Should students pay the same rates as banks?

[plumazul]

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Sen. Elizabeth Warren has introduced legislation that would give students the same low interest rates that the Federal Reserve gives to member banks. I think this is a wonderful idea that would literally save students thousands (if not tens of thousands) of $$ in interest charges. No group would benefit more than medical students. An alternative being pushed by some Republicans in the House is to instead double the current rates 😱😡

If this is important to you and your future, get involved and tell your Congressperson and Senators what you thing about this.

http://www.huffingtonpost.com/2013/05/08/elizabeth-warren-student-loans_n_3240407.html

 

[darkjedi]

More focus should be on the rapidly increasing rates of tuition climbs. Tackling interest is like putting a bandaid on a hemorrhaging arm.

 

[d12]

The rates that are set to double are the ones on federal subsidized loans, ie not the ones that medical students are eligible to receive.

I think the main issue with student loan rates is that they are all the same. Interest rates should be tied to the risk of default and the students that take out loans for college or grad school do NOT all have the same risk of default. In my opinion, there is no reason why a medical student should have the same interest rates on his/her loans as an undergrad art major. Obviously there is nothing wrong with being an art major, but a medical student can be expected to pay off large amounts of debt with little to no risk of default while there isn't the same certainty in income for art majors.

In my opinion, simply reducing the student loan rates on all student loans to the federal funds rate would lead to a ton of problems.

 

[d12]

More focus should be on the rapidly increasing rates of tuition climbs. Tackling interest is like putting a bandaid on a hemorrhaging arm.

👍

 

[sinombre]

Sen. Elizabeth Warren has introduced legislation that would give students the same low interest rates that the Federal Reserve gives to member banks. I think this is a wonderful idea that would literally save students thousands (if not tens of thousands) of $$ in interest charges. No group would benefit more than medical students. An alternative being pushed by some Republicans in the House is to instead double the current rates 😱😡

If this is important to you and your future, get involved and tell your Congressperson and Senators what you thing about this.

http://www.huffingtonpost.com/2013/05/08/elizabeth-warren-student-loans_n_3240407.html

This wouldn't affect medical students at all... the federal loans you take out to pay for medical school are unsubsidized and are fixed at 6.8% for up to $40,000/year (so $120,000 over 4 years at 6.8%) and the remaining cost of attendance is covered by another unsubsidized loan with a fixed interest rate of 7.9%.

 

[plumazul]

More focus should be on the rapidly increasing rates of tuition climbs. Tackling interest is like putting a bandaid on a hemorrhaging arm.

I don't understand your point. Do we only fix problems that meet a certain threshold and ignore the rest? How would you control tuition? Subsidies? Do you think medical schools in this nation should be nationalized?
Interest rate relief on student debt is a fix to a huge problem that will affect current and recent students that have already assumed the debt.

You remind me of members of Congress who complain about the national debt but when someone offers a savings of several billions of $, they reject the idea because "several billion won't make much of a difference"😕😕

 

[DAPI]

Sen. Elizabeth Warren has introduced legislation that would give students the same low interest rates that the Federal Reserve gives to member banks. I think this is a wonderful idea that would literally save students thousands (if not tens of thousands) of $$ in interest charges. No group would benefit more than medical students. An alternative being pushed by some Republicans in the House is to instead double the current rates 😱😡

If this is important to you and your future, get involved and tell your Congressperson and Senators what you thing about this.

http://www.huffingtonpost.com/2013/05/08/elizabeth-warren-student-loans_n_3240407.html

Slow day, so I'll bite 🙄

The answer to the title is no, students should not pay the same rate as banks. Students have on average a default rate of 13.4% within the first three years of the first payment (source) and have no collateral. And, the rate Sen. Warren is referring to is the rate banks used to get and when the loans were backed with collateral (source).

Also, med students are not effected by rates doubling (unless you want to include undergrad loans). That is referring to subsidized student loans that currently have a rate of 3.4% (source).

Lastly, you mention Republicans pushing to double rate (again, only unsubsidized loans), but the Democrats did not leave room in the budgets to account for rates if they did not double, back to pre-2008 rates.... so yeah (source)

 

[plumazul]

This wouldn't affect medical students at all... the federal loans you take out to pay for medical school are unsubsidized and are fixed at 6.8% for up to $40,000/year (so $120,000 over 4 years at 6.8%) and the remaining cost of attendance is covered by another unsubsidized loan with a fixed interest rate of 7.9%.

I had no idea that all medical students entered study with zero student debt 🙄

 

[sinombre]

I had no idea that all medical students entered study with zero student debt 🙄

lol fair enough. But the fixed 7 and 9 percent interest rates a lot of us are stuck with on 200-300k of debt is a much bigger deal.

 

[1stmeds]

Sen. Elizabeth Warren has introduced legislation that would give students the same low interest rates that the Federal Reserve gives to member banks. I think this is a wonderful idea that would literally save students thousands (if not tens of thousands) of $$ in interest charges. No group would benefit more than medical students. An alternative being pushed by some Republicans in the House is to instead double the current rates 😱😡

If this is important to you and your future, get involved and tell your Congressperson and Senators what you thing about this.

http://www.huffingtonpost.com/2013/05/08/elizabeth-warren-student-loans_n_3240407.html

This is only for the Unsubsidized loans, and only for a year. Although, I certainly support the focus and think its a necessary first step. But only a first step, and a bigger vision for dealing with student debt needs to be developed.

