AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (6 comments)

  1. Seattle Sam

    But the whole point of government is to appear to be able to suspend the laws of economics for those who find them inconvenient — and then to blame others for the resulting consequences. It’s not like it hasn’t worked for those in government in the past. The privates may die on the beaches, but the Generals do just fine.

  2. Jane Johnson

    There are similarities between federal intervention in the mortgage market and the student loan market. However, one difference is that many mortgages are nonrecourse loans, which means that borrowers may simply walk away and lose nothing more than their houes and their (modest) downpayment–and their credit rating for a period of time. Student borrowers, however, cannot walk away from their loans, even by declaring bankruptcy. So a student loan is much more onerous for the individual borrower–and also for the lender–than a mortgage is. A student loan is an unsecured loan, foreclosure is impossible, wage garnishment is possible, and loan burdens can follow an individual to the grave, as I understand it.

  3. There is no secondary market for student loans, correct? If so, that is the biggest difference between the two loan categories. And 100% taxpayer ownership in unsecured student loans makes it extremely risky indeed.

    1. There was a secondary market. Private banks used to issue the loans and they were sold to aggrigator services like Cammie. Sallie Mae is the most famous. They used to bundle the loans and sell them on the open market.

      About 2006 – 2007 the government mandated banks originate student loans below cost. They immediately stopped selling loans and the government took over to save us from the “evil profiteering banks.” This destroyed all the private markets that existed. Now government originates most student loans. Do you see a parallel with Obamacare?

      1. Cammie = Fannie stupid phone autocorrect.

  4. Gail Larralde

    Parents are being scammed and defrauded by forced application of parents plus loans. Students are allowed a small portion of tuition in loans and parents are required to apply for parents plus loans. If the parent is denied the student is awarded additional funds. Student loans are forcibly funneled to the parent then the parent is denied the same repayment plans that would have been available to the student and are penalized by an 8% interest rate. This scam brings significant additional funds to the department of education and loan servicers. While FHA 30 year mortgages are at 3.37% the interest charged is more than double the market price. This process is discriminatory and causes significant hardship on middle class parents. I have both student loans (went back to college) and I was forced to take out parents plus loans for my children. I owe 175,000.00. If I were allowed to consolidate under income based repayment, my monthly payment would be $700.00. But I am excluded and the only other option in income contingent. Under this repayment my monthly repayment soars to $1200.00 per month even though the loan total is the same. The forced parent plus application unfairly singles out parents, discriminating against them by predatory interest rates and denial of attractive repayment plans. FACTS: Sallie Mae made 40 billion in profit last year alone- the federal department of education stands to make 127 billion in the next ten years USING OUR TAX DOLLARS AGAINST US. This is pulling middle class parents into poverty-

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