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If you're going to hold forth on banking, it might be a good idea to actually bone up on the vocabulary. You clearly don't understand the term Return On Assets. Let me be of help:
Another good metric for evaluating management performance is a bank's return on assets (ROA). When calculating ROA, remember that banks are highly leveraged, so a 1% ROA indicates huge profits. This is one area that catches a lot of investors: technology companies might have an ROA of 5% or more, but these figures cannot be directly compared to banks. (To learn more, read ROA On The Way.)
And, as the chart in this web site shows, bank ROA is typically even lower than the 1.25% that I previously cited.
My bad, I read that as ROI. Still, your example given is still WAY off. You think a bank has to loan out $750k to make up for a $10k bad investment? Nooooo. ROA isn't even used when calculating a bank's risk level.
There's all sorts of dischargeable unsecured debt. A credit card is an example of this. One can use credit cards to pay for college and declare bankruptcy.
Yes, this happens everyday, and many run up their debt with forethought, planning to file and have their debts discharged. This is fraud, and, is adeptly done by people who have no conscious, who feel they deserve a free ride. This ride costs we middle of the road honest citizens a bundle, we end up paying for their actions as our borrowing rate and general consumer costs increase.
Maybe if students only used their student loans to pay for their education they wouldn't rack up so much debt.
Seems every day on Judge Judy a student has stiffed someone with promises of paying back a luxury private loan..........." when my student loan goes thru".........
( instead they stiff their friend by using part of their student loans on other luxuries for themselves.
It would be interesting to see a breakdown on how much proceeds from student loans get spent on things that have nothing to do with getting an education.
My bad, I read that as ROI. Still, your example given is still WAY off. You think a bank has to loan out $750k to make up for a $10k bad investment? Nooooo. ROA isn't even used when calculating a bank's risk level.
Okay, so you don't know the difference between ROA and ROI and you're still holding forth. I'm not a banker myself but I've worked on the periphery of the industry for a long time. From community banks to superregionals to credit unions. I've sat in the underwriting meetings, I've been in the strategic planning sessions. I've mapped out their strategies for growth. The margins are so razor thin in lending that it takes a lot to make up for one loan going bad.
The basis for my point is a meeting I had several years ago at a strategic planning meeting for a mid-sized bank that was undergoing lots of growth. Some naif had the great idea of using student loans as the way to grow long-term customer relationships. The CEO stopped the guy in his tracks and, with his marker and white board, proceeded to discuss how much $1,000 in bad loans cost the bank in terms of how much additional loan production was required in order to compensate for that poor underwriting decision. And ROA was the chief statistic he used. Given that this bank has managed to actually grow during the banking meltdown in 2008, I'm pretty sure he knew what he was talking about.
In fact, even though banks are at the extreme end of the spectrum, the same holds true with any company that incurs a loss through either an employee mistake or bad debt. If your company is holding to a 5% net and an employee makes a $10,000 boneheaded mistake, the company has to scrounge up an additional $200,000 in billings in order to compensate for that $10,000 loss.
I mean, heck, if student loans were even remotely profitable for lending institutions, then why are so many large providers either getting out or have already exited?
That is really the operative question. Because those absurdly low rates enabled colleges to jack up their tuitions in the first place at multiples of 3x and 4x inflation, knowing that students would be paying on the installment plan.
This is fine as long as college is relatively cheap. We're approaching the norm, however and hopefully tuition rises will slow down.
LOL Clearly English is not your first language, judging by your comprehension.
You suggested that student loans are not dischargeable through bankruptcy because there are no tangible assets to be recovered. You also say that credit cards are dischargeable because they charge higher interest rates.
The point is that you're absolutely wrong and are making no attempt to correct yourself. What's really "LOL" is that you made this incorrect claim AFTER I already posted that wasn't the case. Perhaps English isn't your language at all based on your reading comprehension.
I was at my neighbor's house visiting and their grand daughter stopped in just after her spring break trip.
Her grandma asked how she could afford it and she said............" I put it on a credit card but will pay the credit card off with my student loan. I don't charging any of my " fun things"
???????????
Using a student loan to pay off a spring break trip is not "charging" the trip ?
Credit cards are also a relevant example. I can rack up a ton of debt on intangible things like vacations and declare bankruptcy later on to discharge the debt. And the banks can't take back those memories either.
The argument then seems to be about interest rates being higher on credit cards. I would not be opposed to higher interest rates on student loans either. Then perhaps people would think twice about taking on too much of the debt in the first place.
So let's get to why student loans are not dischargeable in bankruptcy. This condition on student loans was added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It wasn't coincidence that the following years, President Bush was bragging about record college enrollment at universities.
The government wanted to make it easier to attend college. They figured that if they removed the risk in giving out loans, the students would face one less barrier in attending college. It worked. Now everyone, including my dog, can get a student loan if they can get accepted into a college.
To make bankruptcy apply to student loans, the risk has to be reapplied. This means that student loans would need to be awarded based on the ability for the borrower to pay it back. This could involve credit reports, high school performance, cosigning, etc. It's not a bad idea but try convincing people who brag about record enrollment.
Okay, so you don't know the difference between ROA and ROI and you're still holding forth. I'm not a banker myself but I've worked on the periphery of the industry for a long time. From community banks to superregionals to credit unions. I've sat in the underwriting meetings, I've been in the strategic planning sessions. I've mapped out their strategies for growth. The margins are so razor thin in lending that it takes a lot to make up for one loan going bad.
The basis for my point is a meeting I had several years ago at a strategic planning meeting for a mid-sized bank that was undergoing lots of growth. Some naif had the great idea of using student loans as the way to grow long-term customer relationships. The CEO stopped the guy in his tracks and, with his marker and white board, proceeded to discuss how much $1,000 in bad loans cost the bank in terms of how much additional loan production was required in order to compensate for that poor underwriting decision. And ROA was the chief statistic he used. Given that this bank has managed to actually grow during the banking meltdown in 2008, I'm pretty sure he knew what he was talking about.
In fact, even though banks are at the extreme end of the spectrum, the same holds true with any company that incurs a loss through either an employee mistake or bad debt. If your company is holding to a 5% net and an employee makes a $10,000 boneheaded mistake, the company has to scrounge up an additional $200,000 in billings in order to compensate for that $10,000 loss.
I mean, heck, if student loans were even remotely profitable for lending institutions, then why are so many large providers either getting out or have already exited?
Yes I do know the difference... I READ it as ROI, which would have made a LOT more sense for you to use, seeing as how ROA isn't a factor at all in determining the bank's level of risk in their lending practices. Now you're trying to put words in my mouth. I never said student loans were profitable, did I? Feel free to quote where I said that. That wasn't even the discussion at all.
Your example "might" make sense if we are strictly talking small local banks, credit unions, etc. I have no idea what their margins are. But for ANY major bank, JPM, BofA, Chase, Wells Fargo, etc (which also happen to be the ones providing student loans, not little local banks!), that has the ability to offer investment products, they do not operate using ROA as any sort of basis as to the types of loans and risks they take on.
And as for why they are getting out??? Really? You can't go a week without hearing how high student debt levels are now. They see a crash coming and a lot of defaults, especially with a weak job market.
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