Interesting, but I have to question just how much skin those giving the loans have in the game, given a large and growing part of student loans aren't public and subsidized by taxpayers, but private. And they can't be dropped by bankruptcy.
Up until a few years ago only government education loans were exempt from bankruptcy. I assume private education loans were added to encourage loans... I wonder if the tradeoff was worth it, going by the numbers.
Though in all fairness I say this as someone about to default later today (Saturday) to Sallie Mae because I can't come up with the required amount by noon. Of course, having my wages garnished likely means AES will follow. Yay.
What's the split of student loan debt between public and private universities? In the case of public universities having some 'skin in the game', isn't that still essentially the taxpayers?
Exactly my thought. This is a huge difference compared to mortgages; with mortgages the originator gets perhaps 2%(?) of a good loan but with student loans the "originator" gets a very large share.
The skin in the game effective tells a mortgage originator that if one loan in five goes bad they lose all their revenue(!) but the same message to universities would be that if one loan in five goes bad they have to raise their prices by 2% to compensate.
The comparison with mortgages is fallacious. A mortgage is for a material good which can be repossessed and has an intrinsic value independent of its current owner. An education has neither of those properties. And as has already been mentioned, students loans carry zero risk for the lenders, because the debt cannot be discharged by bankruptcy. One way or another, the lender will get that money back, even if they have to wait for your take your estate when you die.
I agree that the current educational debt levels present sustainability problems... but trying to compare apples to oranges only leads to worse public policy than we already have.
I would propose an equity model instead. If a student can't afford tuition, then he/she can sell a portion of the future earnings to the education provider. This equity stake can be bought out at a fixed price at any time in the future.
"Last month, the US Department of Justice filed a massive lawsuit against the company behind the schools, Education Management Corporation, accusing it of fraudulently collecting $11 billion in government aid by recruiting low-income students for the purpose of collecting student aid money. Whistleblowers claim that students graduate loaded with debt and without the means to pay off the loans, which are then paid for with taxpayer dollars."
Are government guaranteed loans simply a bad idea for student loans? Seems like schools will simply charge as much as the government will guarantee. Why wouldn't they? It's free money!
The problem is the economic game of getting a college org stable.
In the USA that missing budget shortfall that states do not fund for a college is made up by the college raising their prices to students. Considering most state's income taxes are lower than the fed gov's the Fed must have skin in the game by funding ,more of that budget shortfall directly rather than the edu loan charades.
The industry of selling education is ready for disruption by the digital revolution. It happened to many classic business models (book publishers, movie industry, music industry), it will happen to colleges as well. In the coming years, I predict a stronger rise of online education (Bill Gates is already investing a lot of his money into it), and I expect the classic education industry proponents to kick and scream themselves into oblivion. They will not go down without a fight, but it's a battle they lost in advance. It won't happen overnight, but it will happen, it is unstoppable.
I believe the system we have in Australia works decently. The government discounts 10% for those who pay upfront, or you can take out a loan against the government (called HECS). No payments need to be made on this loan until you reach a certain level of income upon which it is taken out as an addition to your taxes. There's also no real interest, as it's set to the inflation rate.
I think so too. Not to mention that in Australia, university fees seem to be a lot lower than in the US. For instance, my four year B. Engineering (Hons) from one of Australia's top five universities will have cost me about $25,000 when I finish it at the end of the year...
I believe the system we have in Australia works decently. The government discounts 10% for those who pay upfront, or you can take out a loan against the government (called HECS). No payments need to be made on this loan until you reach a certain level of income upon which it is taken out as an addition to your taxes. There's also no real interest, as it's set to the inflation rate.
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[ 3.5 ms ] story [ 42.2 ms ] threadUp until a few years ago only government education loans were exempt from bankruptcy. I assume private education loans were added to encourage loans... I wonder if the tradeoff was worth it, going by the numbers.
Though in all fairness I say this as someone about to default later today (Saturday) to Sallie Mae because I can't come up with the required amount by noon. Of course, having my wages garnished likely means AES will follow. Yay.
This would obviously only exacerbate the problem and hasten the fall, but that does appear to be how independent actors work.
The skin in the game effective tells a mortgage originator that if one loan in five goes bad they lose all their revenue(!) but the same message to universities would be that if one loan in five goes bad they have to raise their prices by 2% to compensate.
I agree that the current educational debt levels present sustainability problems... but trying to compare apples to oranges only leads to worse public policy than we already have.
"Last month, the US Department of Justice filed a massive lawsuit against the company behind the schools, Education Management Corporation, accusing it of fraudulently collecting $11 billion in government aid by recruiting low-income students for the purpose of collecting student aid money. Whistleblowers claim that students graduate loaded with debt and without the means to pay off the loans, which are then paid for with taxpayer dollars."
Are government guaranteed loans simply a bad idea for student loans? Seems like schools will simply charge as much as the government will guarantee. Why wouldn't they? It's free money!
In the USA that missing budget shortfall that states do not fund for a college is made up by the college raising their prices to students. Considering most state's income taxes are lower than the fed gov's the Fed must have skin in the game by funding ,more of that budget shortfall directly rather than the edu loan charades.