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Comment by iamjdg | Hacker News Reader

Why is this a problem? Presumably when the private lender refinances the loan, they pay the balance to the government? So yeah the government is losing all these future interest payments but are they not getting the principle back today? Couldn't they use that principle to offset the risk of default from lower income people with student loans?

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You answered your own question.

> Why is this a problem?

>So yeah the government is losing all these future interest payments

If the answer to the question is yes, then is the net present value of the remaining interest payments greater than the present value of the loan payout they just received? It is, but not by a huge amount. If I was the government is be happy to get all this cash from loans paid off early and I would use it to make more money (loan it out again to something more lucrative, mitigate the risks of likely to default student loans).

i guess I need to clarify a question first: when the private company refinances the loan, do they pay the government the current principle?

Yes - otherwise, they would have to pay interest on the loan while refinancing to a lower rate (they'd lose money).

Worth noting: you cannot default on student loans. The government can and will garnish your wages, tax refunds and social security for them, and you can't discharge them through bankruptcy.

As someone who could never afford college I'm completely fine with it if this is the case. If this means I end up paying the principal off on someone's bullshit art degree I'm going to be pissed.

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