End origination fees on student loans

All it does is push students further into debt. The government and banks are already making a killing on the interest. There is no need for an extra fee at the beginning.

Are there origination fees on federal loans?



What makes student loans such that they deserve special treatment that other borrows would also enjoy ?

Well, student loans are a public good since they improve the skills of the workforce. And unlike nearly all other loan categories, they are underwritten by the government (which doesn’t need to make money) instead of the private sector. That said, I don’t know why we should single out origination fees versus interest rates.

And the banks will then increase the interest rate to compensate for the lost revenue. Net savings = 0, maybe even negative since the banks have to compensate for lost fees they’ll never recover from bad loans.

In theory, anyway. In reality, there are a lot of politicians from Congress to town councils who need to make money, and are looking for ways to do it.

While I think that student loan debt is becoming a major problem that people can’t simply afford, I’m not sure it’s useful to quibble over a 1% fee. Even if you get one of the less advantageous Direct Plus loans, it’s still just over 4%. A good chunk of change, but if you’re $250,000 in debt, would you feel better if you were only $240,000 in debt?

They are often serviced by someone else.

I thought the DOE had brought all federal loan servicing in-house.

Doesn’t that depend on what they study?

Student loans are not a public good. Almost all of the value of college education is signalling. Encouraging people to engage in expensive signalling does nothing to improve the skills of the workforce and wastes money. All of the marginal value of the credential is captured by student. Lowering the cost of college loans makes more marginal students sign up for them and many of those students will end up incurring the debt and not even earning the credential.

An individual loan is not a public good, just as a fire truck putting out a single fire is (generally) of no public benefit. The student loan program is a public good.

Are they? Is $120k and 4+ years of time for a BA in women’s studies worth the investment? Coffee isn’t that hard to pour.

The entire government help of loans and grants to higher education is just an excuse for the universities to raise their prices. Simple example:

[li]Assume students at a school pay 10,000 per year in year 1. [/li]
[li]Then the feds in their desire to be helpful gives everyone at the school grants of $ 2,000 per year.[/li]
[li]In year two the University says wait a minute. Last year all those families were paying 10,000 and now they are paying 8,000. That not right !!! We deserve what they can pay and it is 10,000, so they raise their fees to 12,000.[/li][/ul]

Then what happens is that cycle repeats itself over decades and the costs go up and up. I know this is a simple illustration but i am making a point that is true. Universities set their fees based upon the grants and loan monies received per each student. I’ve paid college bills and seen the game close up. It is a gigantic system designed to extract as much money as possible from the families paying the bills.

I know, I know, I know. All the educational people here in the SDMB here will disagree with me for one reason or another. Of course they will, none of them want the gravy train to end.

Of course they are. Pointing to an example of when it’s not worth it does not negate the examples of when it is. Otherwise you might as well say that the military is not a public good since we spend $300 million per year on the service bands (as in musical ensembles) when we could just play marches on an iPod.

That is not to say that maybe the feds shouldn’t be a bit more picky about the loan process as it relates to the career prospects of the candidate and chosen degree program.

This is not true at all. In Gulliver’s Travels one of the societies he visits chooses its government ministers by their ability to perform a dance. If this custom were to be imported here, then the next thing you would expect to happen is for people to start opening dance studios. Since government minister jobs are valuable, good dance instructors would charge a good amount. This would be unfair to poor people who could not afford to take dance lessons. Thus dance instruction loans would be popular. Since these loans would be expensive, Congress would likely to tempted to start a dance instruction loan program. Would it be a public good? No, it would encourage inflation in the dance lesson fees and provide no public benefit at all.
Thisis the same thing that is happening in the college loan program. The loans just make college more expensive, an individual loan may be a good thing to an individual but the program just funnels money to colleges without providing anything in return.

If you believed that colleges only taught dance, that would be a reasonable metaphor. But nobody who has actually been to a college believes that. Yes, some of the value of a degree is that it looks nice on a resume. Believe it or not, however, they do actually teach students too.

To stretch the metaphor even more, isnt the real problem that there isnt a federal dance exam you can just take. Allowing you to learn and practice in whatever way your life lets you.

It speaks very sadly of the US, even worse when they tax it or add a fee onto it.

I entirely agree. Doubtlessly many people who supported the creation of Stafford and Perkins loans thought they were doing a good thing and helping the poor attend college. In reality they pushed prices up and left those they intended to help with a mountain of debt.