Subprime Student Loans

August/23/2009 18:22PM
2 interesting comments, join the discussion
Please follow and like us:

The market for student loans is $100 billion. The Federal Government guarantees 80% of student loans. Tuition keeps going up. It has risen almost 500% in the past 16 years.

According to an article in the Wall Street Journal(8-20-09) the Feds plan to squeeze out the remaining 20% of the private sector in student loans. There are three sources of student loans, private sector, government loans, and loans by private sector guaranteed by the government. The government plans to end the last category and put in qualifications that will eliminate the first. So, all student loans will be from the government. Sound familiar? A single payer system.

Representative George Miller(D. Calif.) is proposing a bill to outlaw private loans backed by the government. He wants to ramp-up Perkins loans to $6 billion from $1 billion, offering a fixed rate of 5% for borrowers. He wants to put in a variable rate if interest rates fall and a cap if they go up. Heads, borrowers win, tails borrowers win. Heads, taxpayers lose, tails, taxpayers lose. He has also locked in Stafford loans for undergraduates at 3.4%. If rates go up taxpayers will have to pay the difference.

Miller and Ted Kennedy wiped out auditing rules to monitor these loans. Mr. Miller also killed a reporting requirement with a floor amendment.

None of the government cost estimates include default costs, or take into account the cost of interest rate increases.

Basically, it’s another huge spending bill. It’s another Freddie and Fannie with big risks and no rewards. It’s the type of business no private lender wants to take on under the stupid Miller rules. It’s a prototype of the health care reform Obama wants. Single payer with no competition since the government has established a bad business model no businessman would touch. It’s another huge money pit that will cost billions more than the budget when defaults are taken into account.

It’s our government at it’s very best. Control at any cost with no accountability to the taxpayers for cost.

And, the timing is perfect. Raising the budget from $1 billion to $5 billion and having the government take over all student loans comes at a time when default rates on student loans rose from 5.2% in 2006 to 6.9% in 2007. Sallie Mae’s write offs increased to 3.4% in 2008 from half that level two years ago. Sallie Mae, the prime government agency guaranteeing student loans says loan write-offs could hit $1 billion in 2009. They are seeing acceleration in delinquencies beyond what they were expecting. There are record numbers of unemployment among college graduates, at over 6%, triple a year ago.

If you were in the lending business, which you are, since it’s your money, would you step it up right now? You don’t seem to have a vote, Mr. Miller and Mr. Kennedy are running this business. Just like Mr. Dodd and Mr. Frank ran the sub prime housing mortgage business.

Aren’t we lucky?

Please follow and like us:

Other Articles You Might Enjoy:

Leave a Reply