Feed the Birds, Not the Banks (or the Student Loan Servicers!)

I woke up this morning thinking of the song from Mary Poppins, Feed the Birds. In the story, young Michael Banks has tuppence (two cents) and his father, Mr. Banks (a bank employee) has encouraged him to take his money to the bank to deposit.  Michael, seeing an old woman feeding the birds on his way to the bank (and being encouraged by the touching song Mary Poppins sings) decides that he doesn't want to deposit his money, he wants to spend it.  Mr. Banks is angry, and thinks this is irresponsible, and there's a song explaining what happens when your money goes into the bank, and how it grows.

Now today, none of that ages well.  It would seem that Mr. Banks is looking out for the interest of the bank more than the interest of his son in demanding the money.  In fact, he IS looking out for Michael's interest, simply in a way different than Mary Poppins.  He is attempting to increase Michael's understanding and his funds in a very simple risk free way. 

Today, it's different, because we understand banks differently.  We see them as places to safely store money, and an easy pivot point to move money around for our personal use. But that's not what banks are all about. 

Remember, every time you take money to the bank, they're using your money to loan to others, and collecting the interest. When I was a kid (and we had "passbook savings accounts") they'd give you a share of the interest on YOUR money that THEY loaned. Used to be around 8% when I was younger. They'd loan it out at a higher interest rate (but not that much higher!) and that's where their profit came in.

Student loans were designed as a cheap way to pay for education and still stay ahead. Loans were at a low percentage rate (usually something like 2.5%. The idea was that you would always be earning more in interest to cover the difference. The banks suffered no loss, because the difference between the 2.5% they were charging students and the interest they would normally charge on a personal loan was covered by federal trust funds.

Today, both the banks AND the student loan servicers are screwing you over. The banks no longer give you a cut when they loan out YOUR money, and student loan servicers no longer offer loans which are designed to help you get ahead.

The change occurred shortly after I got my FIRST student loan, and the difference in rates and payment plans was staggering. I know doctors who weren't able to pay off their student loans until their late 50s. One of them was the department head of the large hospital they worked in.