Cleaning Up

by Jonah Goldberg

I just got home from a long day’s drive out to Penn State, Abington and back. Major items in email box:

    Predatory Student Loans

    Volcano Lancing

    Book email

    Usual Spam.

Here’s a thorough student loan email:

This is the most information I’ve been able to find.
 

Basically, the 28% number not an interest rate, exactly—see this excerpt:

 

The student, who isn’t identified, alleges that he was never told that the interest rate would be 14% annually. In fact, a copy of the loan document reveals that after Sallie tacked on a “supplemental fee” of 9% of the loan balance, the annual cost of the credit while the student was in school was actually over 28%. Today the student owes $18,000. (Sallie says its average private loan rate nationally is about 8%.)

 

If a 9% fee is somewhere in the “fine print,” then it’s fair to be outraged, I should think—and while it’s reasonable to calculate an equivalent interest rate over the time in school, it’s different than somebody actually paying a compounding interest rate of 28%, which isn’t happening. Evidently the actual limit on an interest rate is 21%. Another excerpt:

 

At an informational meeting called by the Pennsylvania House Consumer Affairs Committee, Sallie admitted that it charges LVC students an average annual interest rate of 13% on their private loans, and that it sends the loans through Stillwater because the legal interest rate limit is 21% in Oklahoma, compared with 18% in Pennsylvania. House members were outraged. “Are you really doing a real service here by getting people into astronomical interest rate situations?” asked representative Reichley.

 

* Then, I went to Sallie Mae’s web site, and they detail everything out:

So, for example, the “Tuition Answer loan” is structured this way:

 

Without a cosigner

·                                 Immediate repayment option: Monthly variable interest rate from Prime + 1% to Prime + 5.5% with a one-time supplemental fee at disbursement from 0% to 5%. APR ranges from 6.25% to 11.53% with a monthly payment ranging from $73.09 to $106.87.

·                                 Interest-only option: Monthly variable interest rate from Prime + 1.5% to Prime + 6.5% with a one-time supplemental fee at disbursement from 2% to 6%. APR ranges from 6.96% to 12.62% with a monthly payment ranging from $77.59 to $115.29.

·                                 Deferment option: Monthly variable interest rate from Prime + 2% to Prime + 6.5% with a one-time supplemental fee at disbursement from 2% to 6.5%. APR ranges from 7.4% to 12.34% with a monthly payment ranging from $109.45 to $189.61.

  

However, they also calculate an APR on the repayment, which is the metric that everybody actually uses to figure “effective” interest rates, where fees get amortized over the entire loan. The APR is much lower, even in the worst cases, than 20%. 

So, Hillary didn’t make up the 28% number, but it’s a bit—hyperbolic. The CNN article got that number by amortizing the fee over the four years of education, not over the life of the loan.

As for volcano-lancing, this exciting news prompted a lot of email.  Book email will be over at the recently dormant LF blog. And I will spare you the usual spam, since you’re probably up to speed on that.

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