It is not enough that the majority of the government employee’s pension funds are showing too little funds to cover their current or quickly upcoming expenses, but now we have this:
University endowments and teachers’ pension funds are among big investors in Sallie Mae, the private lender that has been generating enormous profits thanks to soaring student debt and the climbing cost of education, a Huffington Post review of financial documents has revealed.
The previously unreported investments mean that education professionals are able to profit twice off the same student: first by hiking the cost of tuition, then through dividends and higher valuations on their holdings in Sallie Mae, the largest student lender and loan servicer in the country, which profits by charging relatively high interest rates on its loans and not refinancing high-rate loans after students graduate and get well-paying jobs.
Sallie Mae is a former government-sponsored enterprise that was fully privatized in 2004 and now trades publicly as SLM Corp.
“It’s a conflict of interest,” said Barmak Nassirian, a longtime higher education analyst who most recently served as associate executive director of the American Association of Collegiate Registrars & Admissions Officers. “There is something inherently problematic about benefiting from the financing of the tuition you charge through investments in any lender.”
So when the student borrowers graduate and cannot find jobs with their lovely Liberal Arts degrees, partly because they’re in the midst of the Obameconomy, and they cannot repay their loans, what happens to Sallie Mae? And what happens to those invested in SLM Corp?
They take a hit right where it counts. And now that we know that many government employee pension funds have seen fit to invest heavily in SLM Corp, what happens when those pension funds have an even more difficult time coming up with the cash to cover their outgoing costs?
You and I will pay for it.
The government pension bubble and the student loan bubble combining to make our lives miserable. Even more so that, as we all know, Capitalism will be blamed for the ensuing destruction.
Now add the idiocy that is the senior Senator from Massachusetts, Elizabeth Warren on top of that:
Yesterday, Massachusetts Democrat Sen. Elizabeth Warren proposed a bill that would curtail excessive student loan costs by reducing interest rates to match what the federal reserve offers big banks. It turns out banks pay 0.75% and come July, students will have to pay a rate of 6.8%. Why should banks get a lower interest rate than our nation’s students?
Let me take a moment to fill the good Senator (and anyone else who doesn’t yet know) in on why the banks pay such a low rate: Because that is how the US Federal Reserve disperses their fiat currency, by lending it to the banks, who lend it to everyone else. For this “service”, the banks get to borrow at a low interest rate and then make their profit by bumping up the interest rate on the money they loan out.
I am wondering just how she expects the Sallie Mae folks to make any money, since the rate of .75% that she wishes to “give” to student borrowers is the rate that Sallie Mae borrows at and the 6.05% between those two figures is how Sallie Mae make their profits.
Not to mention that already 60% of students who are currently enrolled in college have loans. How much of an increase in the number of student loans would more than an 80% cut in student loan interest rates would we see? Does she want to see 80% of students have loans?
Full Disclosure: I have applied for and been granted a Sallie Mae loan to cover my expenses during my time at vocational school after my upcoming layoff. While an 80% cut in my interest rate does sound ever so nice, I’m not stupid enough to think that is a “good thing” for anyone.