A Tale of Two Loans: When I went to college, I took out a small amount of student loans. And the interest rate was quite low: a variable rate of 1.75%, which today stands at 2.35%. When I went to graduate school, my loan rate, despite the 2008 financial collapse: 6.8%.
The mortgage rate on my house is half that.
When I drive down to Portland, I always chuckle (without the humor) at the sign offering boat loans for under 2.5% APR.
People always say that those two loans are so cheap because they’re backed by something tangible — the bank can always repossess the house or the boat. But not that education.
But guess what?
The federal government guaranteed every student loan that I took out. This means they promised private student loan companies that if I defaulted, the loan company would be fully reimbursed. In other words, the loan company took less risk on my student loans than another did on my house.
So why am I paying twice as much in interest for a student loan?
image credit: flickr/lightbrigading (fun fact: this is my grad alma mater)