Assuming it actually happens (unlike the recent European cargo ban), it sounds like this will be a temporary measure for more-or-less the duration of the pandemic. OK, but I think taking it to the next level of automatic deferments/forbearance is also in order.
There are already systems in place to defer payments on student loans if you are unemployed or otherwise unable to pay. Normally doing so still accrues interest - I assume under the announced plan you'll continue to be able to do that, but not accrue more interest.
Mortgage interest rates dramatically affect the price of a house. House payments for the first few years are nearly all interest. It's a LOT better than nothing.
A car lot salesman told me once that the dealerships don't make money selling cars - they make the money selling financing, i.e. the interest. Consider that when saying "better than nothing".
> A car lot salesman told me once that the dealerships don't make money selling cars - they make the money selling financing.
I believe it. I prefer to pay cash for cars, and it is extremely difficult to purchase new cars for cash at many dealerships. They don't like it and will do things like refuse to honor advertised prices.
That's why a lot of people do financing, pay the first monthly payment so that the seller/financer gets their kickback, and then pay off the rest of the loan on day 31.
Pro tip. If you're buying a car with cash, decline to state how you're paying for it until you have already negotiated the price and gotten it in writing. They will ask. Tell them you'll work out finances with their finance person.
If you tell them you're paying in cash before you have the price in writing, your price negotiations will go poorly.
But low interest rates also allow more leverage to be brought to bear in a bidding war...ultimately causing housing prices to rise. There is no free lunch.
People won't see a realized benefit for years, even decades. And with this being a temporary measure, 3-6 months of no interest doesn't amount to very much - maybe a few thousand for people with somewhat larger loan amounts that are also all federal.
> People won't see a realized benefit for years, even decades.
This is how people get seduced into being eaten alive by interest payments, and how lenders make a fortune.
Understanding compound interest and the time value of money is a big part of how people move up financially, and how not understanding it leaves people at the bottom tiers.
For example, that mere "few thousand" can be applied to buy down the principle, which will have a sustained benefit to you for the life of the loan, and you'll pay it off much earlier.
They’ve just made it 100% free (no interest OR payments) to spend your first four years after high school doing actual work and learning actual skills, instead of drinking while continuing 4-6 more years of high school.
If someone says sprinting cross-country is impossible; seeing them sprinting away from a beach when a tsunami hits does not undo their claim.
Nearly any arrangement is economically possible for 6 months. The government can implement price controls, enforce unlimited paid vacation and give everyone a million dollars; even that might hold together for a month before people start starving.
Holding together over the medium-long term is a completely different story.
Anecdote time: I have been told numerous times, by US physicians and nurses, that m4a is impossible. That it literally is not achievable in the US. These weren't even hardcore republicans. Centrists for the most part.
ChuckMcM had an interesting observation elsewhere that times of such crisis are perfect for companies to deliver bad news, as the blame (and perhaps opposition) gets lost in the noise. I'm wondering if something similar will happen in politics - a lot of things that were not possible to push through in calmer times will now get implemented, with all the energy pandemic mitigation adds to them, and they'll stick after all it's done. Government has a lot of inertia after all.
I now think of these economic shocks as opportunities for profit taking, like a game of musical chairs. Sell off before the rubes notice, then buy it all back up at bargain prices.
Previously, Kevin Phillips' book Wealth & Democracy in America is a more academic, pedantic telling of the same story.
It’s happened in politics for a long time. Two decades ago, a political advisor in the British government sent an email on 11th Sept 2001 saying the day was “a very good day to get out anything we want to bury”. It didn’t go down well, but others have been much more subtle.
Trump was never very ideologically inclined, so this does not seem unbelievable. He mostly acts out of self-interest and to stroke his ego (a caricature, but one which doubles as a fairly solid heuristic).
As other commenters have pointed out, the interest rates are also historically low.
He really does take it to another level though. Take his attitude towards engagement with Cuba. During his campaign he flipped, flopped, flipped again then flopped again all within a few weeks. Some of the reversals were literally on consecutive days, it just depended who he was talking to at the time.
