I agree with this. The student loan program is yet another “wouldn’t it be nice” law that always has unintended consequences. Wouldn’t it be nice if everyone had a chance to go to college? Sure, but that fails to recognize the point that not everyone is qualified to go to college, and that the market doesn’t bear all of the college graduates in their major fields. It also provides these schools with access to fresh potential tuition money that jacks up tuition rates far beyond what their return on investment is.
I’m not saying the whole program should be abandoned, but the government should act like a bank and assess risk/reward when issuing these loans. Not everyone qualifies, and they are given sparingly to those people who show an intelligence to be able to succeed in college and in their careers, but who lack the financial means.
And part of that risk assessment is the major that the student chooses to take. I’m not saying that any particular major should be stricken, but obviously the ones with less job potential should be screened harder.
Take law; the market is flooded with lawyers. I recently graduated, and only the top 10% have firm job offers with the majority scrambling to find something. It does nobody (except the law schools) any good to continue to subsidize this and put young people in 6 figure debt. But, if there was an assessment done that showed that a particular applicant was very bright and likely to finish in the top 10% of his class, then that would probably be a good risk to loan him the money.
Same way with puppetry majors. The burden should be on the student to prove that he will be the best damn puppeteer ever and make him a lower risk.
There is no utopia where everyone is a successful white collar professional.
So fucking what? It can’t be a good idea to tie student loan rates to another interest rate just because someone from Harvard suggests it. Why is it a good idea?
No, what I need spelled out is why it’s a good idea for the country. As a student with a considerable amount of outstanding federal loan debt, I’ll be quite happy from a personal standpoint if interest rates are lowered.
That’s now how it works. A citation has been given. You now have to debunk the citation. Burden of proof was shifted to you guys, and none of you will actually do it, instead attacking the messenger repeatedly.
You don’t get to just pop up a new question out of nowhere until you’ve addressed what has currently been presented.
I’ve been seeing on ton of this on the Dope lately. What has happened to our people’s abilities to actually, you know, debate? I bet most of you don’t even realize that Honesty is winning. Granted, it’s from lack of anyone addressing her points, but still.
What happened to your ability to read? Honesty’s argument appears to be that it must be a great idea because Elizabeth Warren is behind it. I’m a huge fan of Warren, but that’s not how it works.
First of all, I made no claims about my background in finance. None. Secondly, you’re the one who got your facts wrong about which college she went to. Thirdly, those are papers about bankruptcy law and policy, not finance. Fourthly, people have already explained to you why this is a bad idea. Romney had a Law degree and a Business degree from Harvard. Does that make his ideas automatically good?
Mind-boggling indeed. Why don’t you stop telling us what a jolly good fellow she is, and tell us why you think this is a good idea.
Students should have complete luxury to decide their course of study: with their own, or their parents’, money.
Once you ask taxpayers to take a risk on a student, that student owes us something: an educational program that maximizes their ability to pay the loan back.
So you want parents to subsidize MORE kids’ education? (Most middle/working class families take out loans because their families don’t have the resources to pay for a 4 year education)
What I actually want is for every college to fire 2/3rds of their administrators. That’s the primary cause of price increases, is addition of highly paid staff that doesn’t teach.
It’s the same phenomenon we see in health care. Third party payers result in cost increases, waste, and no attempts to improve efficiency.
(bolding mine)
I’ve told you, but none of you have touched it with the exception of adahar who, to his credit, made at least a comment to Sen Warren’s speech. Let’s try this again:
[QUOTE=Sen. Elizabeth Warren (D-MA)]
Mr. President, on July 1st, the interest rate on new, federally subsidized student loans is set to double from 3.4 to 6.8 percent. That means unless Congress acts, for millions of young people the cost of borrowing money to go to college will double.
The student debt problem in this country is quiet growing crisis. Today’s graduates collectively carry more than $1 trillion in debt - more than all than outstanding credit card debt in the whole country. Doubling the interest rate on new student loans will just increase the pressure on our young people.
Keep in mind: These students didn’t go to the mall and run up charges on a credit card. They worked hard, they stayed in class, they learned new skills, and they borrowed what they needed to pay for their education. Their education will improve their opportunities in life, but their education won’t help just these students. When they acquire more skills, these students help us build a strong an competitive economy and strengthen our middle class.
Federal Reserve discount window at a rate of 0.75%. But this summer a student who is trying to get a loan to go to college will pay 7%. In other words, the federal government is going to charge students interest rates that are nine times higher the rates for the biggest banks - the same banks that destroyed millions jobs and nearly broke the economy.
That isn’t right. And that is why I’m introducing legislation to give students the same deal we give the big banks.
