Thursday, May 23, 2013

Would House Bill on student-loan rates guarantee the next "bubble"?

English: Day 3 of the protest Occupy Wall Stre...
English: Day 3 of the protest Occupy Wall Street in Manhattan's Zuccotti Park. (Photo credit: Wikipedia)
The Bill recently passed by the House would tie student-loan interest rates to the market.

This means that the rates could rise dramatically during the years in which the graduate is struggling to repay them.  This is reminiscent of the variable rates on sub-prime mortgage loans that resulted in hundreds of thousands of defaults, which in turn contributed mightily to the recent Great Recession.

President Obama has indicated that, if the bill makes it through the Senate in its present form, he will veto it.

Outstanding student loans currently total more than one trillion dollars.

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