Co-op Banks?

Dr. Wolff, I recently spent an afternoon helping my college-student son fill out applications for student loans with Sallie Mae. Coincidentally, that evening I received an email from Sallie Mae asking if I wanted to 'receive a better interest rate for my savings.' I'm already contributing $80k from my own pocket to my son's college education, and the fact that he must borrow a further $40k is galling. But the email highlighted a troubling situation: people with money can expect a guaranteed return while my son, whether he's able to or not, must repay the money he's borrowed plus interest. I suppose theoretically the lender's interest rate has a direct relationship to the aggregate ability of borrowers to pay, but this is a future ability to pay and impossible to predict. Is there some way (co-op banks?) that a lender's eventual return could be directly linked to the borrower's eventual ability to repay?

Official response from submitted

There already exist plenty of precedents and models that link a lender's rate of return to a borrower's rate of return using the borrowed money. This is an old idea of shared risk that often accompanies shared gain as when a nominal interest rate attached to a loan can be raised or lowered depending on the results of the borrower's investments made with the borrowed money. Of course, a certain sharing of risk has always been part of most loans since a borrower's possible default on a loan would impose shared risk on the lender.

A coop bank could work out various shared-risk-shared reward arrangement - and likely would do that much more readily than atypical capitalist bank. That's because the cooperation between borrower and lender follows from the cooperation in a worker coop among the different types of workers contributing to the final output.


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  • commented 2017-01-09 03:21:34 -0500
    Thanks Dr. Wolff, I take from this that you see the growth and integration of coop banks with worker cooperatives as desirable in providing a fairer means of financing growth? And that efforts toward developing and automating risk/reward-sharing products at these coop banks are also desirable in facilitating more equitable investor relations?
  • tagged this with good 2017-01-09 03:21:33 -0500
  • responded with submitted 2017-01-07 14:57:22 -0500
  • commented 2017-01-06 10:04:34 -0500
    I’m sure SoFi’s you can get to without the ultra long url. Https://www.sofi.com
  • commented 2017-01-06 10:02:21 -0500
    SoFi’s sitehttps://www.sofi.com/?campaign=MRKT_SEM_BRA-Brand-Core-Exact-Google_e_g_m_164730558126_sofi&utm_source=MRKT_ADWORDS&utm_medium=SEM&utm_campaign=MRKT_SEM_BRA-Brand-Core-Exact-Google_e_g_m_164730558126_sofi&utm_content=2f16976e-4c7c-4b7a-9bc3-895231fb8680&gclid=CM3nk8_krdECFYpffgodc9QNkw
  • commented 2017-01-06 10:00:36 -0500
    Aspire’s site https://www.aspirefcu.org/
  • commented 2017-01-06 09:56:11 -0500
    Co-op banking aka credit union. Checked those out? Also, have you heard of Sofi and Aspire? Those two I have seen much advertised in YouTube channels relating to finances, haven’t checked them out myself, but they appear to be a concept similar to that of credit unions, however, credit unions ARE co-op banks.
  • tagged this with good 2017-01-06 09:56:11 -0500
  • published this page in Ask Prof. Wolff 2017-01-06 03:31:49 -0500

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