender.
What value can be extracted from a student loan recipient who is unable to pay?
I personally know more than a couple of graduated students working at jobs at $40K ± that don’t think they can pay their loan amounts each month and feel it is a big struggle. Are you kidding? You don’t have a problem driving that new SUV, carrying Coach pocketbooks, and eating sushi on Friday nights at the very $$ restaurant down the street. Try sharing an apartment with a few friends and getting a second job.
The American taxpayers pay it for you. (Clear example of a moral hazard.)
Besides the action that is in the subject of this thread, wage garnishment? Or tax refund?
Wage garnishment works for those unwilling, but of course doesn’t for those that are unable (e.g. unemployed, disabled, or deceased).
In other words, a student loan is an unsecured loan. Normally, unsecured loans have high interest rates to reflect the higher expected losses compared to a secured loan.
“deceased”…
Federal loan balances are eliminated when the student/borrower dies. (But not necessarily private loans.)
The loan balance may be eliminated, but the lender still incurs a loss.