Factorial wrote:When loan forgiveness occurs, do the Feds still pay the banks? If so then the tax payers are subsidizing the colleges, banks, and employers much like the Feds are subsidizing employers by giving food stamps to employees making crap wages at WalMart, etc.
You are right. Only federal loans (stafford, perkins, etc.) are eligible for forgiveness. I think it works this way... the fed gathers all of the loans from private services when you consolidate, the fed now holds the loans and takes on the risk, after 10 / 20 /25 years, depending on the program, the loans are forgiven. Basically the fed pays for the loans up front, then doesn't recoup their full costs once they are forgiven.
At this point, the interest they are making (between 4.5% and 8.6%) on all of their other loans actually generates an overall profit for the federal government, but we are still years away from all these forgiveness programs and the corresponding payment periods really kicking in.
So yeah, you can look at it as tax payers subsidizing universities. You can also look at it as the states cutting funding to public schools, which in turn raise tuition, which is passed onto loans. So the fed is subsiding public state schools.