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?
I guess what I am missing is the mechanism in your idea that would "put the brakes on ever increasing rates of college tuition". Since the college would not be directly involved with the loan, the loan really doesn't seem to effect the college what-so-ever.
Basically, I think that it is a nifty innovative idea, I REALLY like innovative ideas that are origional and thunk up "out of the box". But I don't see that it would solve any problems, and it might create an entirely new set of additional problems as suggested by several posters.
I am highly supportive of government backed student loans. I generally lean to the right on issues concerning special favors for special groups, and on subsidy issues. Basically, if the free market can't support an industry, then that industry probably doesn't need to exist. Student loans however are an exception. The "student loans made directly to the student and secured only by good faith" industry probably wouldn't survive without government guarantees or subsidies of some sort. However those types of loans are one of the most valuable to our society in as far as they tend to even up the playing field for people from a financially disadvantaged background. A lot of bright and capable and deserving young people would not be able to attend college without these loans (including myself). They are reasonably fair in that they are loans which have to be paid pack, so they are much more economical to the taxpayer than need based grants, and a lot more practical for our society than to have bright young minds working low skilled occupations just because their parents were not relatively wealthy.
Student loan(s) is one of the few issues that actually has a rational centrist position. Most concepts only work if you go to a far right or far left extreme, anything in the middle tends to not be very functional. But government guaranteed student loans truely provide for the best of all worlds. The government student loan is not a give-away or freebe, it is something that has to be repaid. It may occasionally have an expense to the taxpayer in that not everyone will repay their loans, but that cost is minimal and quite lower than the cost of government grants, while still providing opportunities and advantages to both the individual and our society as a whole that may not be available otherwise. It's a win-win situation.
Our current system of educational funding worked fairly well when I was a college student. 25 years later I still have student loan debt, but it is minimal and the monthly payments really don't cut into my lifestyle significantly. The value of my education was worth far more than it's cost. But like I said, that was 25 years ago, things may be different now, I am fixing to find out...
My son is a senior in high school, he has just applied for acceptance at 4 colleges. One is a fairly prestigious (and expensive) medium size private university with an excellent program in his area of interest. One is a major state supported university with a large program in his area of interest, but not particularly well known for that program (although it has a different program that it is consistantly rated #1 in the world for). Another is an in-state, lower end academically, fairly large state supported university which does offer a degree suitable to his interest, but it is far from ideal. The fourth college is an out of state, but state supported, fairly large university, not highly ranked academically overall, but it has a reputation for an excellent program in his area of interest.
Which college he goes to will be determined by which ones he will get accepted at (two of them will be slam dunks, one is a "maybe" and one is fairly unlikely), and the bottom line cost after any scholarship/grant money. Personally, I am in the financial situation where he probably can't get any need based grant money, yet I have no money saved for his education because I have burned through what little savings we did have due to recession related financial issues. I can certainly help him out with by paying for the meal plan and some pocket money, I don't know that I can contribute a lot to his tuition or housing, so he will most likely have to rely on student loans for whatever gap may exist between the total bill and whatever he can get as far as scholarships.