Thursday, June 21, 2007
This Is Very Good
Poor, poor Sallie Mae, Nelnet et al.:
Just so you know, last year a Republican Congress passed and Preznut Bush happily signed a law that increased student loan interest rates for students to 6.8% and for parents to 8.5%. These rates cannot be lowered even if interest rates fall back to historic lows and students or parents can consolidate them at a lower rate. They also increased federal subsidies to student loan companies.
Preznut Bush and the Republicans in Congress - always looking out for the little guy.
Democrats in Congress are pushing to overhaul the nation's student loan system with legislation that would cut federal subsidies to lending companies by as much as $19 billion, channel most of those savings to student aid and ease repayment rules for borrowers.
The Senate education committee overwhelmingly approved its version of the legislation yesterday, one week after the House education panel took similar action. Senior Democrats predicted that the bills would come to a vote by the end of next month and would be reconciled without significant difficulty.
Momentum for the legislation has grown this year as the $85 billion-a-year industry has come under intense scrutiny. Federal and state investigations have found conflicts of interest among lenders, universities and government regulators. In addition, the Democratic takeover of Congress this year has allowed the party to drive its agenda on student loans for the first time in more than a decade.
...
The proposals would have borrowers pay no more than 15 percent of their discretionary income for federally backed student loans. They would allow such loans to be forgiven after about 25 years. The Senate measure would gradually boost the maximum Pell grant, the nation's main aid program for low-income students, from $4,300 to $5,400 a year. The House plan calls for a smaller grant increase but would cut in half the interest rates on federally backed student loans, to 3.4 percent.
Just so you know, last year a Republican Congress passed and Preznut Bush happily signed a law that increased student loan interest rates for students to 6.8% and for parents to 8.5%. These rates cannot be lowered even if interest rates fall back to historic lows and students or parents can consolidate them at a lower rate. They also increased federal subsidies to student loan companies.
Preznut Bush and the Republicans in Congress - always looking out for the little guy.
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reality, you posted:
"The proposals would have borrowers pay no more than 15 percent of their discretionary income for federally backed student loans."
That means every borrower would dispose of 100% of his income to leave himself without a dollar of discretionary income with which to repay his loans.
I'm all for finding ways to provide more government support for students going to college, but this strategy is laughable. It is a plan to give grants disguised as loans.
You posted:
"They would allow such loans to be forgiven after about 25 years."
In other words, should a former student actually make some money during the repayment period following graduation, he can rest comfortably knowing that eventually time will extinguish the obligation even if it hasn't been repaid in cash.
You posted:
"The Senate measure would gradually boost the maximum Pell grant, the nation's main aid program for low-income students, from $4,300 to $5,400 a year."
Following the approval of this increase, tuition will rise by the same amount.
You posted:
"The House plan calls for a smaller grant increase but would cut in half the interest rates on federally backed student loans, to 3.4 percent."
Offering to lend money at rates well below the risk-free rate available on Treasury securities will result in a rush of borrowing by everyone going to college, whether they need the money or not.
If it is possible to borrow at 3.4% and deposit that money in CDs paying twice as much, you will see that every available dollar will be borrowed.
This is known as a "carry trade". Usually there is some small risk in a carry trade. But because borrowers are borrowing dollars at 3.4% that can be placed in dollar-denominated accounts earning more dollars, this trade is risk-free.
This is a gift to savvy parents.
You posted:
"...last year a Republican Congress passed...a law that increased student loan interest rates for students to 6.8% and for parents to 8.5%. These rates cannot be lowered even if interest rates fall back to historic lows and students or parents can consolidate them at a lower rate."
You need a course in economics. If you obtain a fixed-rate mortgage for your home, do you think you can change the interest rate if market rates decline? You can't.
But you can refinance. When you refinance, you repay all the principal you owe with the cash from a new loan that carries -- presumably -- a lower rate.
The same option exists for student loans. No one will face years of paying off loans at 8.5% if the market rate drops to 6.8%.
Your idea that there's something corrupt about loans with fixed interest rates shows what you don't know about finance.
A loan is a contractual obligation assumed by the borrower. The borrower AND the lender agree to a set of terms. Neither party can unilaterally change the terms of the contract. The contract will address the contingencies that might arise.
"The proposals would have borrowers pay no more than 15 percent of their discretionary income for federally backed student loans."
That means every borrower would dispose of 100% of his income to leave himself without a dollar of discretionary income with which to repay his loans.
I'm all for finding ways to provide more government support for students going to college, but this strategy is laughable. It is a plan to give grants disguised as loans.
You posted:
"They would allow such loans to be forgiven after about 25 years."
