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The market solution for student loan rates is to underwrite based on factors such as school attended and major/intended career. For whatever reason it seems th
by nugget 10y ago
The market solution for student loan rates is to underwrite based on factors such as school attended and major/intended career. For whatever reason it seems this hasn't been done at scale until very recently (with SoFi offering low rates to the Ivies). The fact that an art history major at a lowly ranked state school pays the same loan rates as a computer science major from MIT or a medical school student from Duke implies that the market is inefficient. As a result of that inefficiency (which may be purposeful to prevent discrimination - I'm not sure), more qualified borrowers subsidize less qualified borrowers.
- rm_-rf_slash 10y agoI suspect the market appreciates the art history graduate going through cycles of forbearance and capitalization which allow them to charge higher interest rates on the reliably solvent MIT software engineer.
- gshubert17 10y agoWould another market solution be to have the university underwrite the first 10% or 20% of the loan. In effect, they would be on the hook if the student tried to take on too much debt, etc. As it is, universities seem to have little motivation when the debt is carried by third parties to help their students after graduation.
- nugget 10y agoAbsolutely. Generally you want to align incentives as closely as possible. In this case you want the student, their family, the University, and society at large to all be aligned in making sure the student is successful (however you want to define success).