Risk premium is on top of the other bits.
Based on the other comment, they absolutely reflect that.
edit: Yeah, that other comment is talking about European rates, not American rates.
https://studentaid.gov/understand-aid/types/loans/interest-r...
6.39% to 8.94%, and that's for Federal. Private ones tend to be even higher.
7/1/21–6/30/22 3.73%
7/1/20–6/30/21 2.75%
7/1/19–6/30/20 4.53%
7/1/18–6/30/19 5.05%
7/1/17–6/30/18 4.45%
7/1/16–6/30/17 3.76%Private student loans are similarly protected from bankrupcty, and don't have things like income-based repayment; they are, if anything, safer for the lender. https://studentaid.gov/understand-aid/types/loans/federal-vs...
[1] https://home.treasury.gov/resource-center/data-chart-center/...
Doesn't mean their pricing is that reasonable, or that funding education should be run this way in the first place. It just means there are big barriers to entry, often established by the existing players to protect their margins. The Fed rate for student loans should be lower.
What are the barriers? Can I make non-dischargeable student loans at 5%?
I know I’d be completely uninterested in such an investment pitch. It would work better as a charity ask for me.
If it’s safe I can leverage it.
> get on a 10 or 30 year federal bond with more risk associated with it
5% is 10 bps over the 20 year. Not a lot. But I picked a round number. Point is why couldn’t it be undercut? If it can’t, easily, it’s correctly priced.
Loans to private persons are very unsafe, for example they can move abroad and just stop paying as the article is talking about. Every person doing that raises interest for everyone else.
Lots of startup capital?
So essentially governments build trust with banks so those banks can issue fiat currency. Then those banks build trust with people like you so you can use the bank to issue fiat currency. Its the same system, bank pay interest to central bank for doing that and you pay interest to the bank.
If you mean why you can't get money from the central bank? Its just that you haven't built trust with them. But you can do so indirectly by taking a loan from your local bank, and that trusted middleman takes a fee for it.
Loan forgiveness happens after 35 years so for most academics that is about 10 years before retirement. Forgiveness also happens upon death.
Bankruptcy is a bit different here. We have a program where someone manages your finances for about three years, and after that most remaining debt is forgiven. However, student debt is an exception, that one stays
Comforting I'm sure. But it wasn't always that way:
"Six years after the death of Christopher Bryski, a 23-year-old student at Rutgers University, Key Bank has agreed to forgive his student loan. But Bryski's family is not stopping there: It's now fighting to change the laws in the hope of sparing others the trauma it endured as lenders continued to hound it for payment on its dead son's debts."
And it might not be mandatory:
"But it is guidance, not law, and it does not cover creditors collecting their own debts, as they are not covered by the FDCPA (Fair Debt Collection Practices Act)," she said.
https://abcnews.com/Business/bank-forgives-dead-students-loa...