New Education Secretary: Will it make a difference?

bclintonk
Thu, 15 Dec 2016 00:40:07 +0000

re: student loan interest rates

Out of curiosity, I just checked with my bank, one of the largest and most competitive in the country. They do offer private student loans. Current rates for a fixed-rate undergraduate loan range from 5.94% APR to 10.92% APR, depending on the borrower’s creditworthiness. The lower rate reflects a “relationship discount” available only to borrowers with co-signers who already have substantial relationships (i.e., other accounts and/or investments) with the bank.

Federal direct student loans for undergraduates are presently at 3.76% APR.

If the private market could successfully beat the federal rate, why isn’t it doing so already? My bank has a history of competing pretty much anywhere there’s money to be made.

My guess is they really don’t want much of this business because the loans are unsecured and have a high default rate. They may be offering student loans only as a courtesy to those of their existing customers who prefer to do all their banking under one roof, even if it means paying a higher interest rate. It was a different story when private student loans were federally insured so that, as someone said, the profits were private but the risks were socialized. Many banks were happy to stick their snout into that trough.