I've heard an interesting idea for college loans kicked around a few times, and I was wondering what you guys thought of it.
Currently, the federal government via Sallie Mae provides loans (up to the total cost of attendance) for students to attend vocational schools, community colleges, universities, or professional schools. The students then pay the government back, with interest, after they finish school and get a job.
Instead of doing this, the government could simply takes a percentage of debtors' income for, say, the first ten years after they graduate. The exact percentage would depend on the amount they borrowed. As I see it, this would have several positive effects:
- It would introduce market forces into universities. Is it really fair or economical for an engineering major to pay the same tuition as a sociology major?
- It transfers risk from the individual borrower to the state, in effect creating a large insurance pool for recent college graduates. This, in turn, could increase the number of people pursuing higher education.
- It prevents people from graduating school at age 22 with a 200% (or more) debt-to-income ratio.
- It puts the brakes on the ever-increasing rates of college tuition.
What do you guys think? Would this idea work? What problems do you foresee?