I agree the mark up is too high but -

If we let the G loan directly to students why dont we just get rid of banks altogether and have a government bank?

the mark up is PRESUMABLY, although I bet its well padded, the cushion against defaults. Thats what the banks do - they absorb the risks so the G doesnt have to, or at least until catastrophic system failure like in the housing market. But even the cause of that can still be debated as to which side started the bubble.

The mark up is really high and the profits are exorbitant.

All funded for by the taxpayers. Let the private lenders find their own money.

We're talking about student loans. Higher Ed is much cheaper or free in Germany, Ireland and other places.

The loans are guaranteed by the DOE. There is no risk for the banks.

No dout banks do lend their own money to some people - doesnt fanni loan money to? I dont get which alphabet soup agency governs these specific loans but im sure its convoluted. Find me more info please.

Here's what the National Consumer Law Center had to say:

http://www.studentloanborrowerassistance.org/uploads/File/Report_PrivateLoans.pdf

how 'bout another solution... just make state universities free...

It sounds like a good idea - who the F*ck lobbied the G to become a middle man anyways? Fanni? A quasi government agency? Its like watching one group of insiders fight another - my only suspicion is who's getting paid? Is the government selling the securitisation of the loans on the back end to hedge funds via Talf? Theres got ot be more to this story than the headline.

I still dont get the "how" it will work. You would have to take the entire DOE budget then add to it the total cost of all the student loans in the country that would meet the criteria for this program. The DOE would be like the size of a medium sized state!! Then they have to carry the loans to term at the prime rate which will essentially cost the tax payers. I'd support it if 1. the government is not indeed securitising the loans via backroom dealings under the Talf plan with hedge funds - which they are caught doing already for credit card relief plans 2. They have a plan to profit from this - loan the money at a rate above prime that can support the massive staff needed to oversee this and 3. Actualy make these loans available to ALL kids - like new GI bill thing / Dont make this only for poor kids or some group. Why should a kid whose parents earn 70K have to go to a bank and get a equity line or private student loan while other kids get nice low interest loans

Ive been digging here - this topic is really interesting. Heres an article from March in the WSJ talking about Hedge funds and the Talf plan, theres a snipit in there mentioning student loans. Is the plan Make is talking about the same as the loans being issued via TALF or something different? I ask because in lending ALL loans need collateral or securitisation of the loan - thats been the roll of the banks traditionally to securitise a chunk of loans against default - who does that for the DOE? The taxpayer?

link




"At issue still are terms in the agreements between dealers and funds that hedge funds say would expose them to losses greater than what they invest in the program. Dealers are saying they have to protect themselves from potential losses"

I think I have commented earlier about this and the student loan market is essentially a racket.

The thing that kind of pisses me off is state schools (and primary public schools) have pretty much said-- ad nauseam-- that college is 100% a safe bet. It really isn't. It is also a disservice to all of the people who actually worked to get into a school only to have shortcuts.

In Florida, anyone can get into any state school if they take 30 hours at a community college. You can be a drop out with a GED, a 1.9 GPA and a 440 on the SAT. I mean I'm glad that they are giving people futures but other people with some actual skills are getting looked over. Presumably, it's the whole underdog succeeding thing that I think gets people off more.

What I didn't necessarily like though?

To go to MIT or Columbia (they have similar dollar amounts for cost of going to school) was actually about the same price to go to my discount state school From what I have learned and have heard from the few people I know who went to the Ivies, is the reported cost is actually much higher than the actual cost.

My crappy state school ended up costs about 23,000 a year.

Tuition was 2,400.
Books were 1,500.
"Room and board" was suppose to be "7,000."
"Transportation" was "750."

Advertised total cost was around "11,500."

Actual cost?

Tuition-- about 3,200
You always had to take more classes because of various circumstances and it was almost guaranteed that you would drop one a semester.

Books (including software) was closer to 2,200.
The labs that had the software on them were 10 computer labs with three hour waiting lists.

Room (but not board) was a lot higher. 6,600 to rent a room in a four bedroom apartment.
For a mere 11,000 grand a year... you could live on campus for 10 months.

Board? BWAHAHA. That came out to 4400 a year for me. Anyone who can live on a 1,000 a semester for personal costs I salute!

Utilities-- included or not... you would always get a bill for at least 125 a month. 1500 a year.

Transportation? Assuming no car payment... the area I lived in required at least 300 miles of driving a week. 1500 a year for gas. We also had mandatory insurance. So another 1500 a year. Throw in an extra thousand for maintenance and 500 for parking related costs... and that comes out to about 4,500 a year to drive.

