Many people seem to be confused about my last post about Sallie Mae and student loans. I am not asking for a hand-out. I am asking that loans with interest rates above 7% (I will even concede to 8%) be deemed illegal.
You heard me: ILLEGAL.
There is absolutely no good reason why any loan taken out from any bank should have an interest rate approaching 10%. The interest rate for my loan should NOT be similar to the current unemployment rate in America. That high interest rate can be described as criminal in today's job market.
I have to wonder about the sanity of any person what would take the big bank's side over the "future of America." I am not asking for a handout, I am asking to not pay exorbitant amounts of money to the estranged foster child of Fannie Mae & Freddie Mac.
Let's rewind, back up and address the issue of financial education before we move onto the predatory lender that is Sallie Mae.
In American society, when you turn 18, you are expected to graduate high school, move out of your parents' house, and go to college. If you were bombarded by "liberal elitist media" then you believe you must go to the best school you can get into, and in our warped consumer society that best school is usually the most expensive.
The pressure to go to college is enormous... we are told that those who go to college make significantly more money than those that do not (the figure floating around is $800,000 more over the course of a lifetime). "Great, sign me up" says the high school graduate, because how could you not want to make more money in your lifetime? College is supposed to be an investment that pays off over time, not a debt you will be repaying 20, 30 years after you graduate.
Then we must approach the question of financial education. What if the culture you grew up in never prepared you at the age of 18 to make financial decisions? If we are supposed to make life choices by the time we reach 18, if we are supposed to move out of the house, rent an apartment, grocery shop and plan a monthly expenses budget, we need to learn fiscal responsibility in high school.
Having a part-job or summer job doesn't cut it, and neither does loan consultation in college. (Because what are they going to tell you? To go to a cheaper college? To not take out that loan because you will be repaying it for 20+ years? I don't know, so...). If we are expected to be adults at the age of 18, then we need to be prepared to handle adult responsibilities. Is it surprising that in this fiscal educational void, the default rate on student loans is higher than any other loan, including sub-prime mortgages?
If we as a nation are unwilling to provide our teenagers with better financial education (or cheaper colleges, but that is another topic for another post), then we should be willing to punish the predatory lending institutions that prey on these high school graduates. What is even more disturbing is when politicians support these said banks from both sides of the aisle.
Now, onto the predatory lender currently in question (cue up the theme from "Jaws" if you like):
Sallie Mae began as a government-sponsored enterprise (GSE), just like its siblings Fannie Mae and Freddie Mac. Sallie Mae's original duties were to process student loans from banks that were its clients. Sallie Mae began to lobby Congress for less government interference in 1994, and as of 2004 is a completely independent enterprise.
If Sallie Mae remained a GSE, the government could step in at any time and lower my interest rate to something more reasonable, like 5.5%. The U.S. government would be able and willing to help me by lowering my interest rate because the U.S. government has every incentive to educate its young citizens. We are, after all, going to be police officers, doctors, and business owners.
So while I know it is fashionable to blame the government for everything, the public investors and the banks really look like the bad guys here. Remember, Sallie Mae pushed to be a more independent, less government-regulated enterprise, probably just so they could give out 9.5% interest rate loans and outsource "thousands of american jobs overseas to further increase profits."
Did you know that Sallie Mae routes government-subsidized loans through India and the Philippines? And: Is it possible my sweating to make the payments has funded one of those Supersized Big Banker Bonuses that made headlines in 2009? Hmmmm.
So what has the deregulation and "backing off" of the government gotten me? A 9.5% interest rate on a "predatory loan." A downpayment on somebody's Maserati that I can't drive?
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