Student loans are at below-market interest rates and are guaranteed to be available in quantity. The market does not generally offer non-secured signature loans for $20k to $140k to people with no credit history or limited credit history and no income. When it does, it charges literally 10+% more.

But they are secured. Meaning that if you don't pay, your wages will get garnished, etc. You can't dispose of the debt, so how is that not secured?

They are unsecured in that there's no collateral that can be "quickly" (<1 year) repossessed to recover most of the loan, just as any other unsecured debt - credit cards and other consumer lending.

The differences in bankruptcy are not relevant; for student loans the lender can easily be unable to pay for the rest of their lives, thus it's classified as unsecured loan.

I only care at what the banks' interest percentage is. Student loans should be at that. And that's 0.25%

Student loans are 8%. And that's bullshit. Theyre making 8% on us for absolutely nothing. And they get guaranteed repayment, since default risk is 0 due to garnishments.

This doesn't sound right. The markets are populated with people who will invest hundreds of millions of dollars to outcompete other firms for sub-penny advantages on trades, and, contrary to popular belief, the largest and most successful of those firms are not making so much money that they're upending the finance industry.

So if somebody is making 8% for doing "absolutely nothing", can you explain why somebody else isn't taking them to the cleaners by offering to do the same nothing for 7.9%?

That's because the interest rate is set by Congress. Captive audience.

In essence, there's no reason to.

It's not true that there's zero risk. As they say - "you can't get blood from a stone".

There are plenty of people who just don't pay their loans and make so little money there is no realistic recourse for the banks.

Unfortunately, the recourse is a lifetime of garnishment. That may (and can) include garnishment of Social Security.

That 0.25% is for a 24-72 hour loan, not for a multi-year loan. If you spread it out, that's a 25% yearly interest rate. You want that rate?

I would reckon that this is because default is not the same as bankruptcy: it is entirely possible for someone to be late or stop making payments altogether and not go through the formal process of bankruptcy. I would further guess that buyers are primarily concerned with stability of these cash flows, with prices being determined upon that basis.

There are probably many people making their living attempting to estimate the relative likelihoods of student loan defaults, distilling this paper into tranches and repackaging them into bundles to be resold to investors.

You cannot repossess an education. Most loans are to buy something tangible that can be sold for at least something if the debtor defaults.

Collect on my credit cards. I dare you.

This is a pretty basic financial distinction. A credit card is an unsecured loan. A car loan is a secured loan, with the car itself as the asset backing the loan.

A college education is unlike all the other kinds of assets that individual humans tend to "own". The only thing they could meaningfully repossess is the sheepskin.

Not being able to discharge a loan through bankruptcy doesn't mean the borrower will pay. If that rule is changed expect to see people complaining not long after that no one will give them a student loan.

Not getting the lowest rate is a direct function of propensity to pay. Getting a college degree in anything does not always mean more money for the borrower. The rates reflect that reality.

Oh, it's much worse than that.

These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower!

After being fully reimbursed for the loan, they keep going after the student who defaulted, who can't get that loan discharged in any but the most extreme circumstances (i.e. can't work and will never be able to again).

What a scam.

> These are government-backed loans. If they go into default, the government pays the loan in full, automatically. And the lender can still go after the borrower!

Please cite something that explains this fully. The government does back and will pay the loan on default, but then it is the government that attempts to collect. The lender is not getting paid twice.

My problem with all the complainers of student debt is that everyone who took that loan knew what they were signing. I'm tired of hearing the sob stories of people who go to an out of state school, do not work, live completely on loans in order to have the 'college experience' and end up 100k in debt. No private lender would ever lend an 18 year old money for that and it is only possible because of government backing to start with. The government wants to recover at least of portion of that money, hence the rules.

The government sells the loans out of the gate. Once the loan is complete, and consolidated, they sell them to second and third party loan servicers. Please see the article about the number of times his loan has been sold. And people willingly buy them because they can make a boat load of money of late fees and other penalties, and because they are 'backed' by the government. But to maintain the liquidity of the market, the loans are sold immediately. The government doesn't hold the loans for a day longer than they need to. And from what I understand, the school of the loan, the degree of the loan, the race of the borrower, the home address of the borrower, every available data point all impact the income from the secondary sale of the loan. So it's all already in the marketplace as it is.

> The government sells the loans out of the gate.

Pretty common to sell loans to others to service them. At no point is the company getting paid twice though.

>Please see the article about the number of times his loan has been sold.

Shouldn't impact the borrower at all.

> And people willingly buy them because they can make a boat load of money of late fees and other penalties, and because they are 'backed' by the government.

Late fees and penalties only come into play if people are not paying. Backed by the government is most likely the only reason the loan was written at a certain rate to begin with.

The point, no one who writes the loan is getting paid by the government in full and then going after the borrower and getting paid again in full. It is the government going after the borrower through some intermediary.

I was extremely annoyed after graduating and consolidating my loans. After a lot of pressure from the financial aid department about consolidating being a good idea, once it was all said and done they just picked the highest interest rate of all the consolidated loans and applied it to the new one. I guess I should have seen that coming but it was a surprise after it felt like the financial aid dept touting it as a good thing.

However, I never had trouble regarding the loans being sold to different services. I had mine switch three times and got multiple emails and physical letters. It was a little shocking the first time I logged into my account and my loan was "paid off", but it quickly became apparent what had happened.

Consolidation should write a new loan from the total of the originals. The rate given would be the current rate. For example, when I consolidated years ago I cut my rate by over half because the rates had simply gone down since I had taken the original loans.

Do you know of any specific implications around consolidation itself? Or is it just the simple fact that it's easier to resell one big thing versus four small things?

Easier to sell, borrower is, to the best of their knowledge, complete and not taking on any new loans.

Plus, as mentioned above, it sets the interest rate for all the loans. I'm not sure how often at a more or less favorable rate, and if that's part of the incentive, to consolidate lower interest loans into a large higher interest one. I could definitely see them pushing this at different times, which was also something that came up in the article, that available repayment options were withheld when they were favorable to the banks and servicers.

I don't have a citation, but I think they might be referring to the fact that the government sometimes outsources this collection of students loans.

E.g., the government backs a Sallie Mae loan, you default, the government pays Sallie Mae, the government wants to collect, the government sells the debt to Sallie Mae to collect it.

It's this that gives at least the perception that the originator of the loan has it in their best interest to have at least a portion of their loans go into default, as they can then purchase the debt from the government.

Edit: I think some of this has changed post Sallie Mae's split into Naviant and Sallie Mae, but perhaps this perception still exists?

The government always outsources collection. Further, collection is distinct from origination. Underwriting a loan is also distinct from guaranteeing a loan, but none of this speaks to servicing a loan.

And even with all that jargon, we still haven't covered what it actually means to own debt.

they already get low rates.

the problem with discharging such loans is that people will game the system. so what do you do if suddenly they come into money or have the means to pay them?

I can see putting them off without interest for a set period of years but it is debt they willingly took on.