Fixing student loans: let's give the colleges some skin in the game

Article Highlights

  • Due to the guarantees by the gov't, will #student #loans create something similar to the #housing #bubble ?

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  • Colleges should place some of the risk of loans on themselves before placing them on #taxpayers

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  • "Skin in the game": If the originator retains some #credit risk, we can control excess #debt expansion

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There are provocative parallels between student loans and the mortgages that created the disastrous housing bubble. In both cases, the government promoted plausible goals- higher education and home ownership-to excess, through the overexpansion of debt to levels beyond the repayment ability of a large percentage of borrowers. In both cases, the government guaranteed much of the credit, putting the ultimate risk of bad debts on taxpayers. In both cases, debt expansion drove the price of the object being financed (colleges and houses) to heights sustainable only if debt could always be increasing. In mortgages, it could not, and the subsequent collapse raises the question: will there be a similar outcome with student loans?

Read the full article on American.com

Alex J. Pollock is a resident fellow at AEI

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