And yet, nothing prevents me from maxing out my credit cards, and spending it all on whiskey and limousine rides... Or totaling my car (While only having liability insurance).

Lenders charge a premium over the prime interest rate because of the risk that they will never get their money back. Student loans are backed by the federal government - there is zero risk for these lenders. They seem to be under the impression that they should be getting paid for risk that they don't have to shoulder.

Why on earth should 18 year olds be entering financial transactions over hundreds of thousands of dollars, where they, but not their counterparty, get to shoulder all the risk? One would expect that the lenders should be sophisticated enough to know how to deal with it, and price accordingly.

> Why on earth should 18 year olds be entering financial transactions over hundreds of thousands of dollars, where they, but not their counterparty, get to shoulder all the risk?

It's pretty insane, to be honest

I upvoted you because I think you've put your finger on something, and I think part of the answer is a collective unspoken belief that people who may not be meritorious on past academic achievement and/or very low on the income spectrum should have an avenue to determine their own educational destiny through hard work if they pledge a return on the investment to help them get there. And because of an impression that the rates would be too prohibitive if left to market forces, there's a risk trade-off to keep them artificially low enough for more people to pay them back on schedule at the expense of the taxpayer. I'm not saying this is a good thing, but we the taxpayers take a haircut when these loans go into default and have to be sold off at a discount - I don't think it's right to say the student bears all of the risk. The lender plays both sides.

Except the taxpayers don't really lose out on student loans unless the borrower gets the loans discharged. They have immense power to levy bank accounts, garnish wages, seize tax refunds, and even garnish Social Security payments. Practically speaking, unless the borrower dies or becomes totally and permanently disabled, the government will get theirs. Bankruptcy discharges are very rare, and with all those ways of collecting, not paying isn't an option, unless the borrower leaves the US, never to return.

I think that the government actually is making a profit at this point

According to this, undergrad loans are a loss leader for grad loans, which cause the system as a whole to be profitable: http://money.cnn.com/2016/08/04/pf/college/federal-student-l...

I'm not sure about that. Isn't the whole point of outfits like Navient that the govt. loses money by selling off billions of the obligations to servicers?

No, not at all.

There are three players in the student loan game: lender, servicer, and guarantor. The lender is pretty much what it sounds like. The servicer is the agency that handles the repayment process (and any deferment or forbearance) as long as the loan is not in default. The guarantor is where the loan is transferred if it goes into default.

The guarantor will add collection fees of up to 20% of the defaulted balance, and can pursue those collection methods I mentioned earlier. They can also hire an outside agency to do collections. Their main job is to get loans out of default, either by rehabilitating the loan (a process whereby a borrower makes 12 on time, consecutive payments, and the loan is kicked out of default status), or directing the borrower to consolidate.

Navient falls under the category of lender or servicer (or both), depending on the specific loan. Their interest is in stringing out the payments as long as possible, and wring out as much money from the borrower as they can, which is why they got into trouble recently for directing borrowers to deferment and forbearance options rather than lower payment plans.

If that sounds like a lot of people interested in putting 18 year olds in debt, it is. I worked in this industry for a couple years on the consolidation front, and heard a lot of sad tales.

Given that explanation, I find it hard to understand why Navient should provoke a moral outrage over activities which seem to fall under what you describing as servicing: isn't their incentive to keep the debtor to the original terms of the loan? It could be argued that these debtors should have never signed on to begin with, but that would be on the lender's shoulders. Thanks for the explanation.

That's just it. Servicers of student loans have certain obligations that aren't required of other types of loans. There's a 600+ page book called the Common Manual that lists all the rules. I don't even know most of them, because I only ever worked with initiating consolidation loans.

These articles from The Consumerist give you a better idea what the outrage is about:

https://consumerist.com/2017/04/03/navient-claims-its-under-...

https://consumerist.com/2017/01/18/student-loan-giant-navien...

I think the first covers the "moral outrage" a bit more than the second when it mentions how Navient's public statements are all to the effect of "we're here to help you," while their actions all point the other way. The second is just some straight up shady shit they've been doing.

Of course the answer is that 18 year olds shouldn't be strapping themselves up with debt.

And it should be dischargable.

But of course, we are living in a country that is controled by fabulously wealthy and powerful individuals and their businesses.

The education lobby, like any other lobby, successfully petitioned the government to make student loans a contract in blood.

It is deeply irrational, unfair, and leads to inflation and rampant misallocation of resources.

But the education cartel and its alligned politicians don't give one fuck about that. In fact, this was the intended outcome.

They count the money and if it ever breaks, hey, they're rich!

> Or totaling my car (While only having liability insurance).

I don't know where you live but in Canada the car dealer won't give you the keys without getting confirmation of comprehensive insurance coverage with lienholder protection. Personally just did it a couple of months ago.

> Why on earth should 18 year olds be entering financial transactions over hundreds of thousands of dollars, where they, but not their counterparty, get to shoulder all the risk?

I'm a firm believer in maturing before entering a transaction like that. Maybe even "taking off a year" or working full-time for a bit to understand how "the real world" may work from what you understood it as at home (hint: it's much easier for some than others).