We already know that it's possible to build an economy that is interest/usury free. It's been done before. It's just that the people benefiting from it today make easy money, while putting down the section of the population that needs it, ensuring continual slavery. Neither the democrats nor republicans dare bring this up.
Usury/interest are banned according to Islamic Law. This means that until very recently when Western banks were forced into the Middle East, all the nations there were operating interest-free. This includes the Ummayad, Abbassid, and Ottoman empires. The well-known and prosperous Islamic Golden Age[1] took place during those eras as well.
Muslims are prohibited to deal with interest with anyone, Jews or anyone else. So no, it was not outsourced to them. If Jews were allowed to lend money with interest to non-Muslims, that's a separate topic altogether.
Muslims still had to work in the economy and run businesses, and it was a Muslims majority land, so a few Jews lending money with interest is not going to affect the overall economy which is not based on interest.
During record low interest rates. Saving $80/mo isn't exactly life changing if you're paying $500/mo on $50k in loans. Better than nothing, but where is the rent and mortgage relief? Suspension of evictions?
Make a temporary federal law that overrides local laws. The federal government can basically do anything it wants. It is only because it is so gracious that it lets states have any laws at all.
there was a case where the USSC ruled that growing food on your own land for your own consumption was interstate commerce, and forced the farmer to stop. Never underestimate the ability of political justices to contort the Constitution.
The federal government does have to at least make it seem like they are using a constitutional basis for law. Otherwise it could be nullified by a legal challenge, as it seems is happening with the ACA.
It seems to me that if the federal government requests this, states will follow. Hell, who wants to be the governor that said no if Trump suggests you suspend evictions.
That's a hard call to make. IIRC income and land taxes were each supposed to be temporary funding solutions for wars and such.
On the other hand Trump had the right idea eliminating bloat but he went about it in the worst way. That way we'd be less likely to end up with more permanent taxes if this drags on.
There are a few federal tenancy laws currently. Presumably, they'd add another. Think the case would make it through SCOTUS before the emergency is over?
The common rate for my mom's student loans are nearly 7%.
So are mine (edit: mine are 6.5%), but she has something like 140k in student loans, and I only had about 30k... so I've nearly paid mine off, she will never probably pay hers off.
David Graeber's book Debt: The First 5000 Years has historical accounts of what happens when debt gets out of proportion.
Also, among the things I learned from Michael Lewis's Against The Rules podcast, which has an episode on student loans, that our modern consumer financing was enabled by overturning the historical ban on usury debt.
Depending on the type of loan, and when it was taken, the interest rates on student loans very greatly.
If you have some that were low interest due to timing or subsidizing (0% interest in some cases), it can make sense to pay the loans slowly and invest or save money instead.
So the age of the loans isn't a reliable predictor of their burden.
As someone who chose a worse school and didn’t take out loans (and came from a family that had zero savings to help me), it’s sickening that people pretend there were no other options.
My total loan amount was ~30k for most my loans over 5 years. The initial loans were at 3.25% and whatever the perkins loan rate was, the later loans were at 6.8%, which was super ridiculous and I don’t think they stopped that rate until later. I preferentially paid off the 6.8% loans, the other loans are practically free money (interest rates below 2%) at this point so I pay the minimum.
WHAT MR. TRUMP SAID
“To help our students and their families, I have waived interest that all student loans held by federal government agencies, and that will be until further notice.”
This needs context. Interest rates will be temporarily waived for borrowers, but their monthly payments will not actually decrease, according to a Department of Education spokeswoman. Instead, borrowers’ full payments will go toward the principal on their loans.
Deferment and/or income-based-repayment plans already exist. Presumably, you'd take advantage of it in conjunction with one of those existing programs.
or maybe it's meant to actually help the students, and it's something that he can do without the opposing party conducting lawfare and stopping it? I don't know, I always look at the simplest motivation for actions first.
The opposing party is traditionally in favor of student debt forgiveness, whereas Trump's party is traditionally opposed to it. If Trump just wanted to help students, he had ample opportunity to do so before now.
