October 21, 2015
Bernie Sanders has been asking: What is the deal with student loan rates?
It makes no sense that students and their parents pay higher interest rates for college than they pay for car loans or housing mortgages.
— Bernie Sanders (@BernieSanders) October 15, 2015
Sorry, I can’t resist. Ever since seeing Larry David portray Sanders on “Saturday Night Live,” I can’t stop thinking of him as a “Seinfeld” character: Bernie the bewildered old senator. That he is economically illiterate is, I hope, no surprise. He is a socialist, and socialism is an economically illiterate doctrine. So let’s patiently explain it to him.
Why do car loans and mortgages have lower interest rates? They are secured by a tangible asset that can be reclaimed by the lender if the borrower stops paying. The bank can foreclose on your home or repossess your car, so they end up with an asset they can sell to recoup their losses. Rates on these loans are likely to be lower because the lender’s risk is lower. An education, by contrast, is not a tangible asset. It cannot be reclaimed and has no value other than to the person who acquired it. If you stop making student loan payments, they can send you nasty letters and harass you with phone calls. In some cases, they can use aggressive collection techniques. But for the most part, they can’t do much except drag down your credit rating. This is probably why student loan default rates recently spiked to nearly 15 percent (possibly much higher) while mortgage defaults were about half that at the height of the housing market collapse.
Read the full article at The Federalist: No, Bernie Sanders, Student Loan Rates Should Be Higher