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Mon Dec 28, 2015, 07:38 PM

 

Examining Sanders' argument on student loans...and why he's wrong

Sanders is saying that housing and car loans have lower interest rates so we should lower the interest rates on student loans.

OK, he chose to make this argument and NOT "investing in students is good for society in the long-term as a mattter of public policy".

It's like saying "if the glove doesn't fit, you must acquit!". Sure there may be good reasons to acquit and whether the glove fits isn't necessarily the best argument. However since you (Sanders) chose to focus on the glove, we shall examine your argument in light of your proposal (lowering student loans).

Firstly, interest rates on loans are set as a function of:
(1) term: the longer the loan the higher you want your interest rate to be
(2) risk free rate: since you could lend the government risk free, you always want a premium over the risk free rate if you are lending to a non-government entity
(3) likelihood of default: how likely is the borrower going to stop repaying the loan?
(4) recovery in default: what can you get back if the borrower defaults.
(5) credit score, taking into account your ability to pay


On #1, student loans can stretch out decades while car loans are only 5 - 7 years.

On #3, student loan defaults have been climbing very high.
http://www.usatoday.com/story/money/personalfinance/2015/08/23/credit-dotcom-student-loan-crisis/32015421/
According to one calculated number, 23% of student loans that are not in deferment are seriously delinquent (> 90 days late). This is far far higher than the equivalent numbers for housing and car loans.

On #4, many people have pointed out that federal loans are not dischargeable in bankruptcy. That's true but if you owe $100,000 you will never repay the principal even if the federal government takes your Social Security income and income tax refunds. So often many of these loans will never be repaid. Also there are other government programs (IBR) that result in forgiveness of loan principal. On the other hand, if you default on a car or housing loan, the borrower can just seize the underlying collateral. You can't repossess a degree.

on 5, most of the time you are lending to somebody with no income and no assets and not even the certainty of completing the degree


Now given all these can somebody explain why the interest rate on a student loan should be the same as a car or housing loan, assuming no public policy intervention (which isn't Sanders argument here)?

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Reply Examining Sanders' argument on student loans...and why he's wrong (Original post)
hill2016 Dec 2015 OP
randys1 Dec 2015 #1
hill2016 Dec 2015 #2
randys1 Dec 2015 #3
morningfog Dec 2015 #29
upaloopa Dec 2015 #7
randys1 Dec 2015 #8
upaloopa Dec 2015 #17
upaloopa Dec 2015 #24
rurallib Dec 2015 #26
MeNMyVolt Dec 2015 #4
Krytan11c Dec 2015 #5
Matariki Dec 2015 #9
CharlotteVale Dec 2015 #15
Scuba Dec 2015 #35
neverforget Dec 2015 #6
Vermin Supreme Dec 2015 #10
Enrique Dec 2015 #11
hill2016 Dec 2015 #13
upaloopa Dec 2015 #18
morningfog Dec 2015 #30
LWolf Dec 2015 #12
hill2016 Dec 2015 #14
LWolf Dec 2015 #21
hill2016 Dec 2015 #22
LWolf Dec 2015 #23
hill2016 Dec 2015 #28
LWolf Dec 2015 #36
hedda_foil Dec 2015 #16
Post removed Dec 2015 #19
MeNMyVolt Dec 2015 #20
morningfog Dec 2015 #33
ljm2002 Dec 2015 #25
Thinkingabout Dec 2015 #27
morningfog Dec 2015 #31
Ned_Devine Dec 2015 #32
Doctor_J Dec 2015 #34

Response to hill2016 (Original post)

Mon Dec 28, 2015, 07:42 PM

1. Oh for FUCK's SAKE - stop defending the HORRIFIC practice this country has

of first making higher education cost ANYTHING to the qualifying student (dont make me say qualifying again, please) let alone with costs and interests rates that are completely INSANE, just because you are angry at the pro Bernie crowd.

I am angry at most Bernie supporters myself, and I am a Bernie supporter.

I find many of them to be insufferable, but that is no reason to take these shots at Bernie who is ONLY trying to do the RIGHT thing.


