Here's one of the examples for Sallie Mae:
http://www.studentlendinganalytics.com/images/Sallie_Mae_Pro...
This document, in style and length, comports with my recollection of what I signed ~15 years ago.
8 pages; approximately the length of an apartment lease. The language should not tax the reading comprehension abilities of a college student.
Representative sample:
Interest on this note will accrue at the Variable Rate (as defined below), beginning on the first Disbursement Date, on the principal balance advanced and on the Capitalized Interest, Fees, and Other Amounts, until the principal balance and all interest are paid in full. The Variable Rate will be used to calculate interest during the entire term of this Note, and following the maturity of, or any default under, this Note; there is no initially discounted, premium, or other rate that will be used to calculate interest under this Note.
Why are Federally subsidized educational loans at 8% interest, whilst the Big Banks get their money at 0%, or thereabouts?
One invests in the future, while the other breaks it. You can probably guess which does which.
Well actually, yes you can. Student loans are not dischargable in bankruptcy proceedings. That distinction is only shared with criminal court ordered penalties.
In other words, they are guaranteed a payback of the loan, plus fees and interest. Even if that means garnishment of your Social Security. But look at the bright side: they do go away if you're dead.
Edit: Evidently mentioning that Educational Loan debt is not dischargable is somehow a very unpopular thing (given my and other karma scores). It will also be a very unpopular thing for the 43 million people with their collective $1.3 trillion in debt. I wonder how many have or will default? And, what will that do to our economy?
https://www.washingtonpost.com/local/education/national-stud...
Also, big banks borrow at essentially 0% when talking about the Fed Funds Rate, which is for overnight loans.
You have a typical 18 year old with zero credit history and zero real income. You have a loan that may take many years to repay, but unlike a mortgage there is no house to repossess if the loan goes bad. You can't repo a degree.
A good exercise is to imagine that you're a lender writing checks with your own money. Would you even make loans to somebody majoring outside of STEM? What interest would you charge especially given other options for investing your capital? How would you have to adjust your interest rates if students were allowed to declare bankruptcy to discharge their debt to you?
I believe this is the problem with getting the government involved in the loans. It obscures the true cost.
Who knows what the college system would look like today without federal funding? Maybe distance learning or a more focused associate degree would have developed.
No, the reason you see loans in the single digits is because the government is both the sole lender (since the Health Care and Education Reconciliation Act of 2010) and sets the rates by law.
What private lenders would accept was only relevant when there were private lenders.
Not federally subsidized ones; the program under which such loans were offered through private lenders in addition to directly by the government was discontinued several years ago (as noted in the grandparent comment.) The upthread comment was about interest rates on federally subsidized loans.
You're correct that private student loan lending is no longer subsidized and hence the rates tend to be higher.
If you mean they can't discharge the loans when they declare bankruptcy, this is a popular myth that, while it has some relation to fact, is not actually true -- it is difficult to discharge student loans in bankruptcy (and more difficult for some than others), but they are not impossible to discharge.
See, e.g., http://www.usnews.com/education/blogs/student-loan-ranger/20...
COmpany A borrow 80k and goes bankrupt - that money goes to collections and comes out of the assets of the company, very unlikely the full amount will be paid back
Alternatively, Person A borrows 80k in student loans and goes bankrupt. 100% of the 80k will still be collected from the student, as student loans are not dischargeable debt. Person A's wages will be garnished, debt resold to collection agencies, credit adversely affected, and yet still the entire amount will be paid back.
If you think the scenario where its possible you never get your money back is less risky, i have a bridge I'd like to sell you.
Or maybe student loans are pretty much a commodity product in which sellers viciously compete to provide the lowest possible price so the interest rates we see are commensurate with the actual risk being taken.
i didn't say student loans are overpriced, i said a student loan is lower risk than most other types of loan, since it is non-dischargeable debt.
That is the argument i'm making and your response doesn't address any of it.
also, in case you arent aware, the overwhelming majority of student loan debt has been financed through federal and state government programs, not the private market "in which sellers viciously compete to provide the lowest possible price" as you seem to believe
2) You are correct that most student loans are financed by government programs. That allows them to undercut even the viciously competing private market because the government isn't trying to make a profit. So that makes the loans even cheaper which makes your assertion that they're overpriced more, not less, ridiculous.
>Rather, pricing and loan limits are politically determined by Congress
https://en.wikipedia.org/wiki/Student_loans_in_the_United_St...
>Who sets interest rates for federal student loans?
>Interest rates on federal student loans are set by Congress.
https://studentaid.ed.gov/sa/types/loans/interest-rates
Also, there have been several bills proposed to congress to lower the loan rates, and to allow refinancing of existing loan rates. Anyone saying federal loan rates are determined by some actuary calculating risk is plainly wrong.
I wonder if there's a correlation between student loan debt and suicides?
I should have clarified: zero default risk.
There's still the time / opportunity cost of money, and it's possible that a loan might not be repaid at any given rate. The interest would reflect this. And inflation risk would have to be factored in.
There's also a case that might be made that offering of loans isn't entirely competitive. Dynamics of that, and implications on interest rates resulting from that condition could be interesting to explore.
Also, risk of default is non-zero. Google the Brunner test.
They aren't. 2015-2016 federal loans are at 4.29% for undergraduate and 5.84% for graduate/professional.
I don't think this matches most peoples' experience. I think it usually goes like this...
You walk into the "financial aid" office where you sit nervously while they ask you meaningless (to the cost) questions while they click at a spreadsheet. After you stew for a while they present you with a price that looks like it could fund a trip to the moon (the 'list price'). You panic and then they say "but don't worry, financial aid"!
What you don't know is that while they're piecing together your "package" what they are really doing is figuring out how much they can borrow on your behalf to claim for themselves. After they've exhausted every external loan, grant and scholarship out there (its a big list and they are good at their job) they declare the rest of that impossible number a generous scholarship provided by the university. You made it! Welcome to Scruew U! You're so relieved just to be in the door you start signing paper as fast as it comes at you. That number looked impossible but somehow you're in! It looks like they busted their butt to help you out, but really, they figured out how to extract maximum payment from you, used car salesman style.
It will take you a long time to figure out exactly what your responsibilities are with regard to that witch's brew of loan, scholarship, and grant. Just wait until next year when you're invested and some of your grants and scholarships expire or reduce!
One problem is you get one piece of paper each year for 5 years. The total amount sneaks up on kids.
If they had to see an estimated borrowing amount for the total degree, they might do things differently.
Especially since families tend to blow their wad the first year. Use their small savings to pay for the freshman year and then all the sudden there is no money for two.