And then entertainment? Cable. Weed. Booze. Video Games. Movies. Lunch. Whatever you need to float your boat. Even if you are vanilla, you'll spend as much in a week on random things as some one score a 25 sack of weed. But all of these things keep the economy around the school going and give other students jobs. So, everyone has to spend a little to make a little. I'd say a good 1,600 a year should cover it.

So, final cost of the budget state school? $24,000!

Ivies after their own aid packages, federal aid packages and other financial benefits generally comes out to being this much.

I also went to a school that stopped building drinking fountains because you could buy bottle water anywhere, charged 10 cents a page for printing, charged 30 dollars for replacement IDs et cetera.

The problem? Since the fee schedule is so low, you don't qualify for any aid. Almost no one does. The only option you have is to take out loans... and even the loans had a 5,500 subsidized max.

I think higher education isn't necessarily running the smoothest ship by allowing any private interest to wholly take advantage of something that's rather unwarranted and totally useless.

Interesting, Hillandrock


http://www.nytimes.com/2009/03/11/your-money/student-loans/loanprimer.html?em

LENDERS Probably the most controversial part of the proposed budget involves an issue that most students do not care about: where their loans come from. The administration wants to get rid of the federally guaranteed student loan program, called the Federal Family Education Loan Program. Under that program, banks and other companies (like Sallie Mae) have provided loans to students for years at rates set by Congress. The loans are guaranteed by the government. (A list of the rates for the popular Stafford loans in the coming years is here.)

Under the Obama proposal, students would borrow directly from the government. Students could still borrow from banks, but the loans would not be guaranteed and the interest rate would not be set by the government.

The idea is that the consolidation of lenders into one will create efficiencies of scale. It's the same argument used when B of A bought Lasalle Bank. They gto rid of all of the local back office stuff and put it in one place. Now the feds want to do it and they object. Ironic.

Well not ironic at all Make. The government has to have a plan to carry the loans to term. What does it take like 15 years to pay back student loans? Thats a huge amount of taxpayer money out there, earning no intrest and huge operating costs. The current system may not be perfect but the theory is at least that the government doesnt lose money - it makes 2%. Under the new plan what will be the benefit to the taxpayer? If I loan money at 2or3% for 15 years, Im out the net present value!! I have to recoup that - it wont be at 2%!!

Theres actualy a law that its ILLEAGAL for the government to lose money on a loan. I got to find it.


I still agree with the principle of the plan, student loan business has always been shady murky mix of bankers, packagers and government agencies. This is why people fear the government. I support a single massive plan - but only if it is logical and simple and doesnt cost us money.

Maybe they should just give grants instead.

Education has huge positive externalities - any economist will tell you that. The optimal societal economic benefit regarding education does not come from letting the free market of supply and demand dictate who gets and who doesn't get an education - the optimal societal benefit comes from the government subsidizing the cost of education. It will cost money - if the government isn't losing money from it they are doing it wrong.

EP, when you are asking where the benefit to the taxpayer is, you are missing the point. The benefit is in the positive effects of education on society as a whole - the benefit should not be in money the taxpayers - the government - earns (in NPV, of course) from student loans.

(http://en.wikipedia.org/wiki/Externalities)

There was huge uproar in the UK when student loans were introduced in 1990. This marked the end of near-universal government grants for student living expenses. Tuition was still free. The government hawked the idea around the major banks and none of them wanted to work within the constraints. Payback only when an earnings threshold is reached (currently £15k). Interest charged at national inflation (in the mid-90's this was about 3%). If 15 years after graduation the earnings threshold had not been reached, the debt was forgotten.

The government was forced to set up the Student Loans Company (SLC). The SLC only makes loans to undergraduates. The Post-graduate "Career Development Loans" are products offered by the main retail banks with interest rates comparable to other non-secured loans, the only major difference being a repayment holiday that carries until a few months after graduation.

The SLC, for all its failings has become an institution that, in the absence of free education and maintenance grants, makes the period between matriculating and dropping out much more fun.

hillandrock - it's been a while since I was attending my state school, but $3,200 for full time annual tuition seems very reasonable. Think I paid similar back in the 90's. As I recall the advertised price for room and board was cost of living in University housing (dorms) with a meal plan. After freshman year most undergrads wised up to the nanny state of living that way, but it was cheap. Additionally, living on campus you didn't need a car. Transportation was campus shuttle or a city bus if you wanted to head out to the mall.

For me the "unadvertised" expenses were things like a $5,000 laptop or studying in Europe. I didn't need either to graduate, but I wanted them. Expenses like that don't have different prices at state univsersities vs. ivy. I'd still venture though that if getting a degree for cheap as possible is your goal, your best bet is still a state school with in-state tuition.