The simplest motivation is always self-interest and, for a politician seeking re-election, winning that election.
Members of his own party were opposed to it as well - the US government tends to be pro war regardless of party affiliation. Meanwhile, his opponents are actually running against him with student loan forgiveness as part of their platform.
could this be related to the new round of QE, the $1.5T influx to coporations and possible negative interest rates? Not an economist here, but wondering if holding debt could be bad in the near future, if there is some other kind of shell game/buck-passing going on here? this just doesn't smell right.
wow, -2. What a surprise. Anything that paints Trump in a good light is downvoted. And this is why there's a silent majority that smile when libs talk and vote Trump anyway.
So if I'm being charged interest on my Stafford unsubsidized loans while currently attending, interest will not be accrued?
What about private loans too? This is pretty sweet for currently attending students. I hope it lasts a while cause that save me tons while I'm back in school. Especially if I need private loans through like Sallie Mae.
Economic activity supports employment, and large portions of the world economy are being paused. There are many people already losing their jobs over this event. The question at this point is: how bad will it be?
It is important to not that this is 1) only for federal loans (so not Sallie Mae or Navient), 2) this is only interest, so you still have your monthly payments (you are paying the same amount, but it goes directly to principal), and 3) this is almost certainly temporary.
Given this, specifically #2, I'm not sure that this really helps people that are having financial problems __right now__. You are paying the same bill after all.
Wow. What the fuck ever happened to forbearance for hardship in federal student loans?! When my wife and I were at university ('94-97, transfer from paying our way through community college) we both had Stafford government subsidized loans through Sallie Mae. When we graduated and I got a job as a software developer & her as a teacher, I then got hit with the layoffs after the dot-com bust all of three years later and was unemployed for 6 months (e.g April - October). During that time, both my wife and I waere able to take advantage of what is known as "forbearance" on both our student loans because I was out of work - deferring payments, but still accruing interest on about $500 perm month in 2000's money for our $40k worth of loans combined. It made the difference between keeping & loosing our car and apartment in Seattle between her meager paycheck as a teacher and my unemployment checks. Why in the HELL isn't this still an option? Why the hell should Trump or any politician be crooning about simply cutting the goddamned interest alone that students today are getting soaked for when they could simply put all the payments on "pause" for the weeks it will take for this to blow over?
Forbearance is still an option but limited in the number of total months it’s available. That’s always been the case. This seems in addition to that option.
Sounds like the crisis is bringing people together, even politically opposed folks. Really nice to see this happening. Wish it could happen under normal circumstances.
I'm pretty happy about this too. I briefly felt somewhat hopeless that our political leaders are so focused on scoring points over petty bullshit that they might not be able to work together on something critical like this. It's not like we need or even want them to act like they agree with each other or are friends or something else, we just need them to use their power to help make the situation not-as-bad as it could be.
And I also wish it didn't take an imminent crisis for this to happen.
Hah, The crisis is turning Trump into a socialist: trillions injected into the banking system, more health care paid for, more aid for students ... Rand Paul must be having a fit. (librrtarian who votes no on most federal funding)
104 comments
[ 2.7 ms ] story [ 51.3 ms ] threadA car lot salesman told me once that the dealerships don't make money selling cars - they make the money selling financing, i.e. the interest. Consider that when saying "better than nothing".
I believe it. I prefer to pay cash for cars, and it is extremely difficult to purchase new cars for cash at many dealerships. They don't like it and will do things like refuse to honor advertised prices.
Went in to th credit union on Monday and refinanced the loan, paying off the loan from the dealer.
The dealer wanted over twice what the credit union wanted for GAP insurance.
Of course, there's nothing they can do at that point...
Pro tip. If you're buying a car with cash, decline to state how you're paying for it until you have already negotiated the price and gotten it in writing. They will ask. Tell them you'll work out finances with their finance person.
If you tell them you're paying in cash before you have the price in writing, your price negotiations will go poorly.
