Student Loan Bubble Reaches Around 1 Trillion, So What Who Cares


Oh LOOK someone has decided to do something about the gigantic loan bubble (student, not housing) in the form of commissioning a report from the Consumer Protection Bureau, and YAY Senator Dick Durbin (D-Ill) has gone ahead and followed the recommendations of the report, introducing not one, but TWO bills on private student loans! TWO! And one of them would even reverse the bankruptcy discharge law! Does the system finally work? Does it? Of course it doesn't, this is America, and so both of these bills are “going nowhere!”  USA! USA!

Via Bloomberg:

Borrowers struggling with private student loans would benefit from more refinancing options, a U.S. consumer protection official told a Senate panel today....The panel, headed by Senator Sherrod Brown, an Ohio Democrat, held its hearing less than a week after publication of a government report that said students were victims of a “subprime-style” private loan market that contracted after the 2008 credit crisis. [...]

Senator Richard Durbin, an Illinois Democrat, has introduced two bills on private student loans, one reversing the bankruptcy discharge law and another with Senator Tom Harkin, an Iowa Democrat, that would require colleges to counsel students to take out the maximum in federal loans before venturing into the private market.

The bills are “going nowhere,” Durbin said in a interview yesterday at a meeting of the National Association of Student Financial Aid Administrators in Chicago.

Outstanding educational debt taken out by students and their parents is about $1 trillion, according to the consumer agency. About 15 percent of the loans are privately originated, and don’t have federal loan protections such as fixed rates, deferment and income based repayment.

On the off chance that some of you are not drowning in your own student loans (and your kids' loans, and your mortgage payments, and your medical bills...), your Wonkette will fill you in on some of the more salient details of the student loan racket, like, for example, that student loans, unlike any other kind of debt, can live on after your death , at which time your parent or spouse or cosigner will be held responsible for them. Also they can never, ever be discharged in bankruptcy and can even be garnished from your Social Security check. Even though these loans are zero risk to the bank (given that they cannot be discharged in bankruptcy and all that) and the federal funds rate has been under 1% for quite some time now, the current interest rate for student loans runs at 3.4% on a subsidized Stafford loan (which is based on financial need) and 6.8% on an unsubsidized Stafford loan (which is not). Which means that the bank gets the money for less than 1%, and then lends it to students for a rate of anywhere between 3.4% to 6.8%.

Of course, as we all know, students wouldn’t be in this mess if they only got as much education as they could afford, or alternatively borrowed $20,000 from their parents to make startups. So who’s REALLY to blame here? The students, for failing to skillfully negotiate with multi-billion dollar corporations, or the students, for failing to have rich parents? The answer, of course, is the students.



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