The New York Times editors argue private lenders unfairly take advantage of poor, innocent college students and their families. How, you may ask, are these nefarious private lenders* taking advantage of these naifs? Conveniently, the editors tell us.
- College students assume private loans and federal loans are the same thing, even though they have different names. This is the intellectual equivalent of assuming a free lunch and an expensive lunch are the same thing. When one reads for comprehension, it is usual to focus only on the noun and ignore any pesky adjectives, as adjectives could not possibly provide any important information. If you’re too stupid to read loan documents, you’re too stupid to borrower money, much less go to college.
- Private loans have variable interest rates, “which means that borrowers who misunderstand the conditions of the loan can be shocked to find what they owe in the end.” Um, no. Variable interest rates are disclosed in all loan documents, otherwise courts will find the interest rate unenforceable. Variable interest rates simply shift the interest rate risk from lender to borrower. This is not the financial equivalent of rocket surgery. Variable interest rates are quite common.
- Private loans “offer limited consumer protections leaving borrowers who get into trouble with few options other than default.” ‘Puter’s a simple man who doesn’t understand much but he does know this: borrowers who don’t abide by the terms of their loans should be defaulted, and without mercy. Banks are not in the business of social work, they are in the business of making money for their investors, and rightly so. Arguing banks should ignore losses because social justice, or some other horseshit, is merely an argument for mandatory shareholder support of deadbeat borrowers.
- Without support, the editors state “[b]orrowers have been forced into default without warning.” Somehow, ‘Puter very much doubts this. What the editors mean is borrowers didn’t think they’d really have to pay the money back, erroneously believing liberals’ “free crap for everyone” malarkey. ‘Puter’s seen this firsthand, having purchased portfolios of SBA disaster loans. ‘Puter’d call borrowers who hadn’t made a payment since disbursement, and borrowers would respond “I didn’t think I’d have to pay it back. The government never called to ask for payment for three years now.” Borrowers’ self-delusion is not a valid reason to reform the private student loan market.
- The editors also note borrowers “can suddenly be required to pay the full amount of the loan if someone who cosigned on the loan dies.” Duh. When a co-borrower dies, most loans can be demanded immediately, especially unsecured debt like student loans. This is to avoid dissipation of the assets of the most creditworthy borrower before the debt is paid in full. Simply because the government doesn’t require due on death clauses in its loan documents doesn’t make it a best practice to be emulated by lenders everywhere. Quite the opposite in fact.
- The editors also complain that private lenders keep cosigners “tied to the loans long after borrowers have proved their creditworthiness.” Again, duh. As a lender, would you rather have more people from whom to recover when a loan goes bad, or fewer? The New York Times argues fewer avenues of recovery is a clearly superior recovery strategy once creditworthiness is established, even though it just argued many “borrowers … get into trouble.” This is the financial equivalent of Dr. Evil’s grand “assume everything goes to plan” strategy, which is a widely recognized path to success.
- The editors conclude the government should “[prevent] contracts that unfairly burden borrowers … .” Additionally “[t]erms should be clearly stated. Borrowers should be notified that their loans are at risk. And in no case should a borrower in good standing be shoved into default.” Celarly, the editors are on to something here. Private lenders should be required to write down all the loan’s terms and conditions in a single document, including any right to default an otherwise performing loan on an obligor’s death, and give it to borrowers. Hey! Maybe we could even have the borrowers sign this list of each party’s rights and obligations. ‘Puter knows! Let’s call it a promissory note! For feck’s sake, New York Times, your ignorance and/or cynical partisanship is showing.
The New York Times editors aren’t really concerned about student loans. They’re concerned about creating more government dependents living off other’s labor, idling away seven of the best years of their lives at Directional State University studying Social Justice with a concentration in Indian Princesses Serving in the United States Senate, hoping to parlay their field of study into a totally awesome job as a Title IX Enforcer and part time sex surrogate.
If the Consumer Financial Protection Bureau regulates student loans as the editors wish, private lenders will stop lending. If private lenders stop lending, a large source of funding for colleges dries up. If a large source of funding for colleges dries up, colleges whine to Congress they’re dying and need more money. If colleges whine to Congress they’re dying and need more money, Congress increases uneconomic and fiscally foolish federal student loan funding. And who’s on the hook for the uneconomic interest rates, lenient default rules and various and sundry debt forgiveness giveaways in the federal student loan program? You are. That is, you are if you pay taxes.
It’s not about student loans. It’s about increasing government control over students, families and taxpayers. After all, he who has the gold, rules.