<p>"To a certain extent, the more that the government is willing to lend, the more that the colleges will charge. So addressing student loan interest rates doesn’t really solve the problem – in a way, it may simply encourage students to borrow more, in the same way that lower mortgage rates empowers home buyers to sign to buy more house for the same monthly payment. "</p>
<p>This is why I didn;t join the applause for Sen. Elizabeth Warren’s call for lower interest rates on student loans. If you make something cheaper, people will “buy” more of it. But students (and parents) don’t really need more college debt. They need more affordable college. If I have zero money in the bank and a new iPhone costs $400, I can’t buy it. If I get a new credit card in the mail, with a $400 limit, the iPhone didn’t become more affordable, even if now I feel like I can “buy” it.</p>
This is what the report I cited in post #13 discusses. Guaranteed private loans required a larger federal subsidy than direct loans, based on either risk-adjusted or U.S. Treasury discount rates.
<p>“In 2010, Congress passed and the President signed into law a bill that eliminated the FFEL program for all new loans made as of July 1, 2010. All federal student loans have been made under the Direct Loan program as of that date. The Congressional Budget Office estimated that the elimination of the FFEL program under the law would generate $68.7 billion in savings over the next ten years. These savings were used to increase funding for the Pell Grant program.” - New America Foundation</p>
<p>I feel like a broken record, but again and again, people make the assumption that there’s lots of need-based grant aid out there, but this is simply untrue. You need to go look at net price data on IPEDs, or run some net price calculators, to see that at most, if not the majority of schools, there is very little need-based aid. There’s lots of aid in the form of ‘merit’ that is tied to test scores/gpa, but besides a handful of colleges with billions in endowment, there is very, very little need based grant aid out there. </p>
<p>Tuition at a state flagship is very, very affordable for most of what people on this forum call ‘the middle class’, especially when merit money is in the mix. I can’t believe how much complaining there is from this group of people about college costs. </p>
<p>If you eliminate loan programs, it will really affect lower income people the most, not the ‘College Confidential’ middle class.</p>
<p>I think those who are most vocal are often from the parts of the country where state flagships aren’t considered “good enough” or are considered a significant step down from the “real” (e.g., private) colleges. Which is unfortunate, but there’s no god-given right to be able to attend a pricey private college, and there really isn’t any state that doesn’t have SOME decent public flagship.</p>
<p>I don’t agree with characterizing the difference as profits, with or without quotation marks. Based on CBO’s figures, the guaranteed private loan program cost the federal gov substantially more than offering the loans directly, but both still required a positive subsidy after accounting for risk. Savings are not profits.</p>
<p>When the government charges a fee to one citizen and uses some of the proceeds of that fee to fund a “subsidy” to defray the cost of another citizens education - I call it a “tax.”</p>
You can look up the breakdown of federal tax revenues. Hint: “middle-class college students” don’t pay most taxes.</p>
<p>(Not sure how much further we can go down this road before the topic slides away from educational funding and gets political, which = thread closed. I’d rather not do that.)</p>
<p>Here’s the thing: if you can get a better deal on a loan, go on ahead and do so. If you have a HELOC at 1-2% take it, and get some term life insurance. Also you are taking the risk that if your student teaches or does some program that takes him off the hook for some of the loan, it won’t happen, but all in all, if you have a lot better options in loans, take them. </p>
<p>The fact of the matter is that most people are not going to be able to borrow that kind of money for a UG degree. Not worth it to the banks. These days most of us cannot get an unsecured loan of any large amounts, and kids are certainly not going to get $30K+ in credit that they can defer till 6 months after graduation before starting to pay on it. Look at what’s out there and you will see what I mean. An 18 year old is going to need cosigners for even secured car loans/ So, yes, the loans are out there due to the government subsidization. And, yes, the lenders are making out, which is why they are lending out the money. Interest rates are not even a percent these days on money in the bank.</p>
There is no maximum on parent or graduate PLUS loans. I do understand that Warren’s proposal was directed to the Stafford loan programs – but those aren’t the source of the problem, precisely because of the caps. (I understand that it would be better for a kid to borrow $20,000 at 3.4% interest rather than 6.8%, but the difference between a year’s worth of interest at the higher vs. the lower rate is $700. With interest and payments deferred while the student is in school, that’s still a pretty good deal - if you really want to be honest about the rate, you should factor in the value of ~4 years at -0- interest). </p>
<p>My perspective on the problem has changed somewhat now that my kids & their peers are in grad school, and I am seeing young twenty-somethings being confronted with taking on 6 figure loan debt to pursue a professional or semi-professional degree.</p>
<p>I work with 20- and 30-somethings who took on six-figure debt to go to law school – and they aren’t working at a law firm, so they aren’t getting attorney wages and bonuses. They are renting and delaying having kids. </p>
<p>This can’t be a good long-term answer to the expense of college, to have the wages of a generation or two devoted to paying back loans for a decade or longer.</p>
<p>Still the combination of Pell grants (at most about $22,000 over four years) and Stafford loans (at most $31,000 over four years) covers only a small portion ($53,000, or 22%) of the $240,000 list price at the most expensive colleges. It certainly seems like there is a lot more than just the government subsidies (Pell grants) and government loans (Stafford loans) that enables the colleges to keep raising their list prices. Even if these government programs disappeared and the colleges lowered their list prices by that amount (not a likely scenario!), $187,000 would still be a lot of money.</p>
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<p>Yes, the “middle class” that won’t get financial aid anywhere… how do the other 95% of the people live (and afford to send their kids to college)?</p>
<p>There’s a lot of ignorance in this thread about credit markets. The DLQ90 rates (delinquency of > 90 days) rates on student loans are 11+%. Claiming ‘pure profit’ of 49 cents on the dollar(impossible) without calculating credit risk on a credit portfolio is asinine. Student loans are more delinquent than CREDIT CARDS(typically around 9% charge off) these days.</p>
<p>The fact of the matter is 3.4 (and even 6.8%) rates for undergrads are insanely low for this kind of portfolio performance. Granted, people shirk their CC responsibility all the time with bankruptcy and student loans are not, the recovery rates on delinquent accounts are roughly comparable due to the time delay in recovery, so the interest rates on student loans should realistically be 12-30%. There is no ‘profit’ at all. </p>
<p>Prior to the Healthcare law, no private lender ever would’ve been giving out this money without the bankruptcy protection (for the lender) and the explicit government backstops on the money. Now the governments the only one who originates unsecured student loans. This is INCREDIBLY subsidized so please stop saying ‘Direct subsidized loans’ is a misnomer.</p>