In other words, should a former student actually make some money during the repayment period following graduation, he can rest comfortably knowing that eventually time will extinguish the obligation even if it hasn't been repaid in cash.
You posted:
"The Senate measure would gradually boost the maximum Pell grant, the nation's main aid program for low-income students, from $4,300 to $5,400 a year."
Following the approval of this increase, tuition will rise by the same amount.
You posted:
"The House plan calls for a smaller grant increase but would cut in half the interest rates on federally backed student loans, to 3.4 percent."
Offering to lend money at rates well below the risk-free rate available on Treasury securities will result in a rush of borrowing by everyone going to college, whether they need the money or not.
If it is possible to borrow at 3.4% and deposit that money in CDs paying twice as much, you will see that every available dollar will be borrowed.
This is known as a "carry trade". Usually there is some small risk in a carry trade. But because borrowers are borrowing dollars at 3.4% that can be placed in dollar-denominated accounts earning more dollars, this trade is risk-free.
This is a gift to savvy parents.
You posted:
"...last year a Republican Congress passed...a law that increased student loan interest rates for students to 6.8% and for parents to 8.5%. These rates cannot be lowered even if interest rates fall back to historic lows and students or parents can consolidate them at a lower rate."
You need a course in economics. If you obtain a fixed-rate mortgage for your home, do you think you can change the interest rate if market rates decline? You can't.
But you can refinance. When you refinance, you repay all the principal you owe with the cash from a new loan that carries -- presumably -- a lower rate.
The same option exists for student loans. No one will face years of paying off loans at 8.5% if the market rate drops to 6.8%.
Your idea that there's something corrupt about loans with fixed interest rates shows what you don't know about finance.
A loan is a contractual obligation assumed by the borrower. The borrower AND the lender agree to a set of terms. Neither party can unilaterally change the terms of the contract. The contract will address the contingencies that might arise.
Right, pt, but the Repubs in gov't raised rates to 8.5% for parents and 6.8% for students when the Fed had rates at 4% and you could get a freaking private loan for 7%-9%. The idea behind student loans is to make college available to middle and working class people who would not otherwise be able to afford college. The last six years or so, however, the student loan program has been seen as a way for the banking industry to make money both off their loans and the exorbitant and unnecessary subsidies that tax payers are paying them.
N-S, here's one financial entity that can change the terms of a loan at any time for any reason - the credit card industry.
N-S, here's one financial entity that can change the terms of a loan at any time for any reason - the credit card industry.
God bless the credit card industry, and that bankruptcy bill that President Clinton vetoed. In every college classroom at CUNY are three or four credit card offers stapled to every bulletin board. Hook 'em early and damn the consequences.
reality, you wrote:
"N-S, here's one financial entity that can change the terms of a loan at any time for any reason - the credit card industry."
Credit-card debt is UNSECURED. It is not equivalent to a Student Loan, and a Student Loan is not equivalent to a Fixed-Rate Mortgage, which is not equivalent to an Adjustable-Rate Mortgage, which is not equivalent to a Corporate Bond, which is not equivalent to a Bank Loan.
They all share some characteristics, but it is irrelevant that interest rates on credit-card debt are not fixed at all times.
However, even credit card debt carries a Maximum Allowable Rate.
"N-S, here's one financial entity that can change the terms of a loan at any time for any reason - the credit card industry."
Credit-card debt is UNSECURED. It is not equivalent to a Student Loan, and a Student Loan is not equivalent to a Fixed-Rate Mortgage, which is not equivalent to an Adjustable-Rate Mortgage, which is not equivalent to a Corporate Bond, which is not equivalent to a Bank Loan.
They all share some characteristics, but it is irrelevant that interest rates on credit-card debt are not fixed at all times.
However, even credit card debt carries a Maximum Allowable Rate.
# posted by 
: 8:09 PM
: 8:09 PM
Why is it irrelevant that the credit card companies can change the terms on your contract at any time for any reason? What other entity can change the terms on a contract at any time for any reason? I can't think of one offhand. Yet, they can.
reality, you wrote:
"Why is it irrelevant that the credit card companies can change the terms on your contract at any time for any reason?"
The terms do not change for "any reason." Your comment suggests that cloudy weather is a reason to change something.
First, within some limits, people can agree to any sets of terms they are offered. The terms of "revolving credit card debt" are different from other debt.
First, the debt is not "secured". In other words, when you buy a house, you will agree to give your house to the bank if you don't honor your mortgage obligation.
Credit-card companies have no hold on your personal assets.
Ask yourself a question. If I came to you and asked you for $1,000, would you give it to me? Credit-card companies depend on the basic honesty of borrowers to repay their loans. But some don't pay. There are many reasons. Some legitimate, some phony.
