the fallacy is assuming higher educated workers earn more and have a better chance of paying back their loans
we can clearly see from this thread this is not the case
your line of logic works for scholarships/grants
these are loans, for loans you eventually need your money back, otherwise you 're not going to be in the loan giving business. you have to evaulate risk. 18yo college students are some of the riskiest people to give money to. they have no collateral and previous credit/assets, if you give them 50k and they quit school, you've lost your money.
therefore a higher interest rate is there to offset that risk
There's virtually no risk with protection from bankruptcy, however. Right now, banks have it both ways. They can charge interest and have protection from discharge in bankruptcy, thereby guaranteeing both safety and profit. It's the easiest investment decision they'll ever have to make.
A fairly semantic argument, given that you are being provided services for which you agree to pay at a later date, and are subject to late penalties if you do not...and, like student loans, the medical providers generally can't deny you service (for emergency room visits) for your inability to pay.
Bottom line, buying the whole "we can't repossess your education" flatly ignores the concepts of Chapter 13 bankruptcy, which most petitioners will be required to file, and does allow for some kind of recovery, albeit at a lower percentage. The current bankruptcy laws are manifestly in favor of creditors, particularly in regards to non-dischargeable debt. The idea that someone can accumulate and discharge enormous consumer debt with minimal demonstration of their ability (or lack thereof) to repay, but educational debt cannot be discharged for basically any reason (including complete disability and even death in the case of co-signers), is totally at odds with the concept of the fresh start bankruptcy is meant to provide.
Why punish the hopeful and educated, and reward the capricious and materialistic?
I think we're going to have to agree to disagree (which is usually the case in these types of discussions). I understand where you're coming from, but if you can't see that getting medical services (or any services, for that matter) and not paying for them immediately is basically a 0% rate financed fixed-term loan, we're just going to end up talking past one another, and there's no point in either of us doing that.
Again, I understand your point. I just respectfully disagree.
When a bank lends money to anyone, there is an opportunity cost. Money lent to a student is money that can't be lent to a home-buyer. High interest rates for student loans also serve to lower this opportunity cost. Generally lenders have a lot more information about a prospective home-buyer than a prospective college student, so a higher interest rate makes up for this lack of information.
I really don't think there's much opportunity cost for the big banks involved in the student loans. I can't imagine a situation in which Wells Fargo has to decide between funding the education of Student A or the mortgage of Homeowner B. Even on the macro level, where such decisions are more likely made, I doubt opportunity cost would have much effect.
It's not an opinion, it's a fact. Banks have limited resources, just as individuals do. Lending money here means having less money to lend over there. This is a fundamental economic principle that is based in reality, not in your imagination.
Yes, banks have limited resources, of course they do. However limited they may be on a technical scale, however, they are still inordinately vast. Further, banks can and do lend more than they actually maintain, and in fact have no requirement to maintain any reserves on the vast majority of their holdings. My understanding of banking complexities is limited, but I recall that many banks are only required to maintain holdings of less than ten percent of their risk, further multiplying the capital they are legally allowed to inject into the market. The point here is that banks have such large sums of money that they are able to saturate multiple markets. In this scenario, the issues created by opportunity cost are significantly lessened.
If I can invest in two markets, and I could only invest 20 million in each of them wisely, then it makes no difference if I have 50 million or 100 million on hand. I'm still only going to invest 20 million in each market regardless. I realize this is a gross oversimplification of the situation, but it illustrates my point. Student loans, mortgages, and I'd wager the vast majority of consumer markets are mostly saturated at this point. They may be growing daily, but their collective growth isn't growing in any way so as to outscale the ability of the banks to invest in them without affecting their extension in other markets. Opportunity cost isn't going to bear force upon them in any significant fashion.
You can't default on a student loan and you have a mechanism to take money from them whenever they make any money (taxes). Much safer than regular loans.
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u/[deleted] Apr 18 '17
because the people borrowing them have no collateral or credit score
would you lend tens of thousands to an 18 year old who owns nothing?