Another Gaffe Ignored: Sanders Doesn't Understand Why Mortgage Interest Rates Are Lower Than Student Loan Rates

December 28th, 2015 2:06 PM

While the establishment press lies in wait for Republican and conservative candidates to make some kind of off-color or foolish statement — or one that can be twisted to become one, even if it originally wasn't — it consistently ignores howlers made by leftists and liberals. The list of President Barack Obama's gaffes alone, all totally or almost completely ignored by the press when they were made, is quite long.

The most telling gaffe is the kind made in all seriousness by its deliverer which betrays a level of cluelessness not thought humanly possible from a supposedly educated and informed adult. Democratic presidential candidate Bernie Sanders committed one such gaffe in a Saturday morning tweet.

Bill Kristol at the Weekly Standard suggested that Sanders' statement may be the "Most economically illiterate tweet ever." If it isn't, it's darned close, and may indeed by the winner in the Presidential Candidates' Division.

As they say "Feel the (ignorant) Bern" (HT Twitchy):

SandersInterestRatesTweet122615

A Google News search on "Sanders student loans" returns no relevant results from an establishment press outlet. One of the results listed is from the center-right BizPac Review, whose Carmine Sabia believes, with justification, that "Bernie Sanders can’t be president after THIS epically stupid tweet." Searches at the Associated Press and the New York Times on Sanders' full name also return nothing relevant.

As dozens of Twitter responders have noted, home mortgage interest rates are relatively low because the property involved is pledged as collateral. Thus, in a mortgage loan, the lending institution, assuming that it has done the necessary due diligence applying prudent lending standards, ordinarily takes on a relatively low amount of risk. If the borrower defaults on a mortgage loan, the lender gets to seize the property and resell it. Risk is usually even lower with a home-refinancing loan because the borrower involved has a track record of making payments on time.

Loans made to college students are unsecured, with no collateral pledged. That justifies their higher rates, even before considering other significant risk factors, which include the following:

  • The student's ability to get through school successfully.
  • The student's future ability and willingness to get and keep a job or otherwise make a living which pays him or her enough of an income to be able to afford to repay the loan.
  • His or her future willingness to repay.

Based on all of the risks involved, a better question would be why student loan interest rates are so low.

Without the guarantee of repayment by the federal government, very few if any lenders would even consider making a loan to a college student without at least the personal guarantee of a parent or other responsible adult with income and demonstrated ability and willingness to repay the loan in case the student doesn't.

Thus, because getting a college education has supposedly become a can't-do-without necessity and because it's "unaffordable" for so many, the federal government has become involved, to the point where it has now virtually nationalized student loans. During the Obama administration, the federal government took student loans away from most private-sector lenders and has been making such loans directly. Voila! Uncle Sam is now sitting on yet another debt time bomb:

FedStudentLoanBalancesTo070115

Meanwhile, student loan delinquencies have gone through the roof, likely indicating that anything resembling due diligence in loan origination completely disappeared once direct student lending skyrocketed.

Meanwhile, college costs continue to escalate. A recent study published by the National Bureau of Economic Research indicates that almost all of the increases in tuition and other costs can be traced to the increased — and clearly overly permissive — levels of borrowing.

Back in the land of unicorns and fairy dust, a Sanders fan trying to look official doubled down on the ignorance in a tweet Sunday afternoon:

SandersLoansSecuredByFeds122715

O ... M ... G. The so-called federal "guarantee" doesn't "secure" anything or make student loans "less risky." Instead, especially in the past six years, the federal government, i.e., the taxpayers who fund it, have taken on the very considerable risk involving in student loans.

The reference to Econ 101 is an insult to our intelligence, as is the press's failure to expose Sanders' original gaffe.

Cross-posted at BizzyBlog.com.