Don’t cry for lenders in student loan fiasco
Judge Amy Coney Barrett, President Trump’s latest Supreme Court nominee, recently dismissed a motion, without comment, from a conservative group in Wisconsin called the Brown County Taxpayers Association, which asked the court to block the tax plan. Biden administration aimed at canceling student loans.
Shortly thereafter, a federal judge in Missouri launched a lawsuit brought by six Republican states seeking similar relief by telling the states that they had shown no harm that might result and therefore had no standing. to act.
But then a federal appeals court issued a temporary stay on youhe debt relief.
Based on the flurry of lawsuits they’ve filed recently, the party that has spent the last 30 years denigrating litigators often seems to be aiming for full employment of litigators lately.
Quackers who think “Let’s Go Brandon” is the height of political satire are apparently upset that a lazy English major living in mum’s basement, with purple hair, piercings and a part-time job in a café, will have his student debt paid with “my taxes”.
This is a gross misrepresentation of the student debt situation.
Federal student loans are used by students regardless of field of study. They are also used by trade school students. You know, plumbers, electricians, linemen, carpenters and even computer programmers.
Your hairstylist, dental technician or medical assistant might have used student loans to pay for their training. Many entry-level truck drivers were trained in trade school using a federal student loan.
The ease of obtaining a federal student loan is its biggest selling point. A borrower does not need to have a credit history, co-signer, or income. Interest rates are generally lower than private loans, have fixed rates and more flexible repayment terms.
So who else has benefited from student loans?
Lenders – banks and various scammers. The so-called school counselors. And the education and training institutions themselves have done extremely well with federal student loans. It’s hard to imagine a public university able to pay its athletic trainers seven figures without federal money from student loans.
Undoubtedly, the cancellation of loan contracts raises serious moral hazard questions about money lenders and their customers (victims.) Moral hazard is the term used by economists to describe a situation in which people will take too much risk because they believe that in the end they will not have to bear all the consequences. As if they had insurance – or the government to bail them out.
Namely: Lenders have been given a sweet spot in the student loan business, which has encouraged them to make bad loans, knowing they will eventually be repaired.
But these are the kind of questions that should have been asked years agonot when Biden decided to helpeast of one-third of Minnesota’s population with zero student loans.
The ancestor of all moral hazard situations was the 2008 financial crisis and the subsequent bank bailouts. Mortgage lenders and their Wall Street partners acted like drunken pirates in a casino, and there were hardly any consequences – for them anyway.
The moral preening of charlatans is also highly selective: where were they a few years ago when the federal government handed out billions of taxpayer dollars in Paycheck Protection Program (PPP) loans to businesses, organizations at non-profits and even churches? This money was intended to cover salary expenses and, if used as intended, the loan was cancelled. Most loans have been forgiven, many in the six- and seven-figure range. In other words, people – and businesses are people, right? — borrowed money, that is, taxpayers’ money, knowing that they would not repay it. It’s a moral hazard for someone to quack.
Financial consultants and banks – many of whom are involved in selling student loans – have taken advantage of the PPP windfall, collecting hefty fees for loan preparation and processing.
Where were the charlatans when we gave the big banks a giant giveaway by exempting credit card companies from state usury laws, those pesky restrictions on the interest rates a lender could legally charge consumers? Minnesota attrition is capped at 8%. The average credit card interest today is over 16%, a rate available to a relative handful of cardholders. Most credit cards charge 20% or more. They are not subject to state laws.
During the Watergate era, the phrase “follow the money” became popular. And that seems applicable here. If you’re more worried about the purple-haired English Literature major seeing $10,000 in student loans forgiven than the industry that can’t lose in the student loan business, follow the money.