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.
You have families out there paying 6, 8, 10 percent on student debt but you can refinance your homes at 3 percent. What sense is that?
— Bernie Sanders (@SenSanders) December 26, 2015
The tweet prompted neoconservative political commentator Bill Kristol to question whether it was the “most economically illiterate tweet ever.”
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.
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.
@SenSanders if you fail to pay off your mortgage the bank gets your property,a student loan?the gov gets nothing.
— anton newcombe (@antonnewcombe) December 26, 2015
Um, I'm no economics guru, but one is a secured debt; the other is not. Therein lies the "sense." https://t.co/j552apfOEI
— Voldematt (@Voldematt) December 26, 2015
There's this thing called collateral. Until banks can seize human brains in the event of a default… https://t.co/jmbGv7kd0O
— Comfortably Smug (@ComfortablySmug) December 26, 2015
It's so weird that someone whose platform is all about economics doesn't understand secured debt and collateral. https://t.co/OTQzGVgLQ7
— Michael Freeman (@michaelpfreeman) December 26, 2015
Sanders had posted a similar tweet regarding higher interest rates for college compared to other loans earlier this year on October 15.
It makes no sense that students and their parents pay higher interest rates for college than they pay for car loans or housing mortgages.
— Bernie Sanders (@BernieSanders) October 15, 2015
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.
@DwellsRugby @BernieSanders An education, a loan you can't discharge in a bankruptcy & the ability to garnish wages. THAT is the collateral.
— Ellahbie (@Ellahbie) October 18, 2015
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