Payne: impending student loan interest hike will 'devastate' students

Jersey Journal ^ | June 25, 2013

[Newbomb Turk]

No more then 40 years of Democratic sponsored taxes on every thing they earn or own after college.

Until death shall we tax.

[sitetest]

Dear Vigilanteman,

"Neither, technically, is the post office."

Actually, the United States Postal Service is an independent agency of the US government. It isn't "owned" by anyone but rather is a "quasi-governmental agency" that is run by appointees of the president confirmed by the US Senate.

Sallie Mae, however, was never part of the government, although it was closely tied to the government for decades. Sallie Mae was started as a GSE (Government-Sponsored Enterprise) and enjoyed market advantages for many years provided by that status, mainly, the implicit guarantee of the government of its debt.

However, as I pointed out in my first post, it began the move away from GSE status in 1997 and was fully separated from its government sponsorship by 2004. Sallie Mae competes with a variety of other lenders to originate and service student loans. There are no explicit or implicit guarantees of its corporate debt. However, like all other private student loan lenders, assets accumulated through the federally-guaranteed student loan program up until the time the government took over all guaranteed student loan originations, ARE government-guaranteed assets.

Thus, having competitors, it isn't a monopoly, government-protected or otherwise.

Now, some part of Sallie Mae's portfolio was accumulated while it was still a GSE, and to a diminishing degree, it still earns income from the business it did when it was a GSE. However, as that relationship ended in 2004, the portion of its earnings attributable to that relationship decreases daily.

And of course, before the government took over all government-guaranteed and subsidized loans, Sallie Mae, like all other private student loan lenders, enjoyed the benefits of those programs, as well. But before the government takeover, I could have taken a guaranteed student loan with my own bank, if I'd wished.

"One of them has no constitutional justification."

Your argument isn't with the current Sallie Mae.

"Do you really think a bonafide private entity could afford to give you such a rate?"

Sure. My interest rate is variable, set annually, and my loan was made prior to the government takeover of student loan lending, I imagine it enjoys a federal guarantee as a result. I imagine the borrowing costs to finance an asset explicitly guaranteed by the federal government is very near the borrowing cost of the government, itself, for a similar term. Since my rate is guaranteed only for a year at a time, it seems the one-year Treasury would be the most appropriate benchmark, which closed today at 0.17%. Although my rate is currently sub-1%, it's a lot closer to 1% than to 0.17%. Good bankers can make money with a spread of a quarter-percent (or so I've been told by bankers).

Even so, current rates from Sallie Mae for student loans are:

- Variable interest rates from 2.25% APR to 9.37% APR
- Fixed interest rates from 5.74% APR to 11.85% APR

Creditworthiness factors into the actual rate a good bit, so I understand.

sitetest

[blackdog]

Taking out student loans is like adding a 50 pound weight to your belt every year until you graduate, and then jump in the water.

[LibLieSlayer]

Then they should never have borrowed the money. We know what happens when government steals our wages to redistribute our wealth in bailing out stupid people and corrupt banks... and it ain’t pretty.

LLS

[Vigilanteman]

Nice details, but you are splitting hairs.

Your own words sum up the situation quite nicely:

Sure. My interest rate is variable, set annually, and my loan was made prior to the government takeover of student loan lending, I imagine it enjoys a federal guarantee as a result.

Of course it does. So are your loan options better or worse since the government takeover of all student loan lending? Granted, that some private lenders are still allowed to act as agents of the government in originating and even servicing the loans. That would not, of course, include private lenders for places like Hillsdale College which eschews all government loans.

Is there anything to BO's repeated claims that the situation has substantially improved for borrowers since he cut the greedy middlemen (bankers) out of the loan picture?

[sitetest]

Dear Vigilanteman,

No, I don't think I'm splitting hairs. You said Sallie Mae was a government-owned entity, a monopoly. It's never been a government-owned entity and hasn't even been a GSE for nearly a decade.

It isn't a monopoly, it has many competitors. My own local bank originates student loans.

You said that student loans aren't unsecured. Although they're more difficult to discharge in bankruptcy, they ARE unsecured, as “unsecured” means, more fully, “unsecured by any tangible collateral.” And thus, one would expect higher interest rates than a mortgage on real property. ESPECIALLY for loans that are neither guaranteed or subsidized.

I haven't argued that the government takeover of loans was a good idea. In fact, I think it was an atrocious idea. In fact, my own loan details point out how BAD direct government control is. When Sallie Mae was able to offer subsidized and guaranteed loans, I was able, with superior creditworthiness, to pick up a variable rate loan that currently is costing less than 1% per year in interest. And that's an UNSUBSIDIZED rate. Sallie Mae, that evil "middleman" company, had to compete against all the other lenders offering similar loans, all of which could offer guaranteed loans, and were all able to leverage those guarantees to obtain money at lower interest rates. Because all these folks were in COMPETITION with each other, they had to pass along most of those interest savings to the consumers in the form of lower interest rates.

Whether one agrees with the idea of guaranteed student loans or not, the system, as it was before the Kenyan's takeover, worked as envisioned - providing below-market interest rates to student borrowers.

Now that the government has taken over the whole government-guaranteed and subsidized loan program, we see that the government uses ITS TRUE MONOPOLY power to charge much higher interest than I received from the evil middleman company, Sallie Mae.

OF COURSE THE GOVERNMENT TAKEOVER HAS MADE THINGS WORSE! I haven't argued otherwise anywhere at any time.

But the argument must still be made accurately and cleanly. Sallie Mae is not a part of the government, and is not the current provider of federally-guaranteed and subsidized student loans.

Sallie Mae, like all its competitors, offers unsubsidized, unguaranteed private student loans.

sitetest

[plain talk]

double? Not sure why that is the case but even if it is, so what. Interest rates are at a historic low rate. These young college age Obama voters are spoiled rotten compared to where rates were in the 70s and 80s. Screw them.

[NVDave]

Good.

I like to see pain and misery visited upon those who voted this administration into office.

[SMARTY]

“DUG DITCHES! And deep in those ditches, tarred and wrapped the welds on a pipeline. In a swampy marsh, full of mosquitoes, in humid 110-F heat-indexes. And in college, I studied. I think I attended no more than two parties the whole time.”

It certainly WAS a struggle. I had no social life because at times and when it was feasible, I worked AND attended school at the same time.

I worked in a bearing factory... dark, dirty, dangerous and noisy. I was so dirty when I got home, that my mom made me undress in the basement before I came in the house.