5 ms·

Even simpler: Don't have the government involved in student loans at all, and let the market price loans for different degrees for different students freely. Th

Even simpler: Don't have the government involved in student loans at all, and let the market price loans for different degrees for different students freely. Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students. Those out to study degrees that don't offer great employment opportunities will be offered more expensive loans which will curb demand for such degrees which will depress the cost of the degrees. It will also make sure that fewer people will go to a party college and study an easy degree (or, at least, that those that do aren't subsidised by tax-payer underwritten credit). Extra bonus: All those companies that clamour for STEM grads have a very simple avenue for putting their money where their mouths are: Simply go out and underwrite some cheap loans. (And no, indentured servitude is still illegal - companies underwriting student debt shouldn't be allowed to change the terms of the loan if the student comes to work for them).

brown9-2 13y ago
Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students. This assumes that a lender's primary interest is in having a loan repaid quickly. I don't think it's true - they are in it to make a profit, and exploiting the young adult with penalties and hidden fees or tricks helps expand that profit.
- mseebach 13y ago
  No, true, they won't care about the speed. But they will care about the default rate - and the ability to pay the debt down faster correlates strongly with a lower risk of default.
  - brown9-2 13y ago
    But all other things being equal, would they choose a speedy repayment or a slower, more expensive schedule? I think one good reason for government participation in the student loan market is that it helps reduce exploitation of the borrowers, who are mostly just-turned-18 adults so eager to attend a college they'll sign anything.
    - mseebach 13y ago
      All other things being equal, just like with mortgages and credit cards and car loans and other credit products, there will be different options with different terms available from different providers. Including these guys: http://www.economist.com/news/finance-and-economics/21578670-peer-peer-lending-needs-new-name-end-peer-show http://www.economist.com/news/finance-and-economics/21578670...
xiaoma 13y ago
That's simpler, but worse. Education is a text-book example of a good with positive externalities and it's worth subsidizing, especially for poorer people.
- mseebach 13y ago
  To an extend yes. Absolutely true up to and including high school, but at some point diminishing returns kick in. The idea that all education at any cost carries positive externalities is exactly what got us into the mess that is education today. Edited to add: Also, my proposal isn't incompatible with neither financial aid nor grants to institutions. But like underpriced mortgages caused a housing bubble, underpriced student loans is causing an education bubble.
  - cinquemb 13y ago
    I think it might be the time to buy CDS backed by securities on student loans[0]... Time for me to find some investors and pull my own Kyle Bass :P [0]: http://m.washingtonpost.com/business/economy/sallie-mae-to-split-into-two-companies/2013/05/29/de0eb5c8-c88d-11e2-9f1a-1a7cdee20287_story.html http://m.washingtonpost.com/business/economy/sallie-mae-to-s...
- danielweber 13y ago
  But almost all of the returns to education are captured by the person receiving the education. How much incentive do you need to provide to someone to increase their own earnings by 50%? If you want to see what happens when a society mindlessly thinks "more kids in more college is better, damn everything else," look at society right now.
  - deleted 13y ago
    [deleted]

brown9-2 13y ago

Those institutions that can convince lenders that graduates will be in a position to pay back the loans quickly will be able to offer lower rates to students, and thus attract more and better students. This assumes that a lender's primary interest is in having a loan repaid quickly. I don't think it's true - they are in it to make a profit, and exploiting the young adult with penalties and hidden fees or tricks helps expand that profit.

mseebach 13y ago
No, true, they won't care about the speed. But they will care about the default rate - and the ability to pay the debt down faster correlates strongly with a lower risk of default.
- brown9-2 13y ago
  But all other things being equal, would they choose a speedy repayment or a slower, more expensive schedule? I think one good reason for government participation in the student loan market is that it helps reduce exploitation of the borrowers, who are mostly just-turned-18 adults so eager to attend a college they'll sign anything.
  - mseebach 13y ago
    All other things being equal, just like with mortgages and credit cards and car loans and other credit products, there will be different options with different terms available from different providers. Including these guys: http://www.economist.com/news/finance-and-economics/21578670-peer-peer-lending-needs-new-name-end-peer-show http://www.economist.com/news/finance-and-economics/21578670...

xiaoma 13y ago

That's simpler, but worse. Education is a text-book example of a good with positive externalities and it's worth subsidizing, especially for poorer people.

mseebach 13y ago
To an extend yes. Absolutely true up to and including high school, but at some point diminishing returns kick in. The idea that all education at any cost carries positive externalities is exactly what got us into the mess that is education today. Edited to add: Also, my proposal isn't incompatible with neither financial aid nor grants to institutions. But like underpriced mortgages caused a housing bubble, underpriced student loans is causing an education bubble.
- cinquemb 13y ago
  I think it might be the time to buy CDS backed by securities on student loans[0]... Time for me to find some investors and pull my own Kyle Bass :P [0]: http://m.washingtonpost.com/business/economy/sallie-mae-to-split-into-two-companies/2013/05/29/de0eb5c8-c88d-11e2-9f1a-1a7cdee20287_story.html http://m.washingtonpost.com/business/economy/sallie-mae-to-s...
danielweber 13y ago
But almost all of the returns to education are captured by the person receiving the education. How much incentive do you need to provide to someone to increase their own earnings by 50%? If you want to see what happens when a society mindlessly thinks "more kids in more college is better, damn everything else," look at society right now.
- deleted 13y ago
  [deleted]