 

[plumazul]

This is only for the Unsubsidized loans, and only for a year. Although, I certainly support the focus and think its a necessary first step. But only a first step, and a bigger vision for dealing with student debt needs to be developed.

👍👍👍 Yes, my point exactly. This is a discussion that must take place.

 

[Beargryllz]

I get the feeling that a student is a really risky investment, moreso today when a degree carries a lot less weight

One would think they would have to pay more in interest to compensate for the risk

 

[1stmeds]

The rates that are set to double are the ones on federal subsidized loans, ie not the ones that medical students are eligible to receive.

I think the main issue with student loan rates is that they are all the same. Interest rates should be tied to the risk of default and the students that take out loans for college or grad school do NOT all have the same risk of default. In my opinion, there is no reason why a medical student should have the same interest rates on his/her loans as an undergrad art major. Obviously there is nothing wrong with being an art major, but a medical student can be expected to pay off large amounts of debt with little to no risk of default while there isn't the same certainty in income for art majors.

In my opinion, simply reducing the student loan rates on all student loans to the federal funds rate would lead to a ton of problems.

The effort of tying rates to default risk would inevitably fail. You want it to be tied to major? how about school prestige? an art major at one school with a good rep would be presumed to not have the same job prospects as another school with a perceived poorer rep. This would become the USNews version of student loan determination.

What risk evaluation would transform into is basing student default risk on family wealth, which it is now, except the rate would fluctuate with the fam wealth. The poor would have less wealth so would have greater default risk and therefore, have worse interest rates, ironically since they need loans most. this would effectively codify the poor into becoming poorer and the rich richer.

 

[plumazul]

I get the feeling that a student is a really risky investment, moreso today when a degree carries a lot less weight

One would think they would have to pay more in interest to compensate for the risk

Education policy should not be formulated on a ledger. It is in the national interest to educate the citizens of your country. It is in the national interest to maintain the economic viability of these same students/grads. Will there be defaults? Probably, but we don't scrap the entire military every time a weapons program fails.

 

[darkjedi]

Student loans are not dismissable in bankruptcy anyway

 

[DAPI]

I like how in her video she says, "Student interest rates are set to double in less than two months, but so far congress has done nothing... Nothing to address this problem."

But just last year the government extended the current rates for another year instead of letting them double.

So I ask, how is her plan much different? She's just giving an even lower rate for another year, "while giving congress a chance to find a long term solution."

Congress isn't going to find a long term solution this year, just like they didn't last. Students only matter when it's time to get their vote, which is why last year the rates did not double.

 

[d12]

The effort of tying rates to default risk would inevitably fail. You want it to be tied to major? how about school prestige? an art major at one school with a good rep would be presumed to not have the same job prospects as another school with a perceived poorer rep. This would become the USNews version of student loan determination.

What risk evaluation would transform into is basing student default risk on family wealth, which it is now, except the rate would fluctuate with the fam wealth. The poor would have less wealth so would have greater default risk and therefore, have worse interest rates, ironically since they need loans most. this would effectively codify the poor into becoming poorer and the rich richer.

The reason interest is there is because of risk, yes? This is the very core of finance. All I'm saying is that a medical student carries far less risk than your average undergrad student and this should be reflected in the financing. I didn't make a call for the level of risk evaluation that you mentioned and why would it necessarily have to evolve into that?

 

[1stmeds]

More focus should be on the rapidly increasing rates of tuition climbs. Tackling interest is like putting a bandaid on a hemorrhaging arm.

I don't understand your point. Do we only fix problems that meet a certain threshold and ignore the rest? How would you control tuition? Subsidies? Do you think medical schools in this nation should be nationalized?
Interest rate relief on student debt is a fix to a huge problem that will affect current and recent students that have already assumed the debt.

You remind me of members of Congress who complain about the national debt but when someone offers a savings of several billions of $, they reject the idea because "several billion won't make much of a difference"😕😕

Well that's because perfect is the enemy of good

 

[sinombre]

I like how in her video she says, "Student interest rates are set to double in less than two months, but so far congress has done nothing... Nothing to address this problem."

But just last year the government extended the current rates for another year instead of letting them double.

So I ask, how is her plan much different? She's just giving an even lower rate for another year, "while giving congress a chance to find a long term solution."

Congress isn't going to find a long term solution this year, just like they didn't last. Students only matter when it's time to get their vote, which is why last year the rates did not double.

Sadly I think this is spot on. Also, thanks for the source in your last post.

 

[Gauss44]

They need to focus on PRIVATE STUDENT LOANS too.

 

[deleted307836]

Question for you all - what is a fair interest rate for medical students, in your opinion?

 

[Lamel]

Question for you all - what is a fair interest rate for medical students, in your opinion?

