White House Might Put Colleges on the Hook for Student Loans
wsj.com
wsj.com
Vastly increasing the supply of money that can be paid to the Higher Education System has, surprise surprise, greatly increased the cost of a degree. Entire swaths of for-profit education institutions have popped up, ready to drink from the ever-full FAFSA/Pell/etc trough.
The possibility of putting yourself through a great college is lunacy now a days. You need to start saving as soon as you graduate to be able to pay for your child's education.
AFAIK the reason why this is even an issue is because the government guarantees all loans equally (probably "study what you love" is politically popular). If there were no government guarantees, lenders wouldn't lend to students studying for useless degrees (presumably because they have a higher default risk).
And why is that a bad thing?
This strikes me as bizarre. This is supposed to be a protection for the student, not the school. If schools are failing their students, they should be held accountable, especially for low income students. If someone gets into a school, takes on loans and drops out, the college didn't do the student any favors
If you remove the government backing you might as well just not bother having student loans at all.
A young person with no income but good academics and a plan to study something with good employment prospects would still be a good candidate for at least some amount of credit.
Another side effect would be that with a drop in people going to college, employers would be forced to drop the "college degree required" from the vast number of jobs that really do not require a college education of any kind.
That's not what would happen. What would happen is that rich kids would get to go to college no matter how prepared they were or what major they chose, and poor kids who prepared well and chose useful majors would not be able to afford it.
Look at any first-world country that has kept college education affordable and you will see that they are essentially propping it up as a social welfare program, capping tuition, and giving universities tons of money. No country has kept college education affordable through any other method.
That's also the way it used to work at state universities in the United States, and that's why kids were able to work summer jobs to cover tuition.
If you take away the loans without also significantly increasing funding for higher education, college will not become affordable again.
Student loans existed before government guarantees, and all non-direct loans issued now lack government guarantees, so the evidence is that this claim is false.
If they give an 18 year old $30k for a car purchase they come take the car when you don't pay and get most of their money back. There's no way to seize a diploma to recover their money.
Student loans can be discharged in bankruptcy, but it is harder than other unsecured debt.
The interest rate? 12.79%
This is also a way to get costs under control, since the government would have enormous leverage to set a cap on the rates (the same way Medicare pays much less than traditional insurance for the same procedure). Granted you can bet that on-campus housing would become even more expensive and mandatory, but at least tuition growth might slow down.
Unfortunately the same forces that killed the Medicare for All plans are going to work against these plans. There's a ton of money to be made with the current system and the people making it are well connected politically.
At least, with the current college prices, they do.
I don't disagree that student debt is a crisis that needs to be dealt with, but the US government coming out and saying "JK, we're not going to back this debt" would surely be a disaster.
I'll try to summarize the arguments I've heard for justification for a government backed guarantee. 1) There's a widespread social benefit to having more highly educated citizens that won't be recouped by the institution making the loan. 2) The repayment term doesn't work well for very expensive professional degrees that confer huge long-term earning benefits, but aren't secured by those benefits (i.e.., it would make financial sense for a recent MD to declare bankruptcy to get out of $200k+ in med school bills, even though that person may be earning well over 300K/year for decades).
In the end, I think it's all fallen apart, though. In fact, I think the wide availability of student loans has had the absolute opposite effect. If prices had stayed flat, the availability of low cost loans might have improved affordability, but as others have pointed out on this forum, prices inflated to reflect the wide availability large scale unsecured loans to people with no credit or collateral. As a result, the lower-cost approaches never emerged - instead of finding a way to offer a quality low cost education, universities figured out bigger and better ways to spend this new source of money. That alone would be bad enough, but these loans had a truly toxic element of not being dischargeable through ordinary bankruptcy. And now, add in the fact that most of the people taking these loans out were, by design, fairly young - we start college in the US around age 18, so many of the people encountering perhaps the most dangerous type of loan they'd ever encounter were signing paperwork and entering binding contracts maybe a week after they'd reached an age where they were permitted to do so as an adult! I agree that people need to take responsibility for the actions they take, especially as an adult, but this is... cruel. This is a really insidious trap, put out for people as they take their first steps out into the adult world of lasting consequences.
I'm not saying this should be handled purely by the private sector... but seriously, if someone wouldn't touch a loan under standard bankruptcy laws with a 29 and a half foot pole... look, that should tell you something about the wisdom of subsidizing the loan though government programs.
People need to pay their debts, but the credit system is kept in check by an incentive on the part of the lender not to be an idiot. This is why I and many people have a limited sympathy for lenders like credit cards. If you make a massive, unsecured loan to people with no assets and no reputation for paying their debts, well, there's a limit to how much the government is going to help you get your money back. The system works because lenders need to be careful about debt too.
Yeah, this whole thing was a total disaster.
But loans have far surpassed that. It's like the colleges are shopping malls, and the government gives every shopper a new Visa card when they walk up to the door. The store owners are overjoyed. The people who pay for the card later, not so much.