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What? How is the education loan market any different than the automobile or home loan market with respect bargaining position and ability to make an informed d

What? How is the education loan market any different than the automobile or home loan market with respect bargaining position and ability to make an informed decision? Loan issuers are forced to issue loans without regard to the likelihood those loans will be paid back. Someone seeking a computer science degree from Stanford is treated the same as someone getting an English degree from a 4th tier state school. That's utterly insane.

Broken_Hippo 10y ago
First of all, most education loans are handled by the government. Most students can't qualify for normal private loans due to little things like lack of credit history. There is really no way to tell if a 17-18 year old just legal enough to get a loan will be able to pay it back in 4-8 years after completing their education. This is why the government backed loans are issued in this manner. most middle to low income students need these loans to go to school. Private student loans, however, usually have a cosigner with good credit. Second, students don't get much choice in loans with the government-backed loans. There really is no 'market' for the student to shop, nor does the student have bargaining power except for refusal to accept the loan. With automobile or home loans, one can do things like have a larger down payment, shop aroudn for interest rates, or improve their credit rating. Students have none of these options. Third, informed decision? You get promised for years as a young person that college is the key to having a comfortable life. The university promises all sorts of possible careers with the degree, and quotes numbers that may or may not be true.
dv_dt 10y ago
Well with a car, if it always breaks down, you'll likely buy more cars through your lifetime, and the quality of the product has a feedback loop on the performance of the company. With a house, same thing. Worst case, if it's bad, sell it replace it with something else. But with education, students have likely never bought a car, or a house, and don't have much background or life experience at this point in their lives and you want them to make a one-time, long-term, investment decision in a non-fungible asset? Most students only make the decision once and whatever you learn about the school or career not meeting expectations isn't ever applied again. Worse, you don't find out first hand what quality your education really was until after leaving the college. Worst, the decision isn't really couched in terms of a ROI type investment decision (maybe thats changing), but that's certainly not the only factor at play in student school decision. That's not a good basis for balancing a market. > Loan issuers are forced to issue loans without regard to the likelihood those loans will be paid back. Private loan issuers aren't forced to do anything. They can always leave the market and invest elsewhere if they cant figure out how the serve the market.

Broken_Hippo 10y ago

First of all, most education loans are handled by the government. Most students can't qualify for normal private loans due to little things like lack of credit history. There is really no way to tell if a 17-18 year old just legal enough to get a loan will be able to pay it back in 4-8 years after completing their education. This is why the government backed loans are issued in this manner. most middle to low income students need these loans to go to school. Private student loans, however, usually have a cosigner with good credit. Second, students don't get much choice in loans with the government-backed loans. There really is no 'market' for the student to shop, nor does the student have bargaining power except for refusal to accept the loan. With automobile or home loans, one can do things like have a larger down payment, shop aroudn for interest rates, or improve their credit rating. Students have none of these options. Third, informed decision? You get promised for years as a young person that college is the key to having a comfortable life. The university promises all sorts of possible careers with the degree, and quotes numbers that may or may not be true.

dv_dt 10y ago

Well with a car, if it always breaks down, you'll likely buy more cars through your lifetime, and the quality of the product has a feedback loop on the performance of the company. With a house, same thing. Worst case, if it's bad, sell it replace it with something else. But with education, students have likely never bought a car, or a house, and don't have much background or life experience at this point in their lives and you want them to make a one-time, long-term, investment decision in a non-fungible asset? Most students only make the decision once and whatever you learn about the school or career not meeting expectations isn't ever applied again. Worse, you don't find out first hand what quality your education really was until after leaving the college. Worst, the decision isn't really couched in terms of a ROI type investment decision (maybe thats changing), but that's certainly not the only factor at play in student school decision. That's not a good basis for balancing a market. > Loan issuers are forced to issue loans without regard to the likelihood those loans will be paid back. Private loan issuers aren't forced to do anything. They can always leave the market and invest elsewhere if they cant figure out how the serve the market.