That's quite a stretch.
People won't see a realized benefit for years, even decades. And with this being a temporary measure, 3-6 months of no interest doesn't amount to very much - maybe a few thousand for people with somewhat larger loan amounts that are also all federal.
This is how people get seduced into being eaten alive by interest payments, and how lenders make a fortune.
Understanding compound interest and the time value of money is a big part of how people move up financially, and how not understanding it leaves people at the bottom tiers.
For example, that mere "few thousand" can be applied to buy down the principle, which will have a sustained benefit to you for the life of the loan, and you'll pay it off much earlier.
If it seems good (and bad) to both sides, it's probably something good for most.
[1] https://youtu.be/1yeA_kHHLow
Nearly any arrangement is economically possible for 6 months. The government can implement price controls, enforce unlimited paid vacation and give everyone a million dollars; even that might hold together for a month before people start starving.
Holding together over the medium-long term is a completely different story.
I think the idea is the cost outweighs the benefit in non emergency situations.
https://news.ycombinator.com/item?id=22571121
Previously, Kevin Phillips' book Wealth & Democracy in America is a more academic, pedantic telling of the same story.
https://www.amazon.com/Wealth-Democracy-Fortunes-Government-...
http://news.bbc.co.uk/2/hi/uk_news/politics/1588323.stm
https://news.ycombinator.com/item?id=22566970
He however was not downvoted for the observation.
As other commenters have pointed out, the interest rates are also historically low.
Thanks
[1] https://en.wikipedia.org/wiki/Islamic_Golden_Age
https://en.m.wikipedia.org/wiki/Riba
Muslims still had to work in the economy and run businesses, and it was a Muslims majority land, so a few Jews lending money with interest is not going to affect the overall economy which is not based on interest.
On the other hand Trump had the right idea eliminating bloat but he went about it in the worst way. That way we'd be less likely to end up with more permanent taxes if this drags on.
I got a discount after 48 months of payments, a discount for autopay, and some of the loans are from 2003-2005
So are mine (edit: mine are 6.5%), but she has something like 140k in student loans, and I only had about 30k... so I've nearly paid mine off, she will never probably pay hers off.
David Graeber's book Debt: The First 5000 Years has historical accounts of what happens when debt gets out of proportion.
Also, among the things I learned from Michael Lewis's Against The Rules podcast, which has an episode on student loans, that our modern consumer financing was enabled by overturning the historical ban on usury debt.
https://atrpodcast.com/episodes/the-seven-minute-rule-s1!1c9...
If you have some that were low interest due to timing or subsidizing (0% interest in some cases), it can make sense to pay the loans slowly and invest or save money instead.
So the age of the loans isn't a reliable predictor of their burden.
From:https://www.nytimes.com/2020/03/13/us/politics/trumps-corona...
WHAT MR. TRUMP SAID “To help our students and their families, I have waived interest that all student loans held by federal government agencies, and that will be until further notice.”
This needs context. Interest rates will be temporarily waived for borrowers, but their monthly payments will not actually decrease, according to a Department of Education spokeswoman. Instead, borrowers’ full payments will go toward the principal on their loans.
That’s good right? There are already forbearance programs to cover those who can’t make payments.
https://studentaid.gov/manage-loans/lower-payments/get-tempo...
Think of this announcement as an amendment to the section titled "Be Aware That Interest Might Accrue During Deferment"
Isn't the point of these moves to provide economic relief now? I'd be more interested to see minimum payments temporarily set to 0 with no interest.
The simplest motivation is always self-interest and, for a politician seeking re-election, winning that election.
What about private loans too? This is pretty sweet for currently attending students. I hope it lasts a while cause that save me tons while I'm back in school. Especially if I need private loans through like Sallie Mae.
Given this, specifically #2, I'm not sure that this really helps people that are having financial problems __right now__. You are paying the same bill after all.
https://mobile.twitter.com/Navient/status/123857668491329945...
And yes, it's still an option.
And I also wish it didn't take an imminent crisis for this to happen.