AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (12 comments)

  1. Arthur O. armstrong

    Why limit the college exposure to 20%? In reality the loan is going to the college–make it liable for any default. They can easily pay for the losses by firing a couple administrators, or reducing the Dean’s salary.

  2. EconRob

    Make colleges co-sign. That will fix it.

  3. N-P Jacques

    What if there were only 5 professors who had argued for higher taxes on the wealthy? Would you not spare the university if it had only 5 unrighteous professors?

  4. Add a graduation clause. Colleges get payed for the first year no matter what. They only get a partial payment, say half, for years 2-4 if the student fails to graduate. (similar to the Dutch system).

    1. Very bad idea. College is too easy now, your idea will produce “A” grades for enrolling in the class. No show OK. Makes it easier on everybody. Students can go about their “business” and the faculty can carry very large class loads. See UNC for an example, worked well for their sports teams who graduated students who couldn’t read.

      1. Grade inflation is happening either way. The only push back against it is that the reputation of the College is based on the capabilities of the students who graduate.

  5. LA Grant

    I agree with Arthur O. Fifty percent seems better, in my view. That would help with the inflated cost of living outside of the classroom. Of course I would expect colleges to game the system they own to insure graduation numbers improve, but that won’t help them in the long run. If–as with high schools–graduates are incompetent and can’t earn sufficient income to pay back loans that gaming just increases overall costs and only pushes the eventual default down the road. Either way, colleges get skin in the game.

  6. The first idea is much better and much less complicated: ask colleges to co-sign their student loans. Give government grants only to colleges that (a) cosign for at least 25% of the total amount of all the loans of its students, (b) make decision about co-signing based exclusively on student grades, scores and chosen major.

    That immediately guarantees that the colleges will be very precise calculating which loans make sense as an investment.

  7. curmudgeoninchief

    We need to stop adding laws to fix things that can be more easily and directly fixed by subtracting laws. If we subtract the change to the Bankruptcy Code that makes srudent loans undischargeable, then student loans would be treated just like credit cards, which is pretty much what they are.

    This re-adjustment back to the historical BK Code would make it much less likely that banks and other lenders would make high five-figure loans to 18-21 year olds to use for college. The market would sort out the rest, with shrinking of college administration payrolls being job one. Tuition would crash as well.

    1. Agreed.

    2. I agree that the Bankruptcy Code should be changed. But, since the Federal Government does most of the lending, it would not affect the amount of loans made, nor the ultimate cost of their write-off to the taxpayers. Making the Colleges responsible for the loan (and I see no reason why it should not be 100%) would cause them to think very carefully about who got the loans, and what the chances of repayment are. This would reduce defaults and write-offs .

  8. The Sanity Inspector

    A way must be found to break higher education’s chokehold on entry into a good earning life. The life of mind is becoming an increasingly transparent con, as “college is for everyone” turns college into 13th grade.

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