It helps to have run a business or at least understand business principles if you are going to propose public policy. It just make common sense that if you make unsecured loans that the interest charged would be higher, not lower.

“Why do car loans and mortgages have lower interest rates? They are secured by a tangible asset that can be reclaimed by the lender if the borrower stops paying. The bank can foreclose on your home or repossess your car, so they end up with an asset they can sell to recoup their losses. Rates on these loans are likely to be lower because the lender’s risk is lower. An education, by contrast, is not a tangible asset. It cannot be reclaimed and has no value other than to the person who acquired it. If you stop making student loan payments, they can send you nasty letters and harass you with phone calls. In some cases, they can use aggressive collection techniques. But for the most part, they can’t do much except drag down your credit rating. This is probably why student loan default rates recently spiked to nearly 15 percent (possibly much higher) while mortgage defaults were about half that at the height of the housing market collapse.”

Source: No, Bernie Sanders, Student Loan Rates Should Be Higher

Advertisements