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These federally insured loans seem to be a common source of problems. The massive moral hazard means that incentives don't operate correctly. How do we fix it?

• Broken_Hippo 10y ago
  Likely not. Students coming out of high school have no credit and generally only have a low-paying job. It takes some years to remedy these. The solution would be to have a co-signer, generally parents or other family member. This leaves young folks very much subject to circumstance. Orphan or in foster care? Good luck. Parent that thinks education is sinful, disowns you due to lifestyle, or is one of the 'you aren't my responsibility at 18' crowd? Even more good luck. Parents supportive but have bad credit? Yup. No loan for you. This wasn't a problem when it was actually feasible to work your way through college, but it simply isn't anymore. A few pull it off, but many more simply can't.
  • sokoloff 10y ago
    I'm in a strong financial position and support my kids and their education to a very great extent. Even given that, I'm unlikely to co-sign on a substantial loan for their education. Most parents would be even less willing (or in a less strong position) to co-sign for a loan that can't be discharged in bankruptcy. (And I completely support why they can't be discharged in bankruptcy.) What we might be able to do is transition the federal guarantee to a private (or possibly still federal) insurance program with properties like variable PMI, factoring in credit, degree, grades, criminal record, or anything else actuarially linked to future repayment prospects. I don't love that idea, for many of the same reasons you mention, but that is a possibly workable middle ground of sorts.