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The obvious solution would be a private lending market. Such a market exists for credit-worthy students that go to prestigious universities in majors that are e

by bko 11y ago

The obvious solution would be a private lending market. Such a market exists for credit-worthy students that go to prestigious universities in majors that are economical. SoFi runs such a program and can often undercut the government which doesn't care too much about the credit quality of the students. The problem is that private companies such as SoFi will never be competitive for higher risk borrowers as long as the government is giving them fairly generous terms. Also, the nice thing is that bankruptcy is a possibility for those that lend through private institutions rather than the government.

xg15 11y ago
As you say, such a market today is restricted to certain classes of students and certain majors which are economical. But without government intervention, why would this suddenly also work for majors which are not economical (but relevant for society) or for students which have a less good probability of success? My fear is that an exclusively private program could in the end kill those majors and/or keep a lot of people from studying that are still able to do so today.
- bko 11y ago
  It's not that it doesn't work for less economical majors in less competitive schools. It's just that the market is crowded out by the availability of credit from government loans. If there were no government loans or were less restricted, banks would offer credit to those less credit worthy, however the interest rates would be higher (higher than those the government now offers). So incoming freshmen might see options like this: State school, engineering 5% interest State school, lib arts 8% interest Private school, engineering 7% Private school, lib arts 12% This would also be a huge signal in terms of assessing the value of a degree from a school. I'm not saying that those with higher interest rates are less desirable, but in terms of an investment, they are a riskier. The interest rates would be mostly determined by historical loan performance of those that went to those schools and majored in those fields.
  - xg15 11y ago
    That would certainly make economic sense for the lenders. But in effect it would impose a penalty for certain "bad-performing" majors. The criteria by which loans are granted, rejected or are given a higher interest rate would also be intransparent and not subject to public discussion. More importantly, it would demand the highest interest rates from the group of students that will presumably have the most trouble paying them. You say yourself that the interest rates would probably be higher than they are today. That sounds to me as if it would make crippling student debt more likely, not less.
    - morgante 11y ago
      > But in effect it would impose a penalty for certain "bad-performing" majors. Is that necessarily a bad thing? I think it'd be a great idea for the market to send you signals that paying $50k for an art history degree is probably a terrible idea.
      - abalashov 11y ago
        I think it'd be a great idea for the market to send you signals that paying $50k for an art history degree is probably a terrible idea. That's a hard question. It gets into the much larger matter of whether the market is a good arbiter of what has social and cultural value, or whether the government needs to step in and subsidise certain things because it really does know better than the wisdom of the masses, who will always prefer Cheetos and ballgames to polenta and Shakespeare.
        morgante 11y ago
        I'm no libertarian: there are definitely plenty of cases of market failure, where the market fails to provide enough of goods with positive societal and cultural externalities. Art history might even be one of them. But, as pc2g4d notes, the right way to deal with that is for the government to directly stimulate demand for art history. Not to give cheap loans for students to study art history and then live the rest of their lives in debt. Personally, I don't buy that the world needs more music and film majors. We seem to have far more music and film than we need already. I can understand why economically irrational young people might think it's fun to spend 4 years watching films, but I don't think we should be subsidizing that choice.
- golergka 11y ago
  > not economical (but relevant for society) That's the problem you should be fixing. Not giving out education for free, but make education that is relevant for society be economical. > or for students which have a less good probability of success? Well, to put it frankly, why would you want to finance their education in the first place? Regardless of who's paying, a bank or a government, it just doesn't make a lot of sense.
jbmorgado 11y ago
The obvious solution would be a private lending market. No, actually the obvious solution - at least in most of the western world - is more public Universities. Now, since that goes against the american way of thinking you must come up with other solutions that involve private enterprises, but it's surely not the obvious solution.

by bko 11y ago

xg15 11y ago

As you say, such a market today is restricted to certain classes of students and certain majors which are economical. But without government intervention, why would this suddenly also work for majors which are not economical (but relevant for society) or for students which have a less good probability of success? My fear is that an exclusively private program could in the end kill those majors and/or keep a lot of people from studying that are still able to do so today.

bko 11y ago
It's not that it doesn't work for less economical majors in less competitive schools. It's just that the market is crowded out by the availability of credit from government loans. If there were no government loans or were less restricted, banks would offer credit to those less credit worthy, however the interest rates would be higher (higher than those the government now offers). So incoming freshmen might see options like this: State school, engineering 5% interest State school, lib arts 8% interest Private school, engineering 7% Private school, lib arts 12% This would also be a huge signal in terms of assessing the value of a degree from a school. I'm not saying that those with higher interest rates are less desirable, but in terms of an investment, they are a riskier. The interest rates would be mostly determined by historical loan performance of those that went to those schools and majored in those fields.
- xg15 11y ago
  That would certainly make economic sense for the lenders. But in effect it would impose a penalty for certain "bad-performing" majors. The criteria by which loans are granted, rejected or are given a higher interest rate would also be intransparent and not subject to public discussion. More importantly, it would demand the highest interest rates from the group of students that will presumably have the most trouble paying them. You say yourself that the interest rates would probably be higher than they are today. That sounds to me as if it would make crippling student debt more likely, not less.
  - morgante 11y ago
    > But in effect it would impose a penalty for certain "bad-performing" majors. Is that necessarily a bad thing? I think it'd be a great idea for the market to send you signals that paying $50k for an art history degree is probably a terrible idea.
    - abalashov 11y ago
      I think it'd be a great idea for the market to send you signals that paying $50k for an art history degree is probably a terrible idea. That's a hard question. It gets into the much larger matter of whether the market is a good arbiter of what has social and cultural value, or whether the government needs to step in and subsidise certain things because it really does know better than the wisdom of the masses, who will always prefer Cheetos and ballgames to polenta and Shakespeare.
      - morgante 11y ago
        I'm no libertarian: there are definitely plenty of cases of market failure, where the market fails to provide enough of goods with positive societal and cultural externalities. Art history might even be one of them. But, as pc2g4d notes, the right way to deal with that is for the government to directly stimulate demand for art history. Not to give cheap loans for students to study art history and then live the rest of their lives in debt. Personally, I don't buy that the world needs more music and film majors. We seem to have far more music and film than we need already. I can understand why economically irrational young people might think it's fun to spend 4 years watching films, but I don't think we should be subsidizing that choice.
golergka 11y ago
> not economical (but relevant for society) That's the problem you should be fixing. Not giving out education for free, but make education that is relevant for society be economical. > or for students which have a less good probability of success? Well, to put it frankly, why would you want to finance their education in the first place? Regardless of who's paying, a bank or a government, it just doesn't make a lot of sense.

jbmorgado 11y ago

The obvious solution would be a private lending market. No, actually the obvious solution - at least in most of the western world - is more public Universities. Now, since that goes against the american way of thinking you must come up with other solutions that involve private enterprises, but it's surely not the obvious solution.