The American Peoples by Faith Ringgold
If you want to start a conversation that most peoples are eager to share input, just say something about the woes of of college grads being burdened with huge student loans, the size of a mortgage. Concern over this issue is not limited to young professionals, but to their parents, relatives and their loved ones.
Some of the loan servicing entities names are Navient, Nelnet, American Education Services and Great Lakes Higher Education Corporation. It is reported that Sallie Mae/ Navient is by far the worst offender with the highest number of consumer complaints registered with CFPB, Consumer Financial Protection Bureau.
Jordan Weissman in his 10/26/15 Slate article, writes from the point of view of a lending institution. He penned his report as a response to Senator Bernie Sanders slogan, “It makes no sense that students and their parents pay higher interest rates for college than they pay for car loans or housing mortgages.” Here are some excerpts:
“Why are student loans sometimes more expensive than mortgages? For starters, they aren’t backed by an asset. If you default on your truck or condo, a bank can repossess it. But the Department of Education can’t take your political science degree. Instead, it has to send a debt collector your way to recoup whatever money it can. The government has lots of power on this front—student loans are nearly impossible to discharge in bankruptcy, and the feds can garnish your wages if they see fit—but it still typically loses money on defaults thanks to the cost of paying those collection agencies.”
“This is all especially important because the Department of Education doesn’t do much underwriting. The government will give anybody a loan to go to college, no matter how bad or nonexistent their credit histories might be, and charge them the same interest rate. This is wonderfully progressive. But it means that the government has to charge higher rates overall than if it were only lending to people with spotless personal finances. Moreover, it also means that comparing the flat rate on federal undergraduate student loans to the lowest available rates on mortgage or auto loans is misleading, since rock bottom mortgages and car loans are only available to people with good credit.”
“I know what you’re thinking now. But the student loan program is run at a profit. Why not lower rates so it just breaks even? The thing to remember here is that, on net, those profits don’t come from undergraduate lending. They come from loans taken out by parents (who are disproportionately sending their children to private colleges) and graduate students (who end up disproportionately wealthy).”
“Now, the government could theoretically take its profits from lending to parents and lawyers/doctors /McKinsey consultants in training, and plow them into cutting undergraduate rates even further. But then that raises another question: Why not spend the money elsewhere? After all, every dollar devoted to lowering student loan rates is a dollar that could be used increasing funding for the Pell grant program, which specifically targets low- and middle-income students.”
So now we know that the student loan programs’ most profitable segment of the business is from loans taken out by parents and graduate students. Graduate student loans for law, medical, MBA and engineering degrees can easily topple six figures. With interest rates in excess of 7%, these young professionals are starting off in their careers saddled with the equivalent of monthly mortgage payments.
Then I started questioning, is there is any way to beat the house?
For example, what if professionals with post graduate degrees who make 6 digit salaries, could pay their annual college loan amount owed with one of those reward credit cards with -0-percent interest rates? With student loans the consumer can pay a lump sum covering several months of monies owed without being required to still make another payment the following month. Well you guessed it! The loan servicer does not allow for payments to be made with a credit card unless the client is close to defaulting on their debt obligation.
The author, Nate Matherson responds to the concept of paying student loan bills with a credit card in his 6/9/15 Lendedu posting:
“And these loan servicing companies get paid more when a borrower is in repayment longer.” (This translates into the servicing company having a vested interest in allowing for a student’s loan bill to be paid for with a credit card, if the consumer is about to default.)
(I ask) Wouldn’t it be a benefit if a borrower with a great credit history along with no student loan late payments, could use the -0-percent interest reward credit cards to make payments while covering the processing fees that the loan servicer is charged by the credit card company?
Mr. Matherson writes:
“To accept credit cards online or at a branch, the merchant(your educational loan lender!) will be forced to pay a processing fee to the credit card company in order to receive your payment. Meaning, your lender would be on the hook for accepting a 3% to 5% credit card processing charge. For example, if you pay $1,000 each month to your lender, the lender would end up paying about $30 to $50 in credit card processing fees.”
“We’ve heard of a couple student loan lenders allowing borrowers to pay their student loan payment with a credit card. However, these lenders are charging borrowers the credit card processing fee on top of the payment amount. Meaning, the additional processing fees you would pay would likely not make up for the rewards you earn.”
What are some ways to get around student loan lender rules?
“You might be able to use the cash advance feature that most credit card companies offer. With cash advance, you can withdraw cash to a checking account out of the balance of the credit card. You could then use the cash to make an electronic payment from your checking account. Please note, some credit card companies charge cash advance fees and you might find yourself paying more in interest that month.”
“Lastly, you might be able to write an electronic check from your credit card balance. All student debt lenders accept payment via check. A check from your credit card would be no different. But again, there may be fees associated with this feature. It would be best to call your credit card company first to scope out the fees.”
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