Anyway, before giving me that $1,000, what would you want from me before you were willing to give me the money? Probably a lot more than the credit-card companies are asking. And you'd be angry if I stiffed you.
But your comments suggest that credit-card companies do nothing more than screw people. You, like all teachers, need some serious educatin' when it comes to understanding how businesses really operate.
You wrote:
"What other entity can change the terms on a contract at any time for any reason?"
Every contract has its "out" clause. For instance, most life insurance policies will not pay if the insured commits suicide within some specified period, usually within two years of the issuance of the policy.
Many contracts are voided if one party or the other commits a criminal act relevant to the agreement.
Financial contracts always swing into a crisis mode after payment deadlines are missed.
When corporations do not pay interest due on corporate bonds, the bondholders usually become empowered to force the company into bankruptcy. You're worried about deadbeats who don't pay their credit-card bills. But they are individuals who have no one but themselves to look-out for.
Corporations have employees who will suffer if the company is forced into bankruptcy by bondholders. Enron, for instance, employed thousands and thousands of people who were victimized by the handful of corrupt people running the company.
GM, Ford and Chrysler are close to bankruptcy. To avoid it, the UAW workers will have to agree to changes in their contracts. Otherwise, the workers will discover that a contract with no job isn't a very good contract.
Anyway, the key issue you have raised is about breaching contracts. The terms are always spelled out. When one party fails to hold up his end of the bargain, the other party is given many powers to resolve the situation.
You wrote:
"I can't think of one offhand. Yet, they can."
I can give you a list a mile long.
"Why is it irrelevant that the credit card companies can change the terms on your contract at any time for any reason?"
The terms do not change for "any reason." Your comment suggests that cloudy weather is a reason to change something.
First, within some limits, people can agree to any sets of terms they are offered. The terms of "revolving credit card debt" are different from other debt.
First, the debt is not "secured". In other words, when you buy a house, you will agree to give your house to the bank if you don't honor your mortgage obligation.
Credit-card companies have no hold on your personal assets.
Ask yourself a question. If I came to you and asked you for $1,000, would you give it to me? Credit-card companies depend on the basic honesty of borrowers to repay their loans. But some don't pay. There are many reasons. Some legitimate, some phony.
Anyway, before giving me that $1,000, what would you want from me before you were willing to give me the money? Probably a lot more than the credit-card companies are asking. And you'd be angry if I stiffed you.
But your comments suggest that credit-card companies do nothing more than screw people. You, like all teachers, need some serious educatin' when it comes to understanding how businesses really operate.
You wrote:
"What other entity can change the terms on a contract at any time for any reason?"
Every contract has its "out" clause. For instance, most life insurance policies will not pay if the insured commits suicide within some specified period, usually within two years of the issuance of the policy.
Many contracts are voided if one party or the other commits a criminal act relevant to the agreement.
Financial contracts always swing into a crisis mode after payment deadlines are missed.
When corporations do not pay interest due on corporate bonds, the bondholders usually become empowered to force the company into bankruptcy. You're worried about deadbeats who don't pay their credit-card bills. But they are individuals who have no one but themselves to look-out for.
Corporations have employees who will suffer if the company is forced into bankruptcy by bondholders. Enron, for instance, employed thousands and thousands of people who were victimized by the handful of corrupt people running the company.
GM, Ford and Chrysler are close to bankruptcy. To avoid it, the UAW workers will have to agree to changes in their contracts. Otherwise, the workers will discover that a contract with no job isn't a very good contract.
Anyway, the key issue you have raised is about breaching contracts. The terms are always spelled out. When one party fails to hold up his end of the bargain, the other party is given many powers to resolve the situation.
You wrote:
"I can't think of one offhand. Yet, they can."
I can give you a list a mile long.
# posted by : 10:23 AM
: 10:23 AM
I'm glad to see you're so supportive of the poor,poor credit card industry, no_slappz. Lord knows, the record profits, the 35% interest, the overdraft/late/penalty fees and their ability to change the terms of their agreement with a card holder at any time for any reason sure puts them behind the eight ball in the marketplace.
BTW, you broke the rule about insults in your last comment. That's a "breach of contract" for this blog and you have now been suspended from further commenting.
Arbitrary rule making by me? Sure. Just like the credit card companies, however, I have decided to change the rules at any time for any reason. Since you support the credit card companies ability to do this, I am sure you will support mine.
Buh-bye, no_slappz.
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BTW, you broke the rule about insults in your last comment. That's a "breach of contract" for this blog and you have now been suspended from further commenting.
Arbitrary rule making by me? Sure. Just like the credit card companies, however, I have decided to change the rules at any time for any reason. Since you support the credit card companies ability to do this, I am sure you will support mine.
Buh-bye, no_slappz.
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