Navient Student Loan Repayment Plans

Navient Student Loan Repayment Plans

Navient Student Loan Repayment

If you have received student loan from Navient, or if you have a loan debt that Navient has taken over, what are the options to repay it? What are the terms and options for Navient loan repayment? What are the discounts you can get when you repay your loan debt and what should you do for it? Here we will address “Navient Student Loan Repayment Plans”, and yes, let’s get started:

The Theory of Risk-Based Credit Pricing

Lenders are not like ordinary retail merchants. Whereas a merchant can complete a transaction at the time of sale, a lender will have an ongoing relationship with the borrower for the entire duration of the loan. The lender continues to bear the risk that at some point the borrower will become unable to repay and will default on the debt.

Risk-based credit pricing involves adjusting the interest rate on loans so that the interest rate compensates the lender not only for the time value of money but also for the risk that borrowers will default on their debts and cause the lender to incur losses.

From the perspective of risk-based credit pricing, uniform student loan pricing is a redistributive policy. Uniform pricing subsidizes the riskiest borrowers while profiting from the safest borrowers. In the student loan context, uniform credit pricing is a subsidy to students who are studying fields with the lowest value in the labor market and a tax on students who are studying fields with the highest value in the labor market and the best employment prospects. This subsidy creates perverse incentives—discouraging the ablest students and most economically valuable programs, while encouraging the highest risk and least economically valuable programs.

Risk-based student loan pricing should reduce moral hazard by forcing student borrowers to internalize the risks created by their own decisions, encouraging students to study toward high-value occupations. Risk-based student loan pricing should reduce adverse selection by discouraging students with poor prospects from borrowing heavily to attend expensive education programs of dubious value while encouraging the most promising students to borrow what they need to complete valuable degrees. Moreover, risk-based pricing would clarify the differential economic value of different courses of study, and help students make choices that are in their own long-term best interests.

Over time, risk-based student loan pricing should cause colleges to shift educational resources toward teaching subjects and skills that are most valued in the labor market. This should improve the risk profile of borrowers, and reduce student loan defaults and structural unemployment.

Some may argue that wages in the labor market do not reflect the social value of certain occupations. For example, progressives frequently claim that teachers are under-compensated relative to their education levels and social contribution. Indeed, the original NDEA emphasized the importance of training more teachers as well as STEM specialists, and current student loan programs include special loan forgiveness provisions for teachers. By contrast, many economists have suggested that an individual’s willingness to sacrifice income to pursue less lucrative education and linked career paths suggest that such education or career paths may be more enjoyable and constitute a form of nonmonetary compensation.

Src: Academia

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