5 ms·

Tie student loans to educational institutions where the study takes place. If the student fails to repay, a %age of the student loan debt should be paid for, b

Tie student loans to educational institutions where the study takes place. If the student fails to repay, a %age of the student loan debt should be paid for, by the edu institution where he/she graduated from. Would be great if it is 50%. Even if university doubles the price, demand/supply economics will ensure universities cannot bump fees up at will. Without holding the educational institutions and the students as equally responsible for the debt, edu institutions have no incentive to not-ripoff students. Factor in the repayment history by graduates of a program at an institution to decide the percentage of debt the university is liable for. If STEM grads are having lesser default, the school is responsible for 10% of the debt. If a grads of <some esoteric program> have a higher default rate, school owes closer to 50%

AcerbicZero 9y ago
I've never thought of it that way. I don't know if there wouldn't be some second or third order issues from something like this, but at first glance this seems like a good idea. Why shouldn't the school take on some of the risk?
- Kadin 9y ago
  The schools would undoubtedly respond that in doing so, they would necessarily have to stop educating people from anything less than the most privileged (and thus low-risk) backgrounds. You'd need to cook up some sort of risk-pooling scheme if you wanted schools to extend that credit to anyone coming from a background that made payment statistically less-likely. And once you started doing that you'd have to be careful not to distort the market so much that the original intent -- to allow market forces to have more say on what majors college students go into, and who (and how many people) colleges admit -- would be totally lost. It's a difficult problem and I don't know if it's better to have the schools/colleges trying to underwrite the loans. It might be better to leave that to specialists rather than force it onto schools (though forcing schools to release the data that an underwriter would need to rationally price loans for students to go there would be good). If you didn't have the government backstopping student loans, and in some cases making them non-dischargeable in bankruptcy, that would probably have much the same effect. The government backing and unique legal treatment are what makes a "student loan" different than a giant personal loan. The justification has always been that without this treatment and guarantee, nobody would make a $100k+ personal loan to an 18-year-old, which is probably true. But I think we're starting to see the other side of the coin, which is that maybe there are some good reasons why that's the case.
  - nerfhammer 9y ago
    Find some way of blinding schools from the individual financial background of applicants.
    - gruez 9y ago
      trouble is, academic performance is (strongly?) correlated with wealth.
    - Kadin 9y ago
      You could do that, I suppose, but the ability to pay back the loan and the downstream income potential of the graduate are likely to be very strongly correlated to the student's financial background (really, their family's financial background). If you're wealthy enough, it basically doesn't matter what you major in while in college. But if you don't have a rich family, then it matters a hell of a lot. Students seem to already know this; at least when I was in school last, there weren't a lot of first-generation college students or immigrants in the liberal arts programs; the kids who were betting everything on their education were in the business or engineering schools, mostly. (Or sometimes preprofessional programs, pre-med was a big one.)
  - Fomite 9y ago
    Indeed. The university where I'm currently faculty views it's mandate as making college more accessible to the state's population and supporting first generation college students. If they're going to be left holding the bag for that, they're going to stop. And to address the poster who thinks we can blind universities to a potential student's financial background...we have a very good statistics and computer science departments, and a massive data set of all our students. We can probably come up with a classification scheme in short order, "blinding" or not. Hell, I'm pretty sure you could get pretty far just from "What high school did you go to?" and the classes you took there.
    - calvinbhai 9y ago
      not sure where I mentioned it should be tied to the "student's financial background". In fact it can be irrelavant. By the time student graduates, parents can say 'you are on your own', and the debt is still dangling. The only deciding factor needs to be the outcome which is the employability or ability to make money to repay debts. If the Outcome Rating for a program at a university is high, it means lower risk, and the university is responsible only for, say 10% of unpaid debt. If the Outcome Rating for a program at a university is low, it means higher risk, and the university takes a much higher responsibility for ~ 50% of unpaid debt.
- freeflight 9y ago
  The schools could decide to take that as justification for jacking up course rates and only taking on students who can bring some assets as collateral for the loan. Or are they in any way incentivized to take on financially less-well-off students? I'm pretty sure they'd always find some way to outsource any costs/risks like that straight back to the students. Also: It's not that much of an open market, schools work very much on prestige, certain fields are de-facto monopolized by certain schools, it isn't an "open market" where some startup can just start a school and hope to have a meaningful impact in any short time.
  - calvinbhai 9y ago
    "jacking up course rates and only taking on students" That is totally fine. If student loans become hard to get, students and universities will take prudent decisions, which means, there wont be a bubble effect because of super easy / free availability of loans. Basically, student loans in US is similar to mortgage crisis in 2008. US will be better off with unemployable people with no degrees and no debt, than unemployable people with a useless degree and debt. Without a feedback mechanism for universities to feel the effects of the job market on its graduates/alumni, there's no incentive for university to admit students into its "sub prime programs". Let the government fund those esoteric programs that have no job prospects. That way the spending on those education programs is visible to the tax payer. "not well off students" can always have the university take a bigger chunk of the responsibility. While ensuring that there is no bias in admissions, universities will have an even bigger incentive to ensure the success of this 'not well off' student. Such success rates can be tied to the Universities' credit rating. Higher the rating, lower %age risk the edu institution needs to take.

