BLOOMBERG: This Fed Official Just Perfectly Described Why Student Loans Are a Terrible Investment

Career College Central Summary:

  • William Dudley, president of the Federal Reserve Bank of New York, delivered a speech on Wednesday morning that drove home just how dangerous an investment student loans are for American taxpayers.
  • Speaking at a conference on student loan data, Dudley outlined the consequences of the unique way the U.S. government lends money to people for college.
  • Government student loans are the only type of consumer debt that gets issued without the lender accounting for the possibility that the borrower wont repay the loan. Dudley explains:
  • “Unlike virtually all other forms of credit, student loans are generally not underwritten: They are frequently offered to young borrowers who have little or no credit history and little to no current income.” (Since it is not getting paid for the risk it takes in the form of superhigh interest rates, the government takes draconian measures to make sure it gets its money back, making it basically illegal to discharge student debt in bankruptcy and reserving the right to extract payment from people's wages, tax returns, and Social Security income, in some cases.)
  • Obama has expanded programs that allow students to make payments based on how much they earn, which is good for financially stressed students, but it also means that debtors are paying less back to the government. Dudley notes that people whose student loans became due in 2009 have paid off only 17 percent of what they originally owed. 

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