I had the impression that this was happening because they had excess cash and nowhere particularly interesting to put it. Why would you borrow if you have cash sitting around and expectations of a good-to-crazy rate of return?
Because it's a dumb predatory loan that should never have been made in the first place. There is a type of business for making dumb loans and using force to ensure they are paid back: the mafia.
The mafias of old are nothing in size when compared to the student loan industry.
In response to both the posts here, I don't know. It also could be that the banker was full of it. On the other hand, I could imagine a sort of moral hazard situation where someone could take out a loan, let it go into default, and then offer to buy it back at a massive discount.
The debt likely wasn’t a normal bank, and the interest rate was likely quite high. The parties making the loan were likely fully aware of the risk and thought the interest rate appropriate compensation.
I mean.. they did loan the money, with all the associated responsibilities and risks of loaning money. And they did do the work. All the agreements were entered voluntarily, so what's the fault here?
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