Wednesday, April 10, 2019

The Problem of College Debt

This post of Margaret Ball got me thinking on this topic:

Should we provide some relief to those who have large college debt? Not FULL payment for those who attended over-priced universities, but SOME relief for a debt that was undertaken by a person under the age of 21, that is a lifetime debt (cannot be discharged in bankruptcy), and that can even outlast their lifetime (when a student debtor dies, their co-signers inherit that debt).

Let's start thinking about some common-sense reforms:
  • MANDATORY life insurance equal to that debt for the debtor AND any co-signers, that reduces over the life of the loan, and is owed to the lender. That would eliminate, at a very low cost, that possibility of the burden of payback outlasting the debtor's life. It would be quite cheap, as few young people die early.
  • A debt-counseling program for any debtor that looks at their program of study/major and their current job situation, and lays out - in stark terms, just how impossible it will be to pay that loan back, given the best-case salary of that career choice. 
    • Couple that slap in the face with alternative career choices - commission sales, trades jobs, and other possible job changes that could make that debt disappear. If they want to reduce their debt, they need to get with the program, including, if necessary, working an additional part-time job or moving out of a very expensive city.
  • ELIMINATION of loans exceeding the cost of tuition, books, and MINIMAL housing and food. 
    • NO loans that will fund international trips, even for educational purposes. 
    • NO budget that includes putting pizza/beer on the credit card. In fact, one big disqualifier for loans should be student debt - clear it up before applying for a loan - AND close the credit account.
  • No student plan for managing their education should include a car - public transportation only. Yes, I know this is impossible for those students with a family. They need to go to a 2-year college, and pay for it themselves or with grants alone.
  • Any college/university with an endowment cannot accumulate money tax-free if they don't disburse at least 5-10% of it each year in scholarships.
  • No student may borrow more than 1/2 their yearly need - and that includes grant/scholarship monies. This will limit the Ivies to the Elite/Financially Cushioned, but it's better than suckering poor kids into the schools, on the pretense that they will make those lifelong contacts that will pay off hugely. They don't. The Elite hang out together. Those who haven't the money to fund their association are nobodies. The Elite will NOT bring them into an inner circle, simply by virtue of having gone to the same school.
  • MANDATORY college monitoring of student progress. If they make a grade below a C, their student aid is in jeopardy. They have to follow the course of study, including college-level English and Math coursework, at all times.
  • In the future, lenders and colleges will be on the hook for part of the money paid, if the student can't pay. That means, those colleges accepting kids who haven't a prayer of repayment in that field, unprepared for college, or otherwise a poor risk, costs them money. Future loans are only PARTLY guaranteed, lenders and colleges to SHARE 10% of the risk
    • It also means that bankers will take a look at the career plans with an eye to how likely that choice is to pay off, and will likely require regular grade updates as a standard feature of agreeing to lend the money.
What might they get in return for accepting these restrictions?
  • Reduction of interest to that equal to standard savings accounts/CDs. Banks and financial institutions will have to accept this, or lose their ability to issue future government-secured loans. Might this dry up the available market for student loans? I certainly HOPE it reduces it.
  • Tax deduction/tax credit for any extra money paid towards the loans, over the mandatory amount. Yes, this rewards those with extra money, but the goal is to get rid of the debt and allow those people to get on a stable financial basis.
  • All of the above dependent on repayment. If they fall behind, or fail to pay, the cost goes back to what it was before. It's a one-time easing of the situation.
These are just some ideas. I do think that SOME of the borrowers got screwed, and, without help, will not be able to get out from under.

If you still have some concerns about the equity of relieving some of the debt incurred, consider this:

If the same person had, instead, taken out a government-guaranteed business loan, later became unable to pay as agreed, that person COULD get that debt discharged in bankruptcy. 

Let's level the playing field for student debtors, as well as reform the system to make both bankers and colleges take more responsibility for engulfing vulnerable and relatively clueless kids in un-payable debt.


Mark.V. said...

Another way University students could fund their studies is by the University offering the student a free education on condition the student pay the University 20% of their income for five years following graduation. This would incentivize the University to offer courses that enabled the graduate to earn a good income and the graduate would be earning a good income while repaying the University.

John said...

I'd add in the proviso that you could borrow only up to the point where your payment was 10% of your expected first year wage in your major(or less). Colleges will have to provide . . . value!

cmblake6 said...

Outstanding! We're getting some comments! Good post, BTW.