College Loans? Clueless on Campus

College Loans? Clueless on Campus

Although very discouraging, I suppose it is not too surprising that many college students really do not understand the terms of their student loans.

In fact, a recent study drew some unsettling conclusions as to how little the students know what they have gotten themselves into.

For more, read my post on National Review’s education blog, Phi Beta Cons. You will also find the link to a Blomberg article describing the study, as well as a link to the study itself.

4 Comments
  • Steve Connelly

    February 10, 2016at2:48 pm

    You address one element of the problem but another is that 45 years ago room board and tuition to a private university was about 15% of the average families annual income today it is 100%. No doubt the government has contributed to the fact people believe higher education is right not a privilege but higher education is at least an accomplice.

  • Stephen Connelly

    February 10, 2016at2:53 pm

    Vic

    On another subject you were very upset with Freddie and Ginnie Mae. I would be interested in knowing some of the specifics of your objections and how this contributed to the banking crisis of 2007-8.

    Sent from my iPhone

    >

  • Vic Brown

    February 10, 2016at4:04 pm

    Steve, my comments were directed at Fannie and Freddie more specifically, but Ginnie is not a lot different, really. Back in the 1970 time frame, politicians began to push for higher levels of home ownership in this country, and this continued through administrations of both parties. As a result, Fannie and Freddie received essentially the same charter and (on the Freddie website) “purchases residential mortgages and mortgage-related securities in the secondary mortgage market, securitizes these mortgages and subsequently sells them to investors as mortgage-backed securities”. The bankers later retitled these as “collateralized debt obligations (CDO’s)”.

    As a result, there became an understanding that the Federal Government “implicitly” backed Freddie and Fannie, and that took the default concerns away from everybody who touched these new mortgages. They were subprime, because the borrowers’ incomes were suspect, they had teaser initial rates that would re-set with changes in inflation, and Lewis’ book The Big Short tells how one doctor/investor took the time to look at the mortgages, realized that the borrowers would default on the interest rate reset, and started shorting the CDO’s.

    For their part, the loan originators did not care about risk, they got their origination fees. The local mortgage lender did not care, because they were sold in the secondary market to Freddie and Fannie (for a fee), and then those two “government-related entities” re-sold them to the investor community to be packaged into CDO’s. Everybody along the food chain made money, nobody worried about borrower default, and the assumption was that the government would stand behind everything.

    Then the crash came, just as the investor/doctor predicted, and everything collapsed. In sum, I believe that it was the political class that wanted to curry favor with citizens through facilitation of increased home ownership (it went from the low 60’s to close to 70% of the population during those years), and it essentially bankrolled market speculation.

    The bank bailouts came at taxpayer expense, which would have been the case whether the loans were made good through Freddie and Fannie, or if the taxpayer money went right to the investment banks.

    At least that is how I understand the complex series of events. My problem with the movie “The Big Short” is that it picked up with the addition of sub-prime mortgages to the CDO’s, without explaining how the sub-prime mortgages came to be in the first place. Government intervention distorts markets — mortgage markets, college tuitions, automobiles (cash for clunkers), etc. I don’t think Hollywood can bring themselves to own up to this fact.

  • Vic Brown

    February 10, 2016at4:05 pm

    ….and, in line with my comment above, federally guaranteed student loans have distorted the higher education market. The government assumes the risk, and the colleges spend the money!