Thursday, June 10, 2021

Chuck Schumer Announces He Doesn't Understand the Concept of Collateral and Student Lending

Click here to read the original Cautious Optimism Facebook post with comments

From Yahoo! News:

"The federal government is charging our students and those who have student debt 7% interest," Schumer (D-NY) said during a press conference...."

"You can get a mortgage for 4 or 5%, you can get a car loan for 4 or 5%."

The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff would like to remind—or more appropriately educate—Senator Schumer that if a borrower defaults on a mortgage or car loan the lender can repossess the house or car as collateral to recoup some of his loss.

But if a student defaults on student debt their paper diploma is worthless to the lender. Thus higher interest rates compensate for the greater credit risk.

This is yet another example of how financially and business illiterate most politicians are.

Also from the article: 

“Schumer is most likely referring to historical interest rates on student loans: In the 2006-7 year period, interest rates were 6.8% for subsidized and unsubsidized loans. That rate has decreased over the years and currently stands at 2.75%. The interest rate will increase to 3.73% for 2021-22.”

Great so he’s comparing mortgages rates in 2021 to student loan rates in 2006. So “you can get a mortgage for 4 or 5%,” or you can get a student loan at 2.75% (because it’s already subsidized by the government). So what exactly is the problem again Chucky?

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