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