There should be NO cost to a higher education if you can qualify and if there was there should be NO interest, at all.

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Response to randys1 (Reply #1)

Mon Dec 28, 2015, 07:46 PM

2. you are speaking from a matter of public policy

 

that's not the agument Sanders is using here

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Response to hill2016 (Reply #2)

Mon Dec 28, 2015, 07:51 PM

3. He is arguing that there shouldnt be any interest rates, let alone ones that are so high.

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Response to hill2016 (Reply #2)

Mon Dec 28, 2015, 11:22 PM

29. That is but one argument of his education policyZ

 

You probably knew that, but would prefer to pimp the right wing counter arguments.

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Response to randys1 (Reply #1)

Mon Dec 28, 2015, 08:24 PM

7. There is always a cost

You want to shift the payment to somebody else.

There is the building the books the salaries all costs if education. You can't escape costs you expect someone else to pay them

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Response to upaloopa (Reply #7)

Mon Dec 28, 2015, 08:26 PM

8. Why can other countries do it? Are you going to say we cant to single payer too?

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Response to randys1 (Reply #8)

Mon Dec 28, 2015, 09:31 PM

17. That's why Bernie will never win

His opponents will tell the whole story while you and Bernie will only talk about everything being free.


Single payer shifts the payment of costs also.

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Response to randys1 (Reply #8)

Mon Dec 28, 2015, 10:05 PM

24. Other countries tax the shit out of everyone

You will give people $15 per hour and take $5 of it back in taxes .

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Response to upaloopa (Reply #7)

Mon Dec 28, 2015, 10:36 PM

26. there are also long term effects

other countries educate their youth for little or nothing betting thst will upgrsde their society. We fail to do so at the risk that it will greatly hurt our society.

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 08:01 PM

4. Don't think that's a hill I'd fight for.

 

Sanders's basic premise is that post secondary education costs too much, and interest rates are a big part of it. I agree. But the problem is the subsidisation of those rates. The current paradigm is for the program to self-sustain, with some small "profit" to make more funds available for new students. That's forced on us by the Pukes, and I wished it wasn't.

Don't want us to pay for some crazy-assed shit that's going on in some colleges, but I would like us to make sure we educate our progeny without bankrupting them.

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 08:02 PM

5. Wow, we are defending the ability to price gouge students now.

Awesome.

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Response to Krytan11c (Reply #5)

Mon Dec 28, 2015, 08:31 PM

9. Third Way Democrats should grow a pair

and just call themselves Republican. Maybe they could then make the Republican party moderate and relatively sane. It would be win-win for everybody.

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Response to Matariki (Reply #9)

Mon Dec 28, 2015, 08:59 PM

15. Well, DWS HAS backed Republicans.....

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Response to Matariki (Reply #9)

Tue Dec 29, 2015, 08:20 AM

35. Nailed it.

 

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 08:24 PM

6. you really don't get it, but then again you did post this last month

http://www.democraticunderground.com/1251860815

so i guess today's post makes sense

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 08:39 PM

10. Lifetime of Hillary's student debt reduction - all of 2k.

 

That's it. $17 off per month for the next 20 years.

Not acceptable.

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 08:44 PM

11. assuming no public policy intervention?

how does that assumption make any sense?

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Response to Enrique (Reply #11)

Mon Dec 28, 2015, 08:51 PM

13. Because

 

That isn't his argument here.

He is comparing to home loans at 3% and saying why are student loans at 6 - 8%

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Response to hill2016 (Reply #13)

Mon Dec 28, 2015, 09:33 PM

18. Home loans are collateralized

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Response to hill2016 (Reply #13)

Mon Dec 28, 2015, 11:24 PM

30. He's saying student loans are not affordable. Don't play stupid right winger.

 

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 08:49 PM

12. Not at all.

Sanders thinks that college should be tuition free. That means no loans, and no interest.

http://feelthebern.org/bernie-sanders-on-education/

And, of course, he often makes the "investing in students" argument.



And, of course, your link does not take us to Sanders talking about student loans. When he does, he's talking about existing loans.

