Sanders Tweet Raises Questions About His Understanding of Secured Loans, Collateral

2016 Democratic presidential candidate and U.S. Senator from Vermont Bernie Sanders drew criticism over the weekend when a tweet he posted about student loan interest rates seemed to demonstrate a misunderstanding of the differences between secured and unsecured loans.

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2016 Democratic presidential candidate and U.S. Senator from Vermont Bernie Sanders was widely rebuked on social media on Saturday after posting a tweet that appeared to demonstrate a misunderstanding as to why financial institutions offer better borrowing rates for secured loans than unsecured ones.

The tweet prompted neoconservative political commentator Bill Kristol to question whether it was the “most economically illiterate tweet ever.

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In the case of unsecured student loans, financial institutions do not have collateral to repossess in the event that the potential graduate does not end up paying back the loan, putting the lender at greater risk than secured home refinance loans.

[RELATED: Bernie Sanders Calls for Full Independent Audit of Federal Reserve]

According to financial education company The Educated Investor, “There are many reasons why some loans have lower interest rates than others. Long-term loans generally have higher rates than short-term loans. Secured loans also have lower interest rates than loans for which there is no collateral. A mortgage, for example, is a long-term, secured loan. If you follow mortgage rates, then you know that they are lower than the rate for an unsecured personal loan from your local bank or finance company.”

Twitchy notes that commenters on Twitter quickly piled on, questioning Sanders’ understanding of economics.

https://twitter.com/KSConservative1/status/680809346406690816?ref_src=twsrc%5Etfw

Sanders had posted a similar tweet regarding higher interest rates for college compared to other loans earlier this year on October 15.

Commenters at that time also criticized Sanders’ apparent lack of consideration for the value of collateral in determining loan interest rates.

Supporters of Sanders defended his comments, citing that the facts that the government can garnish a student loan recipient’s wages and that it does not allow student loans to be discharged through bankruptcy as features of student loans that add value to lenders and debt collectors.

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