Student Loans

[Teflor Lyorian]

This is an interesting piece that probably belongs in the General Discussion board, but there's a slight tinge of politics to it, so here you go:

[Corth]

Government subsidized student loans CAUSED tuitions to far outpace inflation. All that money sloshing around had to end up somewhere. The subsidies are generally government guarantees to private lenders that loans will be repaid. And of course removal of normal protections available to debtors. It was insanely profitable to lend to students - and safe. So lend they did.

In a market economy there would have been less money available for student loans, much higher rates, much lower tuitions, and significantly fewer students. Fewer students being a good thing. How well educated do we need our McDonalds clerks to be? But at least people would still have the opportunity to work their way through school if they were hard enough workers and had enough drive to do so. With tuitions at private universities in the 40k range working your way through school without debt is a pipe dream.

[kiryan]

Pretty much agree with everything.

I'll add this, the government should not be competing with private enterprise... the government should not be looking for a profit. The government can (and does) change the rules so it benefits.

I was involved with a computer club at school, we were building computers and selling them to local folks so we could buy new computers for the classroom and have parties. You can look at it as a great educational / vocational program that benefits the consumer with lower costs or you can look at it as unfair, subsidized competition that destroys business (free building, free labor). It was both, just depended on your "interests".

Its a bad idea for government to be involved in lending because they can't discriminate. Discrimination is necessary to keep costs low, you must discriminate against unworthy borrowers which disproportionately affects minorities in America today. There are claims that congress basically told Fannie and Freddie that they need to make more minority loans because they had a lower % of home ownership... well they did increase it by like 8-10% over the course of about 15 years, but today minorities have the highest default rate by a large margin. As a private lender the way you get around this is you don't open offices in ghettos. Horribly unfair I'm sure, but this isn't about fair, its about making money by lowering costs.

Lets say you have 250k to loan and you want to get in the student loan business. Would you make a loan to the medical student accepted to Harvard or the Fabric Art major at a state school? Can you imagine the outrage if the government priced the Fabric Art major at a higher interest rate than an MBA? Yet this is probably what should happen (would need to depend on statistics, maybe its the opposite from a business sense, I don't know).

[Sarvis]

its about making money by lowering costs.

Which is, of course, the only thing that matters.

I mean, who cares if the "ghetto" population just keeps growing because there's no way for anyone to get out. I'm sure that would have no negative affects on society at all.

[Teflor Lyorian]

Except there's this thing called 'the bus.' Or, if you're against public transportation: your legs. or your car. Or the internet. Pick up a phone.

If your dreams are stopped because you can't make a phone call, your dreams didn't have much power behind them in the first place.

[Sarvis]

There's also this thing called a "loan officer" who just needs to look at your address and rip up the application.

[Teflor Lyorian]

There's also this thing called a "loan officer" who just needs to look at your address and rip up the application.

I've never seen a loan officer rip up a single application in the two years I worked in financial and real-estate services. I have heard one laugh about one though. Approved.

[kiryan]

If the loan gets ripped up, then it was deficient.

Business doesn't in general pass up profits. Maybe one might be actually racist (not jesse jackson racist, but KKK racist), but fortunately if there is money to be made someone else will take the application. Thats the beauty and egalitarianness of true capitalism.

If minorities are not getting loans, its because they aren't likely to pay their loans back for whatever reason. If they are suffering predatory lending, its because they aren't savvy consumers and just taking whatever is being offered. Instead of askign government to make everything fair for them, why don't you ask them to step up, shop around, educate themselves like the rest of us?

I shopped 4 or 5 banks before doing my mortgage and got a 380k purchase done for something like $1,100 bucks (including all fees, appraisals etc). My friend paid something like $1,500 + a point on his 180k house. Do I blame the bank for predatory fees? fuk no, thats on him.

[Sarvis]

If the loan gets ripped up, then it was deficient.

Business doesn't in general pass up profits.

Then why aren't they building loan centers in the ghetto? Aren't profits being passed up? Do you even pay attention to yourself?

[Corth]

Oh jeez.. much of the profits were made in the ghettos from like 2003 to 2006. Subprime was enormously profitable. They were opening up mortgage broker and lender shops in the worst of neighborhoods in droves.

[Sarvis]

Oh jeez.. much of the profits were made in the ghettos from like 2003 to 2006. Subprime was enormously profitable. They were opening up mortgage broker and lender shops in the worst of neighborhoods in droves.

Student loans though, Corth. Not housing loans.

And remember, the complaint here is against the government subsidizing loans... Kiryan stated that without government incentivizing these loans there wouldn't have been brokers in the ghetto. Then he turned around and said loan officers wouldn't deny loans if there was a profit to be had from people living in the ghetto.

There is a contradiction there, simple as that.

[Teflor Lyorian]

http://articles.courant.com/2010-09-23/ ... te-tuition

Student loans now exceed American credit card debt.

[Teflor Lyorian]

If the loan gets ripped up, then it was deficient.

Business doesn't in general pass up profits.

Then why aren't they building loan centers in the ghetto? Aren't profits being passed up? Do you even pay attention to yourself?

Why would they when ghetto students can take the bus.

[Corth]

Where do they build student loan centers? I've never seen a physical location meant specifically for the sale of student loans. Either in a ghetto or a rich area. Mortgage brokers springing up like crazy in ghetto areas, though, does seem to back Kiryan's points that poor people will have access to loans if profit can be made. Of course the flip side of that coin is that the banks were all undervaluing risk and lost their shit when subprime tanked.

As for the subsidy - the net result is simply more students than you would have otherwise had. I don't think you can basically argue that point. The real issue is whether or not that is a good thing. The lesser issue is whether those well-intentioned subsidies increased the price of tuition for everyone.

[kiryan]

I branched off into talking about predatory lending in housing...

The physical location for student loans is in the actual colleges and highschool campuses. They're already in every ghetto.

And the problem with aggressively marketing student loans to ghettos is they have to be accepted to a school in the first place. If the banks could loan you money for school before you were accepted to college and get the government to pay the interest and guarantee repayment... it would be a feeding frenzy that would put the housing bubble to shame.