And this is the link for his plans for student loans:

2. STOP THE FEDERAL GOVERNMENT FROM MAKING A PROFIT ON STUDENT LOANS.
Over the next decade, it has been estimated that the federal government will make a profit of over $110 billion on student loan programs. This is morally wrong and it is bad economics. As President, Sen. Sanders will prevent the federal government from profiteering on the backs of college students and use this money instead to significantly lower student loan interest rates.

3. SUBSTANTIALLY CUT STUDENT LOAN INTEREST RATES.
Under the Sanders plan, the formula for setting student loan interest rates would go back to where it was in 2006. If this plan were in effect today, interest rates on undergraduate loans would drop from 4.29% to just 2.37%.

4. ALLOW AMERICANS TO REFINANCE STUDENT LOANS AT TODAY’S LOW INTEREST RATES.
It makes no sense that you can get an auto loan today with an interest rate of 2.5%, but millions of college graduates are forced to pay interest rates of 5-7% or more for decades. Under the Sanders plan, Americans would be able to refinance their student loans at today’s low interest rates.


https://berniesanders.com/issues/its-time-to-make-college-tuition-free-and-debt-free/

Clearly, he's looking at helping those who are currently burdened with a lifetime of debt to cover college costs as well as the students who will be entering college in the coming years.

The Obama administration extended help to strapped homeowners with the "making home affordable" program. I don't see a problem with extending that idea into the student loan arena for those already in debt.

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Response to LWolf (Reply #12)

Mon Dec 28, 2015, 08:53 PM

14. Look at #4

 

He is comparing car loans to student loans, which makes no economic sense.

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Response to hill2016 (Reply #14)

Mon Dec 28, 2015, 09:38 PM

21. I'm not sure why you'd think that;

it makes sense to me.

Of course, I see beyond that single quote to the larger picture he's presented, so maybe that's why. It seems to fit in the #3 and #4 I posted.

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Response to LWolf (Reply #21)

Mon Dec 28, 2015, 09:42 PM

22. I'm looking at this statement specifically

 

It makes no sense that you can get an auto loan today with an interest rate of 2.5%, but millions of college graduates are forced to pay interest rates of 5-7% or more for decades.


This is a very bad argument.

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Response to hill2016 (Reply #22)

Mon Dec 28, 2015, 09:46 PM

23. Yes, you're

taking it out of context.

Even so, why SHOULD auto loans charge a lower interest rate than student loans? The only good answer is that they shouldn't.

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Response to LWolf (Reply #23)

Mon Dec 28, 2015, 11:08 PM

28. Because auto loans

 

Are much shorter term and are backed by collateral

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Response to hill2016 (Reply #28)

Tue Dec 29, 2015, 02:21 PM

36. Education IS collateral, national collateral,

and any existing loans before the nation finally grows up and institutes fully funded 100% free public education at all levels ought to be non-profit and managed to the benefit of the students.

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 09:04 PM

16. Ya know when two or more Hillarians come up with the same nits to elaborately pick...

it's pretty damn obvious which posters are better described as staffers. Just sayin'.

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Response to hedda_foil (Reply #16)


Response to hedda_foil (Reply #16)

Mon Dec 28, 2015, 09:37 PM

20. Oh, a paid troll accusation. How surprising. n/t

 

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Response to MeNMyVolt (Reply #20)

Tue Dec 29, 2015, 12:13 AM

33. I do agree with you that anyone who is paid to post

 

is, by definition, a troll. Unless they disclosed that fact.

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 10:21 PM

25. Loans for education should be 0% interest...

...because of the overall benefit to the economy and ultimately to the tax base.

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Response to hill2016 (Original post)

Mon Dec 28, 2015, 10:47 PM

27. What value does a college education have? Who is rewarded

For a college education?

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Response to Thinkingabout (Reply #27)

Mon Dec 28, 2015, 11:32 PM

31. The individual and society. Was that a serious question?

 

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Response to morningfog (Reply #31)

Mon Dec 28, 2015, 11:39 PM

32. I actually think it was

 

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Response to hill2016 (Original post)

Tue Dec 29, 2015, 01:37 AM

34. why are you still here?

 

You post nothing but republican memes, over and over.

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