Bernie Sanders Poses Bad Lending Question

Two loans: one with collateral, the other without any. All else being the same, which one do you think would have the higher interest rate?

Given his tweet, Socialist (Democrat) candidate Bernie Sanders might not understand the question.

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 twitterverse was quick to pounce on him for it:

@SenSanders I like you but you have to understand collateralized debt

— Greg Wissinger (@gwiss) December 26, 2015

@SenSanders A bank can repossess a house. They can't repossess your brain if you quit paying student loans. Though, you make me wonder.

— Smittie (@smittie61984) December 26, 2015

@SenSanders Collateralized vs non collateralized loan. But you knew that already.

— enargins (Neil) (@enargins) December 26, 2015

@SenSanders it makes perfect sense. A 'home' is collateral which the bank can take possession of in case of default. m/t @KurtSchlichter

— All-American Male (@chrisbraly) December 26, 2015

@SenSanders astonishing how you can run president and not understand this basic understanding of collateral.

— Wittorical (@Wittorical) December 26, 2015

@SenSanders I'm generally on your side, but mortgages are secured debt whereas student loans are unsecured and don't always increase income.

— Don Edwards (@DMEdwards) December 26, 2015

@SenSanders wow, big display of stupidity here. The house has resale value. Can we sell people now if they don't pay?

— Ms. Parker (@CaseyParksIt) December 26, 2015

To be fair, student loans might be unsecured debt but they can’t be discharged in bankruptcy. There’s also ways for debt collectors to garnish a paycheck to pay them back. That’s entirely dependent on the borrower generating income though and likely means a substantially longer repayment period. In a famous op-ed by Lee Siegel in the NY Times titled, Why I Defaulted on My Student Loans however, it is apparently possible to just avoid the debt altogether (and apparently feel okay about it).

With stories like that it’s easy to understand why a loan secured by a home would cost less than a loan secured by someone’s willingness and ability to pay. And in the case of Bernie Sanders, a candidate who believes college should be free for everyone, it’s tough to say if his question was really just rhetoric meant to stir up his base or a serious one in which he really doesn’t understand how the underwriting of loans work.

Either way, many people are worried:

.@SenSanders doesn't understand why having collateral would account for a lower interest rate. And people want to make him president?

— Caleb Cassel (@CalebCassel) December 27, 2015

Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future AltFinanceDaily events here.