The Bank on Student Loan Fairness Act would allow students who are eligible federally subsidized Stafford loans to borrow at the same rate the big banks get through the Federal Reserve discount window. For one year, the Federal Reserve would make funds available to the Department of Education to make loans to students at the same low rate offered to the big banks. This will give students relief from high interest rates while giving Congress time to find a long-term solution.
Some may say that we can’t afford this proposal. I would remind them that the federal government currently make 36 cents in profit on every dollar in lends to students. Add up all of the profits and you’ll find that students will bring in about $34 billion next year.
Meanwhile, big banks pay interest that is one-ninth the rate the students will pay.
That is wrong. It doesn’t reflect our values. We shouldn’t be profiting from our students who are drowning in debt while we’re giving great deals to big banks. We should be investing in our young people so they can get good jobs and grow this economy, so let’s give them same great deal the banks get.
Some explain that we give banks exceptionally low interest rate because the economy is still shaky and banks need access to cheap credit to continue the recovery.
But our students are just as important as banks to a strong recovery. And the debt they carry also poses a serious risk to that recovery. In fact, in March of this year, the Federal Reserve said that, because of the economic impact on family budgets, high levels of student debt pose a risk to our shaky economic recovery.
If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class.
Let’s face it: Big banks get a great deal when they borrow money from the Fed. In effect, the American taxpayer is investing in those banks. We should make the same kind of investment to our young people who are trying to get an education. Lend them the money and make them pay it back, but give our kids a break on interest they pay. Let’s Banks on Students.
The Bank on Students Loan Fairness Act is my first standalone bill in the United States Senate. I’m introducing this bill because our students are facing a crisis. We cannot stand by a simply watch. This is about our students, our economy, and our values. The Bank of Student Loan Fairness Act is a first step toward helping young people who are drowning in debt.
Unlike the big banks, students don’t have armies of lobbyist and lawyers. They have only their voices. And they call on us to do what is right.
Thank you.
[/QUOTE]
Now! In addition to her speech, I think her idea is a good one because it ensures that students will always have the best deal on federal debt. Finally, floating the student interest rate is better than keeping it fixed. If you fix the student interest rate at a low rate (as it is now) it encourages people to enter college no matter what while a high rate (as it will be on July) will discourage people from entering college. In contrast, if you float the student interest rate, it’s rate would reflect the market, which would in turn encourage or discourage students from perusing a college degree (and perhaps going into a trade instead). I also think that student loans should be available to trade schools, based on the replies here, I think its an injustice that an auto mechanic/plumbers/etc can’t get a student loan to go to auto mechanic/plumbing school while puppeteers can.
Thank you for this information. This should be received with great relief by some posters who seemed to conclude that student loans primarily benefit college students at the exclusion of vocations. I hope that we can conclude that student loans benefit those who want to pursue college as well as those who want to be an electrician or an auto mechanic.
That’s a feature, not a bug. The Fed has stated that low interest rates will continue until the unemployment rate is 6.5% rate. This would mean that the student interest rate would be indirectly tied to the unemployment; high unemployment would lead to low interest rates encouraging people to go to school, in contrast, low unemployment and high interest rates would discourage people from going to school. In other words, Really Not All That Bright, the student loan rate would be an indirect but palpable reflection of the economy’s need for a skilled workforce.
Let me ask you a counter question: why should the rate be fixed? What benefits are there to charge vocational and college student a rate of 6.8%, without that rate reflecting the current economic realities.
Honesty
P.S. No one has yet to address Sen. Warren’s comments head on. I’m still waiting to hear where she was wrong, where she was being misleading in her statements, or what specific statements that were built upon faulty assumptions, with complete rebuttals.
Does the federal government actually make a $50B profit each year from the student loan program? There’s some odd accounting going on there, and it depends on the year. Some info here.
That doesn’t mean student loan rates shouldn’t be lower (or higher) for other reasons. However, why link them in any way to the Federal Reserve’s overnight loan rate? Why not lower? Or higher? Why not more grants instead? Or nothing at all? The current rate is arbitrary, but so is this. If want an overnight loan backed by collateral to pay off a college bill, I can already get a pretty low rate. It would be kind of silly, but I could do it. I don’t need a government program for that.
Not much, I’d say. The debt burden and even the debt to earnings ratio are fairly meaningless until you take the loan terms into account. From your cite:
Interesting paper, though. Thanks for posting that.
The federal government is already on the hook when students default. The federal government guarantees student loans and has been doing so for a long time. Before Obama got private lenders out of the student loan business, private banks were lending money at 6.8% that was non-dischargeable in bankruptcy *and * totally guaranteed by the fed in the event of a default. Pretty good racket, dontcha think?
But by all means, everyone continue being outraged that somebody wants to federal government to give a far smaller break than it already gives to all the ridiculous corporate interests out there.