Are Navient Loans Really the Problem?

On face value, in an article from Bloomberg it looks like Navient is the latest Scape goat of the massive nightmare that is the government-subsidized student loan program. I’m not sure how entangled Navient is, and I am not condoning them, but the article is surprising on its conclusions.

  1. It accepts these student loans were beneficial to the consumer, but then it accepts 1/4 are struggling to repay their loans.

At least 1 in 4 of these loans were not beneficial to the student based on the value derived. Don’t confuse me with blaming the student and parents for a chance at a degree. As a culture, the perceived value is far out of scope with the actual value of a degree. If one goes into debt for a better more independent life, but gets the opposite….the investment was not worth it. Blaming the student or parents would be a misguided approach when there is a massive government promoting/subsidizing a degree’s worth alongside companies benefiting from government mandates.

In an actual free market, both lender and the borrower have incentives to ensure the loan is made for the right reasons and amount. A lender won’t lend if they know they will not be re-paid, and the borrower is evaluating how much is the reason worth justifying the loan. The interest rate is to ascertain the amount of risk a lender is willing to take, and if agreed upon, what the borrower is as well. Together, both parties are incentivized to make the optimal decision, to be better off after the loan is repaid.

  1. It blames a former branch of Sallie Mae as not doing its “job” to help former students pay their debt.

What incentives does a company like Navient actually have to help when it is illegal to walk away from student loans? This alone eliminates any downward pressure on price to ensure loans are of a repayable amount. Additionally, any incentive for a company to work with you to ensure payment is lost. By law the borrower has no escape from an ill-advised decision early in their lives.

Many of these student loans on a free market were bad decisions by any company issuing loans, but this isn’t a free market. Ensuring a loan company by law will receive payment eventually incentivizes more ill-advised loans, and less chance of assistance to pay back.

On this one example in a truly voluntary market, the company issuing loans with a fear of bankruptcy will, A) Not issue the loan to begin with if there is no evidence of possible repayment, B) Should a loan be issued and the student is having difficulty, the company would rather see partial or longer repayment options rather than receive pennies from a bankrupt 22 year old that has no assets to their name.

This article shows me there are huge issues way before Navient showed up. The value of a degree is not what our culture or government promote it to be. Based on the debt and money needed for a degree some are arguably worthless. Not all degrees are equal in value.

Problems with Navient will keep happening but with either different companies, or different people unless the root problem is solved.

The solution is not finding more scapegoats, its allowing education to adjust to its actual value, not subsidized and made more expensive by intervention.