Don’t cry for the lenders in the student loan fiasco
WASHINGTON, DC – AUGUST 25: Student loan borrowers stage a rally in front of The White House to celebrate President Biden cancelling student debt and to begin the fight to cancel any remaining debt on August 25, 2022 in Washington, DC. Photo by Paul Morigi/Getty Images.
Justice Amy Coney Barrett, President Trump’s final appointment to the Court of Supremes, recently denied a petition, without comment, from a Wisconsin conservative group called the Brown County Taxpayers Association, which asked the court to block the Biden administration plan to forgive student loans.
Shortly after, a federal judge in Missouri tossed a lawsuit filed by six Republican states seeking similar relief telling the states they hadn’t demonstrated any injury that might result and thus had no standing.
Based on the flurry of lawsuits they’ve filed lately, the party that spent the past 30 years denigrating trial attorneys often seems to be going for trial attorney full employment.
The quackers who think “Let’s Go Brandon” is the height of political satire are apparently irked that some lazy English major living in mom’s basement, with purple hair, body piercings, and part-time employment at a coffee shop, will have their student debt paid with “my tax dollars.”
It’s a gross distortion of the student debt situation.
Federal student loans are used by college students regardless of the field of study. They are also used by trade school students. You know — plumbers, electricians, linemen, carpenters and even computer programmers.
Your hair stylist, dental technician or medical assistant could have used student loans to pay for training. Many a rookie truck driver was trained at a trade school using a federal student loan.
The ease of getting a federal student loan is its biggest selling point. Interest rates are generally lower than private loans, have fixed rates, and have more flexible repayment terms.
So who else has benefited from student loans?
Lenders — banks and various grifters. So-called tuition consultants. And the education and training institutions themselves have done extremely well with federal student loans. It’s hard to imagine a public university able to pay its athletic coaches seven figures without federal cash from student loans coming in.
Without a doubt, the forgiveness of loan contracts raises serious moral hazard questions about money lenders and their customers (victims.) Moral hazard is the term economists use to describe a situation in which people will take on too much risk because they believe in the end they won’t have to bear the full consequences. Like if they have insurance — or government to bail them out.
To wit: Lenders have been given a sweetheart deal in the student loan business, which encouraged them to make bad loans, knowing they’d be made whole in the end.
But these are the type of questions that should have been raised years ago, not when Biden decided to help at least one-third of Minnesotans with student loans zero them out.
The granddaddy of all moral hazard situations was the Financial Crisis of 2008 and the bank bailout that followed. Mortgage lenders and their Wall Street partners acted like drunken pirates at a casino, and there were hardly any consequences — for them anyway.
The quackers’ moral preening is also highly selective: Where were they a couple of years ago when the federal government doled out billions of taxpayer dollars in Paycheck Protection Program (PPP) loans to businesses, non-profits and churches? That money was intended to cover payroll expenses, and if used as intended, the loan was forgiven. Most of the loans have been forgiven, many in the six and seven-figure range. In other words, people — and corporations are people, correct? — borrowed money taxpayer money knowing they would not be paying it back. Now that’s a moral hazard for someone to quack about.
Financial consultants and banks — many involved in selling student loans — enjoyed the PPP windfall, collecting significant fees for preparing and processing the loans.
Where were the quackers when we gave a giant gift to big banks by exempting credit card companies from state usury laws, those pesky restrictions on interest rates that a lender could legally charge consumers? Minnesota usury is maxed at 8%. The average credit card interest today is more than 16%, a rate available to a relative handful of cardholders. Most credit cards charge 20% or more. They aren’t subject to state laws.
Back in the Watergate days the phrase “follow the money” became popular. And it seems applicable here. If you worry more about the purple-haired English Lit major seeing $10,000 of student loans forgiven than you worry about the industry that can’t lose in the student loan business, follow the money.
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