Peter Welch, Vermont’s finest (and only) Representative in Congress, recently posted a video of himself on his taxpayer-supported website, speaking in Congress, decrying the rise in interest rates for student loans. The title is “Welch Chides Congress for Failing to Act”. Funny, he didn’t post a video chiding Sen. Sanders and Sen. Leahy for failing to pass a budget for over 1,000 days, but hey – there’s bigger fish to fry for Ace Representative Peter. Plus, this way Sanders and Leahy won’t give him noogies in the Senate
cloakroom when no one’s looking.
Banks charge higher interest rates for student loans because the default rate for student loans is ridiculously high. Loans are repeatedly deferred, which means capital loaned out by banks does not yield any returns while the loan is in deferral. Those costs have to be covered, meaning that idle capital that’s out in a deferred loan is actually losing the bank money due to inflation.
Welch goes on in his video to complain about the growth in education costs, but doesn’t seem to connect the dots that the student debt is a function of the cost of education. Since higher ed tuition rates go up annually at 2X/3X the rate of inflation, of course student debt is going to go up – if they have to take more and bigger loans out to cover the costs of college, does Welch actually expect student debt to decrease? Why doesn’t he ask colleges about their costs?
I have questions for Peter. (Peter Welch, not Shumlin, because Shumlin seems to know how to turn a buck, at any cost.)
Would you loan someone money who had:
a) zero or bad credit, as many students do, and
b) had almost no employment background whatsoever, except for largely part-time service gig, and
c) had never taken out a loan before, never had to meet a payment schedule, and went to their $20,000 loan closing in flip-flops and a t-shirt?
Probably not. So why does Welch assume a bank can take on that risk without raising the rate to cover the inevitable losses? Welch is arguing here for banks to essentially take a loss on student loans. Not only will banks take bigger losses, they’ll have to spend even more money chasing down delinquent/deferred loans to help recover what they’ve lost in the reduced interest rate. It’s called “risk”, which is something the private sector has to mitigate every day, but Congress does not, because there’s never, ever a downside for politicians when they increase the size and scope of government. Oh, and run the money-printing presses 24/7.
What Welch fails to address, for reasons that help keep him in office, is that it’s the increases in the cost of education that are driving
the student debt bubble, not the interest rates on loans – costs have increased 1,200% since 1978. Note that when Peter approves of increasing tax rates, he doesn’t post a video of himself complaining how much that increase in taxes will cost the taxpayer. No, that kind of loss to the taxpayer is perfectly OK – it’s just being fair, after all.
In other words, Welch’s complaint about student loan interest rates, and his “fix” for it, is a lot like Obamacare – it is a massive, federal intrusion into a market dynamic that Welch either doesn’t understand or doesn’t want to talk about. It fails to address the real issues while pretending to do so, and affords a politician time in front of a camera to preen about the issue that wouldn’t exist if there weren’t a federal student loan program to complain about, in the first place.
It also takes an amazing amount of chutzpah to complain about interest rates that the private sector charges for student loans, when Welch has voted in support of budgets that have increased the rate of debt per person to levels higher than Greece. If Peter really wants to help, start asking colleges why their costs have increased so much over the past 20-30 years, and not why banks charge interest for their loans.
Oh, and by the way, Peter – the student loan interest rate doesn’t belong under a “Rebuilding Our Economy” subject header, because it has absolutely nothing to do with economic growth. Thanks for playing, though.