At present there is now a trillion dollars out in student loans and today’s graduates only have a 50% chance of getting a job when they get out of school. Government loans are called a subsidy because the government subsidizes the difference in the interest rates for a student loan and a straight up loan for any other purpose. A government subsidized loan procures 3.4% interest, which is to say the student making the loan must pay back the principle plus 3.4%.
If that student is lucky enough to get a job when he or she graduates and then opens a savings account in the US, the interest on that account is less than 1%. Of course the bank can take the money in that savings account and leverage it 300% which will be lent out at 6+% interest. The difference between the 3.4% for the student loan and the 6% made on the leveraged savings account, which pays less than 1%, is the amount subsidized through the government.
Continue reading “Subsidized Student Loans, Subsidized Banks, and Socialism on May Day”