Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewan indebted student's perspective on the student loan fairness act
First off, let me get all the caveats out of the way:
Okay, onto my opinions.
Firstly, I don't understand why private banks care about this? This act only applies to federal loans. Sure, some borrowers can transfer their debt to federal loans and then pay off 10% for 10 years, at which point the rest is forgiven, but won't the government pay the bank for the debt? So they win either way, at least to my (limited) understanding.
The main argument I hear against this bill is well summarized by my younger and smarter brother: "The government's attempts to fence in the banking industry to "protect the consumer" are a prime example of governments exemplary ability to create gross inefficiencies. Yes, eliminating"uncertainty over interest rates" is a great thing, but where does that uncertainty fall? The banks. Under the guise of protecting the consumer, the government is restricting the banking industry's ability to, through competition, find an equilibrium with consumers by creating efficiencies in their individual companies that give them an upper hand over competition. By tying the bankers' hands down and structuring derivatives in a way that "protects the consumer" (Dodd-Frank) and by forcing rates to be connected to government issued securities, the government hampers the industry's ability to discover innovative ways to increase efficiency, increase gains, and pass these gains onto the consumer to increase market share. Which, in my opinion, protects the consumer and leads to economic growth." (emphasis mine)
Call me a Cynical Cynthia, but I can hardly bring myself to believe that these gains will be passed onto the consumer (which is ME, remember) in the form of lower interest rates. I know a lot of bankers and they are lovely, but the fact of the matter is individuals do not decide to whom the extra income from higher interest rates goes. The Bank does, and banks (like all institutions, in my humble opinion) do not have a conscience. I believe these gains will go to the shareholders and to executives in the form of bonuses. I'm not trying to keep hard-won bonuses from people (and I know that bankers work very hard; I'm related to three of them!) but - to put it crudely - don't piss on my head and tell me it's raining. It's naïve at best and disingenuous at worst to insinuate that these financial gains will come to me.
To quote Michel Foucault, '[Power] takes place when there is a relation between two free subjects, and this relation is unbalanced, so that one can act upon the other, and the other is acted upon, or allows himself to be acted upon." The bank that owns my debt holds my financial life in its uncaring hands, and there is nothing I can do about that. Our relationship is inherently unbalanced; I need $170K to go to medical school, and as a 24-year-old, I don't have that money. I need the bank, but (and this is key) the bank doesn't necessarily need me. Sure, it needs borrowers, but the fact is that there are hundreds of thousands of students just like me out there. The bank has all the power, and because it is a conscienceless organization, it doesn't care how it gets paid, so long as it gets paid in the end. At the end of the day, I do not trust my bank, or any bank, to have my best interests at heart. In my (again, limited) understanding, banks aren't accountable to me. They're accountable to their shareholders. You could argue that the best way for the bank to make money for its shareholders is to keep its customers happy, but I'm not sure that it is. If all banks are willing to throw us under the bus to make ends meet, then where are we, as the consumer, supposed to go?
Now, in all likelihood I will be able to pay back my loans, because I'm going into a field that has some pretty excellent job security. But even so, if I choose a primary care field (which, by the way, the country desperately needs more medical students to do) and am unable to get assistance with paying off my loans, I will probably be in my forties before I am debt-free. One of my professors, a geriatrician, didn't buy a house until she was 49 because she wasn't in a financial position to do so; another doctor I know is a clinical child psychiatrist who works with underprivileged kids, and he was also almost 50 before his loans were paid off. So the incentive in the field is to specialize and subsequently charge ridiculous amounts of money for your services.
Some of the most popular specialties for medical students are dermatology, radiology, and ENT (ear, nose, throat). Do you really think that many people just love skin rashes? Or could it be that you work 9 to 5 and make $500,000 a year? Some of the most talented people are going into these fields, which means they aren't becoming your primary care provider, or your cardiologist, or your geriatrician. Those people are paying their debt off for twenty years or more and trying to figure out when they can purchase a home, or a car, or pay for their kids to go to college. To me, this doesn't seem helpful for the economy or society.
Is this piece of legislation the way to fix that? I have no idea, honestly. But I think the heart of this argument is whether or not we, as consumers, can trust banks to do right by us, or if we need the government to protect us from them. Wall Street didn't do your industry any favors in this regard. I would think that I'm more likely to trust the industry then many others in my position, and frankly... even I don't. To my mind, if bankers don't want this kind of law to pass, they need to figure out how to reassure their customers that they are our allies, not our enemies.