A federal appeals court has blocked the implementation of the Biden administration’s student debt relief plan, which would have lowered monthly payments for millions of borrowers.
How so? Doesn’t the government (not banks) own the loans that they are currently forgiving? What would be different than owning them and zeroing out the remaining interest? The feds would get a small payoff instead of losing 100% of the remainder through forgiveness.
Banks finance all the FAFSA loans. Originators lend the money out and then they sell the money to servicers who are like collection agencies. Some originators are also servicers (Sallie Mae was like this).
The government is a guarantor of the loans. That means that if the borrower defaults the government pays the servicer. I do believe that also means that if the government forgives the loan then they pay out to the servicer.
It’s a sweet deal for the servicers… the loans are basically zero risk and the servicer gets to keep a lion’s share of the interest while only paying for the costs associated with servicing (customer service, mailing statements, pausing repayment for various reasons, etc.)
That said, those loans shouldn’t be confused with private student loans, in which the government is. It involved (mostly).
How so? Doesn’t the government (not banks) own the loans that they are currently forgiving? What would be different than owning them and zeroing out the remaining interest? The feds would get a small payoff instead of losing 100% of the remainder through forgiveness.
Nope. Loans are traded around all the time. Mine traded hands like 3 or 4 times before I paid them off, iirc.
Pretty sure in order to be forgiven, the loan has to be consolidated under a government-owned loan.
https://abc7news.com/what-are-privately-held-federal-student-loans-new-loan-forgiveness-rules-president-joe-biden-private/12282942/
Banks finance all the FAFSA loans. Originators lend the money out and then they sell the money to servicers who are like collection agencies. Some originators are also servicers (Sallie Mae was like this).
The government is a guarantor of the loans. That means that if the borrower defaults the government pays the servicer. I do believe that also means that if the government forgives the loan then they pay out to the servicer.
You got it.
It’s a sweet deal for the servicers… the loans are basically zero risk and the servicer gets to keep a lion’s share of the interest while only paying for the costs associated with servicing (customer service, mailing statements, pausing repayment for various reasons, etc.)
That said, those loans shouldn’t be confused with private student loans, in which the government is. It involved (mostly).