3.4x10^-45 %

 

[Tommyguns89]

I get the feeling that a student is a really risky investment, moreso today when a degree carries a lot less weight

One would think they would have to pay more in interest to compensate for the risk

The fact that you cant discharge the debt and the loans are bankruptcy protected compensates the risk.

The way I see it, we should let the loans be discharged through bankruptcy. Loans would not be available and tuition would plummet as nobody would be able to afford it at current prices.

 

[DAPI]

Question for you all - what is a fair interest rate for medical students, in your opinion?

A fair rate would be the rate of inflation predicted over the life of the loan + whatever it takes to cover medical student loan defaults + whatever it takes to cover overhead of loan distribution and collection + whatever the money could have made in the average market (minus inflation) + a little some some for the feds

My rational in the same order as above:

The feds should't be losing money over the life of the loan so inflation needs to be taken into account. This may need to be some type of variable rate to account to year for year inflation variability, but it's probably steady enough to average across all med student loans to cover it.

Since we as (soon to be) med students on this forum always claim we have much less risk than art majors (which may be true), we should be willing to take on the burden of all med students taking out these loans or we should be grouped with all other borrowers and quit whining. This would also include doc's that die before repaying their loans in full.

Loan distribution fees may cover this currently, but if they don't, the interest rate would need to account for it.

If the government could have put the money elsewhere and made a profit - maybe based on the Dow Jones Industrial Average, S&P, etc. - they should not lose those profits on medical students. But this should not include the inflation rate within the market as that was already accounted for. This could be the most difficult to predict and may require a year to year variable rate.

Med students should also not be able to loan money for free as no one else can, so the feds should get a little on top, but maybe this is already accounted for in the last set of profits based on the Dow/S&P - I would need to think that one through a little bit more.

 

[Gauss44]

Student loans are not dismissable in bankruptcy anyway

That law REALLY needs to change.

For example, if someone graduates from medical school with typical debt, has non-federal student loans, then becomes disabled and cannot repay, the debt keeps building, goes into default, etc. (unless someone else can pick up the tab). And if you are married, your spouse will become responsible, even if s/he makes far less money. Same is true of cosigners. How terrible would you feel if that were you? And I think this is the only type of debt that isn't dischargeable. I suspect this law will change and that it will destroy many lives before it does. Sad but true.

 

[deleted307836]

That's why (own-occupation) disability insurance is extremely important. I would think it would be prudent to get a policy large enough to cover loans and basic living expenses.

 

[deleted307836]

A fair rate would be the rate of inflation predicted over the life of the loan + whatever it takes to cover medical student loan defaults + whatever it takes to cover overhead of loan distribution and collection + whatever the money could have made in the average market (minus inflation) + a little some some for the feds

My rational in the same order as above:

The feds should't be losing money over the life of the loan so inflation needs to be taken into account. This may need to be some type of variable rate to account to year for year inflation variability, but it's probably steady enough to average across all med student loans to cover it.

Since we as (soon to be) med students on this forum always claim we have much less risk than art majors (which may be true), we should be willing to take on the burden of all med students taking out these loans or we should be grouped with all other borrowers and quit whining. This would also include doc's that die before repaying their loans in full.

Loan distribution fees may cover this currently, but if they don't, the interest rate would need to account for it.

If the government could have put the money elsewhere and made a profit - maybe based on the Dow Jones Industrial Average, S&P, etc. - they should not lose those profits on medical students. But this should not include the inflation rate within the market as that was already accounted for. This could be the most difficult to predict and may require a year to year variable rate.

Med students should also not be able to loan money for free as no one else can, so the feds should get a little on top, but maybe this is already accounted for in the last set of profits based on the Dow/S&P - I would need to think that one through a little bit more.

I agree with your thought process here. I used to think rates of 7-8% amounted to near extortion, but I'm rethinking that now that I consider some of these factors. I'd be interested in what people think would be a fair rate for both the lender and the student. Anyone else have an idea on that? I'm still not sure.

I still don't understand how students a decade ago were able to get rates so low, some even consolidated at under the rate of inflation which is mind-boggling to me.

Also, it's hard to accept why student loan interest rates are so high when mortgage rates are so low, which would seem to be riskier to lenders. I really don't know much about that though.

 

[Gauss44]

Also, it's hard to accept why student loan interest rates are so high when mortgage rates are so low, which would seem to be riskier to lenders. I really don't know much about that though.

Political pressure. Those who take out student loans don't lobby, make laws, make themselves heard, or make financial contributions like those who take out mortgages.

Like my law professor said, "The law isn't about right and wrong. It's about what's legal or illegal." It's up to the citizens to make their laws, fine tune them, and sometimes fix them.

 

[Gauss44]

That's why (own-occupation) disability insurance is extremely important. I would think it would be prudent to get a policy large enough to cover loans and basic living expenses.

Bankruptcy should (as in morally should) still be an option for student loan debt under some circumstances IMO. Bankruptcy is available for almost every other type of debt, even for plain ol overspending.

I agree that life insurance and disability insurance should be in place to protect other people from your debt. But if someone didn't do that, I don't think they should suffer the fate of being excluded from the option of bankruptcy as are the laws now. The concept of forgiveness shouldn't leave out students.