AcerbicZero 9y ago

I've never thought of it that way. I don't know if there wouldn't be some second or third order issues from something like this, but at first glance this seems like a good idea. Why shouldn't the school take on some of the risk?

Kadin 9y ago
The schools would undoubtedly respond that in doing so, they would necessarily have to stop educating people from anything less than the most privileged (and thus low-risk) backgrounds. You'd need to cook up some sort of risk-pooling scheme if you wanted schools to extend that credit to anyone coming from a background that made payment statistically less-likely. And once you started doing that you'd have to be careful not to distort the market so much that the original intent -- to allow market forces to have more say on what majors college students go into, and who (and how many people) colleges admit -- would be totally lost. It's a difficult problem and I don't know if it's better to have the schools/colleges trying to underwrite the loans. It might be better to leave that to specialists rather than force it onto schools (though forcing schools to release the data that an underwriter would need to rationally price loans for students to go there would be good). If you didn't have the government backstopping student loans, and in some cases making them non-dischargeable in bankruptcy, that would probably have much the same effect. The government backing and unique legal treatment are what makes a "student loan" different than a giant personal loan. The justification has always been that without this treatment and guarantee, nobody would make a $100k+ personal loan to an 18-year-old, which is probably true. But I think we're starting to see the other side of the coin, which is that maybe there are some good reasons why that's the case.
- nerfhammer 9y ago
  Find some way of blinding schools from the individual financial background of applicants.
  - gruez 9y ago
    trouble is, academic performance is (strongly?) correlated with wealth.
  - Kadin 9y ago
    You could do that, I suppose, but the ability to pay back the loan and the downstream income potential of the graduate are likely to be very strongly correlated to the student's financial background (really, their family's financial background). If you're wealthy enough, it basically doesn't matter what you major in while in college. But if you don't have a rich family, then it matters a hell of a lot. Students seem to already know this; at least when I was in school last, there weren't a lot of first-generation college students or immigrants in the liberal arts programs; the kids who were betting everything on their education were in the business or engineering schools, mostly. (Or sometimes preprofessional programs, pre-med was a big one.)
- Fomite 9y ago
  Indeed. The university where I'm currently faculty views it's mandate as making college more accessible to the state's population and supporting first generation college students. If they're going to be left holding the bag for that, they're going to stop. And to address the poster who thinks we can blind universities to a potential student's financial background...we have a very good statistics and computer science departments, and a massive data set of all our students. We can probably come up with a classification scheme in short order, "blinding" or not. Hell, I'm pretty sure you could get pretty far just from "What high school did you go to?" and the classes you took there.
  - calvinbhai 9y ago
    not sure where I mentioned it should be tied to the "student's financial background". In fact it can be irrelavant. By the time student graduates, parents can say 'you are on your own', and the debt is still dangling. The only deciding factor needs to be the outcome which is the employability or ability to make money to repay debts. If the Outcome Rating for a program at a university is high, it means lower risk, and the university is responsible only for, say 10% of unpaid debt. If the Outcome Rating for a program at a university is low, it means higher risk, and the university takes a much higher responsibility for ~ 50% of unpaid debt.
freeflight 9y ago
The schools could decide to take that as justification for jacking up course rates and only taking on students who can bring some assets as collateral for the loan. Or are they in any way incentivized to take on financially less-well-off students? I'm pretty sure they'd always find some way to outsource any costs/risks like that straight back to the students. Also: It's not that much of an open market, schools work very much on prestige, certain fields are de-facto monopolized by certain schools, it isn't an "open market" where some startup can just start a school and hope to have a meaningful impact in any short time.
- calvinbhai 9y ago
  "jacking up course rates and only taking on students" That is totally fine. If student loans become hard to get, students and universities will take prudent decisions, which means, there wont be a bubble effect because of super easy / free availability of loans. Basically, student loans in US is similar to mortgage crisis in 2008. US will be better off with unemployable people with no degrees and no debt, than unemployable people with a useless degree and debt. Without a feedback mechanism for universities to feel the effects of the job market on its graduates/alumni, there's no incentive for university to admit students into its "sub prime programs". Let the government fund those esoteric programs that have no job prospects. That way the spending on those education programs is visible to the tax payer. "not well off students" can always have the university take a bigger chunk of the responsibility. While ensuring that there is no bias in admissions, universities will have an even bigger incentive to ensure the success of this 'not well off' student. Such success rates can be tied to the Universities' credit rating. Higher the rating, lower %age risk the edu institution needs to take.