Why Privatization Won’t Solve the Student Loan Crisis

A post by Mitchell D. Weiss of Credit.com  appeared on the Huffington Post blog today,  discussing what’s not going to fix the student debt crisis, and who to hold responsible. He said what’s holding both Democrats and Republicans back is that they can’t agree (go figure) about the chicken or the egg aspect of the problem. But Weiss can find blame: private lenders.

Compared to the federal rates offered, the interest is astronomical. The government offers subsidized and unsubsidized, fixed-rate Stafford loans at 3.4 percent and 6.8 percent. Private lenders, however, have fixed-rate loans that range in price between 5.75 percent for the “best” of credits, which belong to students probably supported by a co-signing, high-FICO-scoring parent, to just under 13 percent for everyone else. Furthermore, 2005 changes to the bankruptcy law granted private lenders protections equal to those enjoyed by the federal government. It’s pretty clear the private sector is earning outsized rewards.

 

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